Annual Report and Form 20-F 2022
Hello.
We are Haleon.
We are a world-leading consumer health company with
a clear purpose
to deliver better everyday health
with humanity.
Our leading brands, built on science, innovation and
deep human understanding, are trusted by millions
of consumers globally.
Packs shown are representative portfolio examples. Packaging will
vary by country for linguistic, legal and regulatory reasons.
Annual Report and Form 20-F 2022
Strategic Report
Haleon at a glance
2
2022 highlights and achievements
4
Chair’s statement
6
Chief Executive Officer’s review
7
Industry overview and
competitive landscape
8
Market drivers
9
Our business model
10
Key performance indicators
12
Stakeholder engagement
14
Our culture and behaviours
16
Our strategy
18
Progress against our strategy
19
Our people
26
Task Force on Climate-related
Financial Disclosures
28
2022 Business review
36
Use of non-IFRS measures
46
Our approach to risk
56
Viability statement
61
Statement of compliance
62
Corporate Governance
Our Board of Directors
64
Our Executive Team
66
Letter from the Chair
68
Governance structure
69
Board activities
70
Audit & Risk Committee Report
74
Nominations & Governance
Committee Report
80
Directors’ Remuneration Report
82
Directors’ Remuneration Policy
86
Annual Report on Remuneration
95
Compliance with the UK Corporate
Governance Code
106
Contents
Our key stakeholders
Governments and
industry regulators
Investors
Suppliers
Health
Professionals
Customers
>>
See page 14
Consolidated Financial Statements
Statement of Directors’
responsibilities
108
Independent Auditor’s UK Report
109
Independent Registered Public
Accounting Firms’ Auditor Reports
120
Consolidated income statement
122
Consolidated statement of
comprehensive income
123
Consolidated balance sheet
124
Consolidated statement of
changes of equity
125
Consolidated cash flow statement
126
Notes to the Consolidated Financial
Statements
127
Parent Company Financial
Statements
Parent Company balance sheet
188
Parent Company statement of
changes in equity
189
Notes to the Parent Company
Financial Statements
190
Other Information
Directors’ Report
196
Group information
201
Shareholder information
219
Exhibits
224
Form 20-F cross-reference guide
226
Forward-looking statements
228
Glossary
229
Useful information
230
Contacts
231
Our approach to reporting
Integrated reporting
In addition to our shares being listed on the London Stock Exchange (LSE),
Haleon is a US foreign private issuer (FPI) with American Depositary Receipts
(ADRs) listed on the New York Stock Exchange (NYSE). We have produced a
combined Annual Report and Form 20-F to ensure consistency of information
to both UK and US investors. This Report contains disclosures required to
meet both regulatory regimes.
The Report also includes non-IFRS measures, which provide investors and
other stakeholders with important additional information about the
Company’s performance. Where used, they are indicated.
External websites/reports that are referred to in this Report are not incorporated into
and do not form part of this Report.
>>
Relevant policies are available on our website
www.haleon.com
Employees
Consumers
Our cover
Thank you to our featured Haleon
employees: Sophie, Stephanie,
Bongue, Jose and Adefunke.
Haleon
Annual Report and Form 20-F 2022
1
Strategic Report
Corporate Governance
Financial Statements
Other Information
Contents
2022 revenue
Regional footprint
North America
38%
EMEA & LatAm
39%
APAC
23%
Developed
markets
67%
Emerging
markets
33%
Haleon at a glance
Haleon has a strong portfolio of brands and is well positioned
to play a vital role for people all around the world, in a sector
that is growing and more relevant than ever.
Growth ambitions
Our aim is to deliver strong
performance and attractive
returns, underpinned by a
commitment to maintaining
a strong investment grade
balance sheet.
>>
See pages 10 and 11.
4-6
%
annual organic
revenue growth
1
Sustainable
moderate margin
expansion
1
High cash
conversion
1
Disciplined
capital allocation
Competitive
capabilities
We use technical and
scientific talent, combined
with data-driven consumer
insights and expert
engagement.
>>
See page 10
Strategy to
outperform
Our strategy is designed
to leverage our portfolio
and capabilities and has
four key pillars.
>>
See page 18
How we achieve
our growth
ambitions
We aim to outperform our competitors
with a strategy focused on driving sustainable
above-market growth and attractive returns,
leveraging our portfolio and capabilities.
Our strength is in our world-class portfolio of
brands, our attractive geographic footprint, and
our competitive capabilities of deep human
understanding and trusted science.
Our nine large-scale,
multinational Power
Brands are complemented
by a strong set of 23
Local Growth Brands,
which are iconic in
their own markets.
>>
See page 11
Attractive geographic
footprint
1
Increase household
penetration
2
Capitalise on new
and emerging
opportunities
3
Maintain strong
execution and
financial discipline
4
Run a responsible
business
Combination
of deep human
understanding
and trusted
science.
Strong brand
building,
innovation
and digital
capabilities
combined
with a leading
route-to-market.
We have leading positions
in five global market
categories: Oral Health;
Vitamins, Minerals and
Supplements (VMS);
Pain Relief; Respiratory
Health; and Digestive
Health and Other.
World-class portfolio
Consumer healthcare:
A £160bn+ market
The global consumer
healthcare market is
one of the largest, most
resilient and fastest-
growing across the
consumer staples sector.
1
Definitions and calculations of non-IFRS measures can be found on page 46.
>>
See page 3
>>
See page 8
Haleon
Annual Report and Form 20-F 2022
2
Strategic Report
Our leading brands span five market categories.
Market categories
2022 Revenue
Example brands
Oral Health
As one of the world’s largest providers
of oral health, our science-based
products are designed to fight against
everyday oral health problems.
27
%
Vitamins, Minerals and
Supplements (VMS)
Our extensive range of vitamins,
minerals and supplements is designed
to improve people’s everyday health
and wellness.
15
%
These three categories are collectively known as:
Over-the-Counter (OTC)
Pain Relief
We have a portfolio of leading
brands to relieve pain and reduce
inflammation, helping people
manage their everyday pain.
24
%
Respiratory Health
Our respiratory health brands offer
product solutions for a broad range
of respiratory issues, including cold
and flu, nasal congestion, coughs
and allergies.
15
%
Digestive Health and Other
Our digestive health brands have a
strong heritage in treating heartburn
and gastric discomfort. Our product
offerings in this category also include
skin health and smokers’ health.
19
%
58
%
Haleon
Annual Report and Form 20-F 2022
3
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon at a glance
2022 highlights and achievements
1
Non-IFRS measures
We use certain non-IFRS alternative performance measures to provide
additional information about the Company’s performance. Non-IFRS measures
may be considered in addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS.
>>
Non-IFRS measures are defined and reconciled to the nearest IFRS measure on page 46
Revenue
Revenue growth
Organic revenue growth
1
£
10.9
bn
13.8
%
9.0
%
(2021: £9.5bn)
(2021: (3.5)%)
(2021: 3.8%)
Operating profit
Adjusted operating profit
1
£
1.8
bn
£
2.5
bn
(2021: £1.6bn)
(2021: £2.2bn)
Operating profit margin
Adjusted operating
profit margin
1
16.8
%
22.8
%
(2021: 17.2%)
(2021: 22.8%)
Diluted earnings
per share
Adjusted diluted earnings
per share
1
Final dividend per ordinary share
11.5
p
18.4
p
2.4
p
(2021: 15.1p)
(2021: 17.9p)
Net cash inflow from operating
activities
Free cash flow
1
Net debt/Adjusted EBITDA
1
£
2.1
bn
£
1.6
bn
3.6
x
(2021: £1.4bn)
(2021: £1.2bn)
(as at 31 December 2022)
Haleon
Annual Report and Form 20-F 2022
4
Strategic Report
Hello Haleon
On 18 July 2022, Haleon listed as an independent company
on the London and New York stock exchanges.
The biggest UK listing in a decade, this milestone was the
result of considerable effort, planning and collaboration
by our dedicated employees around the world.
Launched
Global Parental
Leave Policy
We announced fully paid
26-week equal parental leave
for all permanent employees
globally regardless of
gender or sexuality, covering
biological birth, surrogacy
and adoption.
>>
See page 27
Solar energy
powered sites
We invested c.£9m in a
solar farm for Guayama,
Puerto Rico. In addition, we
set up a Power Purchase
Agreement for Oak Hill, US.
We now have installed
solar energy capacity at
12 of our 24 sites.
>>
See page 24
Successful innovation
52
product launches including
new products, line extensions
and upgrades.
>>
See page 19
Enhanced
product
accessibility
In collaboration with
Microsoft Corp., we made
Haleon products more
accessible for blind and
visually impaired consumers
in the UK and the US through
the Microsoft Seeing AI app.
>>
See page 23
Increased channel penetration
9
%
of total sales from e-commerce.
>>
See page 20
Strong growth
2
/
3
business gained or maintained share.
Note: Market share statements throughout this
Annual Report and Form 20-F are estimates based
on the Group’s analysis of third-party market data of
revenue for 2022, including IQVIA, IRI and Nielsen
data. Represents percentage of brand-market
combinations gaining or maintaining share (this
analysis covers > 85% of Haleon’s total revenue).
>>
See page 12
Commitment
to health
inclusivity
We supported the launch
of the world’s first global
benchmark for measuring
health inclusivity, published
in October 2022 by
Economist Impact.
>>
See page 23
Haleon
Annual Report and Form 20-F 2022
5
Strategic Report
Corporate Governance
Financial Statements
Other Information
2022 highlights and achievements
Chair’s statement
In July 2022, Haleon successfully
demerged from GSK plc, completing a
multi-year journey to establish a world-
leading, standalone global consumer
health company. I’m honoured to serve
as Haleon’s first Chair and, along with
the newly established Board, am
committed to ensuring we deliver
superior value for all our stakeholders.
A compelling investment
proposition
Haleon is an impressive business,
with a clear strategy to drive sustainable
above-market growth and attractive
shareholder returns. Our ability to deliver
consistently strong performance is driven
by deep consumer understanding and
investment in trusted science, coupled
with strong operational focus and
financial discipline.
Over the medium-term, the Board is
confident that Haleon can deliver annual
organic revenue growth of 4-6% while
achieving sustainable moderate Adjusted
operating margin expansion (at constant
currency) and strong cash generation.
We expect to reduce net debt/Adjusted
EBITDA down to less than 3x during 2024.
An experienced Board
One of my priorities as Designate Chair
ahead of the demerger was to appoint
Haleon’s first Board of Directors and I’m
delighted with the strength and calibre
of the exceptionally talented and diverse
Board we now have in place. Together,
we have over 250 years of executive
experience across c.30 listed companies,
and over 70 years of non-executive
experience across c.20 listed companies.
We have two Pfizer Inc. non-independent
board members, Bryan Supran and David
Denton (who replaced John Young from
1 March 2023) and, with the appointment
of Marie-Anne Aymerich and Asmita
Dubey to our Board, introduced two
new non-executive directors to the FTSE.
Alongside significant experience in
governance and the global consumer
sector, in selecting the Board we looked
for specific skills to support and
constructively challenge the Executive
Team. This included a mix of skills across
capital markets, digital, innovation and
brand building in a Fast Moving Consumer
Goods (FMCG) context, as well as first-
hand experience of operating in the US,
China, Asia and Europe.
>>
See the skill set and diversity of our Board
on page 64.
Building robust corporate
governance
The Board is committed to ensuring
that Haleon continues to build robust
corporate governance. We have taken
some important initial steps to achieve
this. First, each member of the newly
formed Board undertook a comprehensive
induction on being appointed. As well as
a deep-dive into Haleon, its strategy and
operating model, the induction covered
directors’ duties, regulations, and Haleon’s
Code of Conduct, which all members of
the Board are subject to.
Secondly, we established the necessary
Board committees ahead of demerger,
in accordance with the UK Corporate
Governance Code.
Finally, we ensured that Haleon’s internal
and external operational governance
links directly to Board-level governance,
enabling rapid escalation and visibility.
This includes a focus on key performance
indicators, principal risks and quality
requirements, internal employee training
and the use of responsibility scorecards
to promote the right behaviours.
>>
See our Corporate Governance Report
from page 63.
Priorities for 2023 and beyond
In what will be our first full calendar year
as a standalone business, the Board’s
agenda will focus on three key areas:
—
Constructively supporting and
challenging the Executive Team to
allow for the successful delivery
of Haleon’s strategy.
—
Continuing to embed the new
Haleon corporate capabilities.
—
Shaping Haleon’s medium- and
long-term strategic vision as we look
to solidify Haleon’s position as a
leading consumer health company.
In addition, the Board will continue to
have a relentless focus on instilling best
practice corporate governance and
providing guidance to the Executive
Team as they navigate the uncertain
macroeconomic environment.
Dividend
Consistent with our previous guidance,
the Board has declared a final full year
2022 dividend of 2.4p per ordinary share,
which represents approximately 30% of
Adjusted earnings for the period since
listing. In line with our capital allocation
priorities to invest for growth, strengthen
the balance sheet, explore acquisitions
and return surplus capital to shareholders,
our current intention is to maintain our
pay-out ratio around the current level,
subject to Board approval.
Thank you
Finally, the Board would like to thank
Brian McNamara, the Executive Team
and all employees across the company for
their hard work over the last 12 months.
A demerger is a significant undertaking
and Haleon has executed it successfully,
steering through the challenges we have
all felt across the world whilst delivering
consistently strong results.
I’m pleased to present Haleon’s first
Annual Report and Form 20-F
Sir Dave Lewis
Chair
Haleon
Annual Report and Form 20-F 2022
6
Strategic Report
It has been an extraordinary 12 months
for Haleon. We created our own identity,
demerged from GSK plc, listed on the
London and New York stock exchanges and
began trading as one of the world’s largest
standalone consumer health companies.
It was a time to reflect with pride on
the business that we have carefully
and purposefully built over many years.
For me, it was also a personal highlight
of my 18-year career in this industry,
the last five leading this business.
It is a testament to the transformational
work we undertook that Haleon now has
strong foundations and an exceptional
portfolio of brands, built around deep
human understanding, trusted science and
innovation, all of which we are confident
will help create value for our stakeholders.
With a strong purpose of delivering better
everyday health with humanity at our core,
Haleon is primed and ready for the next
stage of its remarkable journey.
Our Executive Team
I’m proud to lead an Executive Team that
brings a wealth of relevant experience in
consumer health and FMCG from some of
the world’s leading companies.
Our collective strength, relentless focus on
growth and insight into the trends shaping
the consumer landscape will be key drivers
of our performance and ability to deliver
on our purpose.
Strong performance against a
challenging backdrop
In what continues to be a challenging
macroeconomic environment, Haleon has
shown its strength. For 2022, we reported
strong revenue growth of 13.8% and
organic revenue growth of 9.0%, driven by
a combination of volume and price growth.
This reflected the quality of our portfolio,
successful innovation and excellent
execution in market.
High inflation and increased living costs
mean our consumers continue to face
difficult decisions. Against this backdrop,
Haleon has demonstrated agility; taking
decisive action to adapt across our
markets and categories, to ensure
consumers can rely on the products
they know and trust.
In 2023 and beyond, our unrelenting focus
will remain on delivering great products
and innovations that have real impact
for consumers.
Delivering our growth ambitions
We remain focused on delivering our
medium-term guidance of 4-6% annual
organic revenue growth and are committed
to our capital allocation priorities. 2023
will be no exception, driven by the quality
of our brand portfolio, continued
investment in our brands, and disciplined
execution of our strategy to:
—
Increase household penetration
of our products.
—
Capitalise on new and emerging
opportunities across channels and
geographies, and expanding our portfolio.
—
Maintain a strong focus on both
execution and financial discipline.
—
Run a responsible business.
Haleon has leading positions in each of
its five categories (see page 3). Our strong
relationships with stakeholders, including
consumers, customers, and Health
Professionals, means we can capitalise on
the opportunity ahead, which includes a
growing global focus on health and
wellness, an ageing population, an
emerging middle class and sizeable
unmet consumer needs as public
health authorities face increasing
pressure (see page 9).
Our impact
As a leading global player in consumer
health, we are well positioned to
recognise and understand the social
and environmental barriers that hold
people back from achieving better
everyday health, and to empower and
support them to take charge of their
health and wellbeing. This lies behind
our commitment to make everyday
health more inclusive.
Working together with other organisations,
we are also focused on reducing our
environmental impact and doing business
responsibly. Our commitments and goals
in this area (see pages 22 to 25), drive us to
not only meet the everyday health needs
of people in new and better ways, but to
develop innovations that are meaningful,
relevant and impactful.
Evolution into an agile consumer
health organisation
Looking ahead to the next phase of
Haleon’s journey, the Executive Team is
more excited than ever about our future.
As we worked towards our demerger
from GSK, our focus was rightly on
ensuring continuity for the business.
Now fully running as an independent
company, we will be taking advantages
of opportunities to evolve and drive a
more agile, productive and effective
organisation. This includes:
—
Increasing agility and productivity:
We have identified opportunities
to optimise existing processes and
structures to become more agile.
This will result in annualised gross
cost savings of £300m over the next
three years.
—
Driving growth across our portfolio of
brands and structural growth categories:
We will invest behind identified
opportunities and will be proactive in
managing our portfolio. At the same
time, we will be rigorous and disciplined
where there are opportunities for
bolt-on acquisitions and divestments.
Thank you
Our achievements in 2022 would not have
been possible without the dedication and
commitment of all our employees globally.
Throughout the demerger and beyond,
their focus on delivering for customers and
consumers was unwavering, and for that
I offer my sincere thanks. I also want to
personally thank our Chair, Sir Dave Lewis,
and the Board for their invaluable support
during Haleon’s first year as a standalone
company and for recognising its potential.
Chief Executive Officer’s review
A milestone year
Brian McNamara
Chief Executive Officer
Haleon
Annual Report and Form 20-F 2022
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Strategic Report
Corporate Governance
Financial Statements
Other Information
Chief Executive Officer’s review
Consumer healthcare market 2017-2021 (£bn)
0
20
40
60
80
100
120
140
160
180
OTC
(inc. Pain Relief,
Respiratory Health,
Digestive Health and Other)
VMS
Oral Health
Source: Group analysis of
third party market data
2017
2018
2019
2020
2021
Haleon
6%
J&J
4%
Bayer
3%
Sanofi
3%
Reckitt
2%
P&G
2%
Global consumer health
(retail value share 2021)
Amway
2%
Nestlé
1%
By-health
1%
Herbalife
1%
Private Label
6%
Others
69%
Source: Euromonitor
GSK ownership
The global consumer healthcare market is one of the largest, most
resilient and fastest-growing segments across the consumer staples
space, reaching £160bn+ in global value in 2022.
The definition of consumer healthcare
varies across competitors and industry
data sources. We define it as consisting
of Oral Health, VMS and Over-the-Counter
(OTC). The US is the largest market
making up c.27% of the total market
with emerging markets, notably China
and India, presenting attractive
penetration opportunities.
The market is fragmented and highly
competitive. Brands differentiate through
scientific claims, innovation, premiumisation
and distinguished branding.
The OTC category is distinct, defined
primarily by its regulatory status.
OTC medicines are available in retail
distribution channels (including
pharmacies) without prescription.
OTC comprises several categories
defined by specific consumer needs
with competition at category level.
This includes, amongst others,
respiratory health, pain relief, digestive,
skin and smokers’ health. Respiratory
Health is Haleon’s only category typically
driven by seasonal demand, which has
been impacted by COVID-19.
Haleon is the result of the combination of
three consumer health businesses over the
last decade. The focus of the business has
been sharpened through divestment of
growth-dilutive brands and those outside
of our core categories. In addition, the
scientific and consumer products
experience of its legacy businesses has
been enhanced by investment in
Industry overview and competitive landscape
Formation of Haleon
commercial and scientific capabilities,
technologies and facilities, most notably in
the digital sphere.
In July 2022, Haleon demerged from GSK
creating a company with management,
infrastructure, capital allocation and
incentives focused specifically on
consumer health.
The Group has a strong and established
presence in all key channels relevant
for consumer health and a scale which
allows it to effectively engage with retail
partners of all sizes, buying groups,
distributors, pharmacy chains and
individual pharmacies.
>>
See page 201.
2012
Exit of non-strategic
OTC
2013
Divest
Exit of beverages
2015
Joint Venture
Formation:
Novartis
Consumer
Healthcare
2018
Full buyout
of Novartis
from JV
Joint Venture
Formation:
Pfizer Consumer
Healthcare
2020
Exit of non-
strategic
categories
to Unilever
Demerger from GSK and
independent listing
2019
2021
2022
Significant divestment programme
Disposal of 50 non-strategic
growth-dilutive assets
Haleon
Annual Report and Form 20-F 2022
8
Strategic Report
Increased
consumer
focus on health
and wellness
The pandemic accelerated an already increasing trend of consumers actively managing their personal healthcare.
Recent customer research found that 42% of consumers try to make wellness a priority in their day-to-day life, and
79% think wellness is important. 71% of those consumers place a higher priority on their health than they did two to
three years ago, and 70% anticipate health growing in their list of priorities
1
. This represents an important driver in
the growth of self-care and underpins favourable trends for the sector.
Ageing
populations
The proportion of people aged 65 years and over is expected to increase from 9.3% of the global population in
2020 to 16%, or approximately one in six people globally, in 2050
2
. This change in demographics brings with it
increased need for self-care and preventative care.
Emerging
middle class
The emerging middle class in higher-growth economies has been a long-term growth driver for the consumer
healthcare market as greater buying power has led to greater per capita usage. Emerging and higher-growth
economies continue to represent a sizeable growth opportunity for the industry.
Increasing
pressure on
public health
systems
Pressures on public health had already been rising before COVID-19. In the US, every $1 spent on OTC saves $7
for a total of >$100bn on the public healthcare systems
3
. In 2018, global spending on health reached $8.3 trillion,
growing slightly below GDP for the first time in five years
4
. COVID-19 has had a significant adverse impact on health
systems globally, and the aftermath of the pandemic may be accompanied by a potentially deep global economic
crisis which could have a long-lasting impact on future health financing
4
. OTC products in particular provide
affordable and accessible healthcare options for consumers and lowers the overall costs to health systems.
Sizeable unmet
consumer
needs
Competition in the consumer healthcare market is partly driven by innovation designed to meet unmet consumer
needs. There is opportunity for further growth through targeted innovation to address emerging trends as well as
premiumisation (where consumers switch their purchases to premium alternatives), increased consumer interest in
personalised products, and emerging technologies that allow consumers to more directly manage their own health.
Our strategy is built around addressing
these key drivers. It aims to meet the
growing demand for self-care and
recognises the opportunity to serve the
unmet needs of consumers. We do this by
increasing condition awareness, building
brand relevance, innovation and
capitalising on new trends.
By raising condition awareness among
consumers, we can empower them to stay
well or treat their symptoms and help to
reduce demand on public healthcare.
Our deep human understanding helps
us to encourage people to change their
health behaviours through campaigns and
activations. This requires understanding of
the person beyond the condition and into
how they live their lives. Voltaren’s ‘More
Than Movement’ campaign illustrates how
Understanding the multiple influences on our business
enables us to be prepared for and respond quickly to
change, and to create value for the long-term.
Market drivers
Long-term market drivers indicate
a shift towards more self-care with
consumers taking a more active role
in their health, supported by advances
in digital technologies.
At the same time, ageing populations and
the rising cost of healthcare are putting
pressure on health systems.
The macroeconomic environment remains
volatile, including pressures from Russia’s
How we are responding
invasion of Ukraine. This has resulted
in inflation, commodity and input cost
increases, as well as the cost of living,
and disrupted supply chains.
we inspire people to a better quality
of life by connecting them to the joys of
movement. We also work with Health
Professionals to support consumers with
everyday health needs, providing tools
and insights for trusted advice and raising
condition awareness.
Using our competitive capabilities, we
build brand relevance and innovations
that extend our brands across different
need states and formats. For example,
parodontax Gum+ paste was created to
support the 47% of people with gum
problems who also experience sensitivity
and breath concerns; and Flonase
Headache & Allergy Relief was formulated
when we identified that 52% of allergy
sufferers also experience headaches.
Driven by our purpose, we have set a goal
for health inclusivity and identified a range
of programmes to achieve this focusing on
the barriers we are best placed to address:
health literacy, healthcare accessibility and
bias and prejudice.
In response to macroeconomic conditions,
we continue to mitigate inflationary cost
pressures with initiatives such as early
forward buying, value engineering and
supply chain improvements. We also
remain focused on balancing price and
volume with net revenue management
and cost and cash management.
>>
See also our strategy from page 18 and
approach to risk from page 56.
1
Source: McKinsey & Company, The Future of Wellness H1 2021 Report. Based on consumer research in Brazil, China, Germany, Japan, the US and the UK.
2
Source: UN Population Facts, October 2020.
3
Source: Consumer Healthcare Products Association 2022.
4
Source: WHO, 2020.
Haleon
Annual Report and Form 20-F 2022
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Strategic Report
Corporate Governance
Financial Statements
Other Information
Market drivers
Sustainable
moderate
margin
2,3
expansion
High cash
conversion
Invest
for growth
Explore
acquisitions
Return surplus
capital to
shareholders
Strengthen
balance sheet
H
i
g
h
g
r
o
s
s
m
a
r
g
i
n
a
n
d
c
o
s
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i
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c
i
p
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e
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c
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e
a
s
i
n
g
i
n
v
e
s
t
m
e
n
t
i
n
A
&
P
a
n
d
i
n
n
o
v
a
t
i
o
n
r
e
v
e
n
u
e
g
r
o
w
t
h
1,
3
4
-
6
%
a
n
n
u
a
l
o
r
g
a
n
i
c
Our business model
Haleon’s competitive advantage is derived from combining
deep human understanding with trusted science.
A combination of:
Deep human understanding
We invest in a suite of proprietary assets to
generate deep human understanding to support
brand innovation and enhance our engagement with
Health Professionals to help educate consumers.
This includes dedicated shopper research centres,
consumer knowledge and social listening, all designed
to generate and test new insights and identify
consumer needs.
Trusted science
We leverage our technical and scientific expertise that
comes from our 1,400 talented scientists with strong
regulatory understanding. All underpinned by clinical
trials and extensive studies. We continue to invest
in R&D to support our innovation. In the last three
years, we have delivered more than 19,000
regulatory approvals.
Innovate
Through innovation, we address
unmet consumer needs and
emerging trends, target products
towards a particular demographic
and improve delivery mechanisms
for existing products.
Create meaningful and
distinctive brands
Our investment in Advertising and
Promotion (A&P) activities such as
paid media, in-store promotions, TV
and print, coupled with a strong focus
on digital capabilities has enhanced our
brand equity with brands consumers
trust, thereby empowering more
people to self-care.
Drive Health
Professional advocacy
We have direct and trusted
relationships with more than three
million Health Professionals, together
with the largest network of pharmacies
in the world who recognise the strength
and efficacy of our products which they
recommend to consumers, bringing new
users to our brands and categories.
Enables us to:
A sustainable model driving investment
for growth delivering attractive returns
1
Over the medium term.
2
Adjusted operating margin in the medium term at CER.
3
Definitions and calculations of non-IFRS measures can be found from page 46.
Haleon
Annual Report and Form 20-F 2022
10
Strategic Report
Oral Health
£2.9bn
27%
VMS
£1.7bn
15%
Pain Relief
£2.6bn
24%
Respiratory Health
£1.6bn
15%
Digestive Health and Other £2.1bn
19%
By market category
By geography
North America
£4.1bn
38%
EMEA & LatAm
£4.3bn
39%
APAC
£2.5bn
23%
How we used our cash
Reinvest in business
Focused reinvestment to drive
sustainable growth.
Net capital
expenditure:
£
292
m
1
(2.7% of revenue)
Dividend
Haleon has a dividend policy that
looks to balance all our stakeholders’
interests while ensuring the long-term
success of Haleon. The Board has
declared a final full year 2022 dividend
of 2.4p representing approximately
30% of Adjusted earnings for the
period since listing.
Pay down of debt
Following demerger, we repaid
our £1.5bn term loan through a
combination of operational cash flow
and £0.3bn of commercial paper
issuance. We finished the year with
leverage of 3.6x net debt/Adjusted
EBITDA (c.4.0x at point of demerger
in July 2022).
Revenue
Consumers have confidence in our world-class portfolio of
brands designed to improve everyday health and wellbeing.
£
10.9
bn
(2021: £9.5bn)
How we invest for the future and deliver
value to our shareholders.
Adjusted operating profit
1
Adjusted operating profit margin
1
Net cash inflow from operating activities
Free cash flow
1
Adjusted cost of sales
1
Consisting of materials, conversion costs,
costs related to quality operations,
operating in a Good Manufacturing
Practice (GMP) environment along
with supply chain costs.
£
4.1
bn
(2021: £3.5bn)
Adjusted gross profit
1
£
6.8
bn
(2021: £6.0bn)
Adjusted gross margin
1
62.4
%
(2021: 62.9%)
Advertising & Promotion
(A&P)
18.7
% of revenue
Adjusted Research & Development
(R&D)
1
2.8
% of revenue
Adjusted selling, general & administration
(SG&A)
1
, (excluding A&P)
18.1
% of revenue
£
2.5
bn
22.8
%
£
2.1
bn
£
1.6
bn
1
Definitions and calculations of non-IFRS measures can be found from pages 46.
>>
See Business review from page 36 and Our approach to risk from page 56.
(2021: £2.2bn)
(2021: 22.8%)
(2021: £1.4bn)
(2021: £1.2bn)
Haleon
Annual Report and Form 20-F 2022
11
Strategic Report
Corporate Governance
Financial Statements
Other Information
Our business model
Adjusted operating profit
1
2020
£2.1bn
£2.2bn
£2.5bn
2021
2022
1
2
3
Free cash flow
1
2020
£2.0bn
£1.2bn
£1.6bn
2021
2022
3
Organic revenue growth
%
1
2020
2.8%
2
3.8%
2
9.0%
2021
2022
1
2
3
Our KPIs track and measure our
performance, delivery against our
strategic pillars and long-term success.
A note on our KPIs
As a new company, we only have three years of data available for our
KPIs derived directly from our financial statements. For all other KPIs,
we will gradually build up to provide three years of data over time.
Key performance indicators
(KPIs)
Financial
This measures the strength of our
existing portfolio, operations and
resources.
The ability to meet our expectation to
deliver medium-term annual organic
revenue growth of 4-6%, that provides
capacity for continued investment for
growth, is a focus for all our stakeholders.
2023 priorities
Delivery on our 4-6% guidance.
>>
See pages 38-44.
Our Adjusted operating profit is an
important indicator of the strength
of our business model.
Used by leadership to assess
performance, understand the underlying
trends in profitability, and is of interest
to our investors.
2023 priorities
Another year of profitable growth,
maintaining broadly flat Adjusted operating
profit margin with operating leverage and
efficiencies offsetting increased
investment, cost inflation and c.40 bps
adverse transactional foreign exchange
impact based on current market rates.
4
>>
See page 38.
Free cash flow provides the business with
capacity to invest in the business, pay
down debt and shareholder returns.
This is a key component in measuring the
viability of our business, and our capacity
to invest for the long-term. It is of interest
to all our stakeholders, particularly
investors.
2023 priorities
Continue to focus on driving free cash
flow through a combination of working
capital management and creating
efficiencies across the business.
>>
See page 54.
Reducing our leverage strengthens our
balance sheet and maintains our
investment grade credit rating.
Since demerger, Haleon has repaid £1.5bn
of its term loan through a combination of
strong cash flow, disciplined capital
allocation and commercial paper issuance.
This impacts all our stakeholders.
2023 priorities
We aim to achieve less than 3x net debt/
Adjusted EBITDA during 2024
3
through
strong cash generation, Adjusted EBITDA
growth and disciplined capital allocation.
>>
See page 45.
3.6
x
(at 31 December 2022)
Key
Annual Incentive Plan
Performance Share Plan
>>
See the Directors Remuneration Report
from page 82.
>>
See also Forward-looking statements
on page 228.
How we determined our KPIs
Organised around our strategy,
the measures included are those
considered most relevant in tracking
our performance and commitment to
our key stakeholders. The Board and
Executive Team review and endorse
our KPIs annually to ensure continued
alignment to our strategy and regularly
monitor them as part of internal
reporting. We also link our KPIs to our
Executive Directors’ remuneration.
Strategic pillars
Increasing household penetration
New and emerging opportunities
3
Strong execution and financial discipline
4
Responsible business
1
2
Net debt/Adjusted EBITDA
1
3
This is based on the Group’s analysis
of third-party market data of revenue,
including IQVIA, IRI and Nielsen data.
The attractiveness of Haleon products is
key for all our stakeholders, particularly
consumers, customers, suppliers and
investors, giving them confidence in our
ability to increase household penetration
and find emerging opportunities.
2023 priorities
Continue to drive market share gains
through brand building, innovation and
increased investment in A&P and R&D.
>>
See from page 18.
2
/
3
Business gained or
maintained share
1
2
Haleon
Annual Report and Form 20-F 2022
12
Strategic Report
Performance Share Plan
50% linked to
net debt/Adjusted
EBITDA
50% linked
to cumulative
free cash flow
Annual Incentive Plan
60% linked
to organic
revenue growth
20% linked
to adjusted
operating profit
20% linked
to individual
business
objectives
1
Organic revenue growth, Adjusted operating profit,
free cash flow and net debt are non-IFRS measures.
Definitions and calculations of non-IFRS measures can
be found from page 46.
2
Haleon portfolio revenue growth in 2020 and 2021
was 4.9% and 3.9% respectively which illustrates
the performance of the brands that make up the
portfolio at the time of the demerger.
3
In February 2022, Haleon expected to reach leverage
of <3x net debt/Adjusted EBITDA by the end of 2024
(as presented at its Capital Markets Day).
4
Based on rates as of 10 February 2023.
5
Reporting period runs from 1 December 2021 to
30 November 2022. Carbon offsets account for 15%
of our market based Scope 1 and 2 carbon emissions.
6
Reporting period runs from 1 July 2021 to 30 June 2022.
7
Leadership roles is defined in our glossary.
Responsible business
41
%
This represents the reduction in our net
Scope 1 and 2 carbon emissions against
our 2020 baseline.
Reducing carbon emissions is a focus area
for all our stakeholder groups, including
consumers, investors, governments and
industry regulators. Decarbonising our
operations is a key priority for Haleon.
2023 priorities
We aim to reduce our net Scope 1 and 2
carbon emissions by 100%, by 2030
versus our 2020 baseline. Having
achieved 100% renewable electricity
(across our directly owned and controlled
sites), we are now focused on addressing
our remaining Scope 1 carbon emissions.
>>
See page 24.
65
%
This represents the proportion
of Haleon’s packaging that is
recycle-ready.
We recognise that recycle-ready
packaging is an important priority for all
stakeholder groups, with increasing focus
from consumers, customers and investors,
as well as employees. We are committed
to playing our part to accelerate the
transition to a circular economy.
2023 priorities
We aim to develop recycle-ready
solutions for all product packaging by
2025, a key milestone towards our goal
of making all our packaging recyclable
or reusable.
>>
See page 24.
Percentage of women in employee or
fixed-term contract leadership roles
7
.
We want our employees to reflect the
diversity of the communities and society
around us, and believe diversity is a
source of competitive advantage and an
important consideration for employees
and investors.
2023 priorities
Our aim is to achieve gender parity
globally by 2030 (48-52%). Gender goals
are aligned to individual incentives, and
Long Term Incentive payouts.
>>
See page 27.
43.7
%
Percentage of employees who feel
that Haleon is fulfilling its core index
measures in the 2022 Employee
Engagement Survey.
We want our employees to be proud to
work at Haleon, feel inspired, challenged,
supported, and have a sense of personal
accomplishment. These form our core
index measures.
2023 priorities
Our immediate focus is to address the
areas identified in our 2022 survey where
we can improve, including simplifying our
work processes to support our strategy.
>>
See page 27.
Employee engagement
80
%
Link between KPIs and
Executive Director
remuneration
Measures included are those
considered most relevant in assessing
business performance and relate to
our commitments to our stakeholders.
To that end, elements of executive
director remuneration are linked to
the delivery of specific KPIs.
ESG qualifier
The Performance Share Plan has an
ESG qualifier with thresholds set for
three measures. If any of the thresholds
are missed, a reduction in the level of
vesting of up to 10% could be applied
for each missed threshold. Moreover if
the metrics are static or go backwards
compared to the baseline, a 25%
reduction in the level of vesting
could be applied for each measure
(i.e. a potential overall reduction of
up to 75%).
Carbon reduction
5
4
Gender diversity
4
4
Recycle-ready packaging
6
4
Haleon
Annual Report and Form 20-F 2022
13
Strategic Report
Corporate Governance
Financial Statements
Other Information
Key performance indicators (KPIs)
Our key
stakeholders
Stakeholder engagement
Engaging with and understanding our key
stakeholders and their priorities is fundamental
to the performance and success of our strategy.
Customers
Customers want safe, accessible
and reliable products that meet
consumer needs, and support
their environmental ambitions.
Customers, such as mass market,
pharmacies, drug stores and
e-commerce retailers, are central
to our business as they provide
our products to consumers.
Employees
Our employees value being
part of a purpose-led
company that provides a
rewarding, safe, supportive
and inclusive workplace.
Our employees ensure our business
operates effectively. It’s essential
we attract and retain the best
people, and keep each other safe,
healthy and well.
Governments and industry
regulators
Effective, safe and accessible
products help reduce the burden
of healthcare costs and increase
opportunities for innovation and
business investment.
Governments and industry
regulators set the legal and
regulatory environment in which
we operate. We work with them
to advance everyday health and
manage risks.
Health Professionals
Health Professionals want
effective and safe products
supported by reliable scientific
information and responsible
sales and marketing practices.
Engagement with Health
Professionals, such as doctors,
dentists and pharmacists
drives, performance through
recommendations and help us
understand long-term trends.
Investors
Investors want sustainable
performance for long-term
shareholder value, strong
corporate governance and
commitment to the management
of responsible business issues.
We are committed to creating
long-term sustainable growth
and attractive returns for both
our debt and equity investors
delivered through the
Group’s strategy.
Suppliers
Suppliers value trust-based
relationships, underpinned by
responsible practices, values
and policies.
Maintaining healthy long-term
relationships with our
suppliers helps us protect
business continuity and
achieve our environmental
ambitions.
Consumers
Consumers want brands they
trust, that understand their
needs and care about the
environment and society.
Consumers are at the heart of
everything we do. We aim to
provide products that better
meet their needs.
We value engagement with key
stakeholders, who were selected by
the Executive Team and endorsed by the
Board to reflect our strategic priorities
and their importance to Haleon’s
long-term success.
Engagement is primarily at senior
leadership and operational level, with
oversight from the Board. At times
members of the Board engage with
stakeholders directly, including
investors and customers.
This section should be read in conjunction
with our Section 172 Statement, which sets
out how the Board have considered the
Company’s stakeholders and other factors
in their key decisions during the year.
>>
See also page 71.
Key
What matters to our
stakeholders
Why they matter
to Haleon
Haleon
Annual Report and Form 20-F 2022
14
Strategic Report
Stakeholder
How we engaged with them in 2022
Outcomes of our engagement
Consumers
>>
Pages 19-24.
—
In-house shopper research.
—
Future trend spotting and social media listening.
—
Advertising impact evaluation.
—
Research groups.
—
Direct feedback through email or social media.
—
Marketing campaigns and activations.
—
Used consumer insights to develop campaigns to raise
awareness of everyday health needs, remove barriers to
alleviating their conditions and design new innovations.
—
Reflected consumers’ interests in our environmental and
health inclusivity strategy.
—
Developed plans to enhance dialogue with consumers,
such as live chat functionality.
Customers
>>
Pages 19
and 21.
—
Top level engagement between Haleon
Executives and major customers.
—
Key account managers engaged with our
customers at a strategic level.
—
Direct engagement with sales team
and specialists.
—
Regular updates on demerger and associated
changes provided.
—
Customer satisfaction with system changeover which included
little disruption to orders.
—
Focused improvement plans on areas highlighted by our
customers such as e-commerce integration, category
development and improving supply.
Employees
>>
Pages 16, 17,
26 and 27.
—
Annual employee engagement survey.
—
Employee Assistance Programme.
—
Employee Resource Groups (ERGs).
—
Site visits and global broadcasts.
—
Internal communications and training.
—
Designated Non-Executive Director for
Workforce Engagement met with employee
groups.
—
2022 overall employee engagement index score of 80% with
work processes and opportunities to grow and develop
highlighted as areas for improvement. These areas will be
prioritised in 2023.
—
Initiated campaigns and programmes to support safety, and
wellbeing and enable work-life balance.
—
Continued to support our ERGs.
—
Simplified our learning offering and launched professional
qualifications, such as a mini-MBA on deeper human
understanding endorsed by University College London.
Governments
and industry
regulators
>>
Page 215.
—
Direct meetings between Haleon Executives
and relevant industry-specific individuals.
—
Trade meetings attended by Haleon leaders.
—
Participation in roundtables and
bilateral meetings.
—
Liaison with regulators, including new and
existing product reviews.
—
Responses to government consultations.
—
Introduced Haleon as an independent company.
—
Delivered regulatory approvals and contributed to
position papers.
—
Ensured continued compliance of our portfolio in line with
updated regulatory standards.
—
Worked with regulators to help tackle continuity of supply,
notably cold and flu products, impacted by pressures on drug
shortages in markets such as Canada, UK and USA.
Health
Professionals
>>
Pages 19
and 23.
—
Face-to-face meetings with Haleon
representatives.
—
Participation in global research and education
initiatives.
—
Launched Haleon ‘HealthPartner’ portal.
—
Targetted social media activity.
—
Launched our industry intent to support of Health Professionals
and the everyday health of their patients.
—
Enhanced our digital offering for Health Professionals leading
to 3.6m new users on the Haleon ‘HealthPartner’ portal and a
total of 30,000 hours of webinar content engaged with.
—
Created the Centre for Human Sciences, a Health Professional
community with the purpose of driving behaviour change in
everyday health.
Investors
>>
Page 71.
—
Capital Markets Day.
—
Ongoing dialogue with sell-side analysts and
investors across equity and debt capital markets.
—
Press releases and results briefings.
—
Investor events including roadshows, fireside
chats and conferences.
—
Feedback to employees on shareholder and investor views on
how external stakeholders see Haleon.
—
Considerations on strategy and our responsible business
agenda following feedback from investors, analysts
and shareholders.
—
Input into governance areas including Executive Directors’
Remuneration Policy.
Suppliers
>>
Pages 21
and 25.
—
Online supplier portal.
—
Workshops and sessions with selected suppliers
focused on value engineering, growth,
innovation and productivity.
—
Responsible business objective-setting
workshops.
—
Top level engagement and/or quarterly business
reviews with key suppliers.
—
Third-party risk management assessments.
—
Assessed innovation ideas generated across all workshops with
prioritised ideas progressing to the next stage of development.
—
Evolved procurement strategies to incorporate inclusion of
diverse suppliers as options for sourcing, where viable.
—
Supporting suppliers to implement recommended changes
identified in third-party risk assessments.
—
Worked with priority suppliers on decarbonisation planning
and reporting.
We also engage with other stakeholders where applicable, regarding our business activities and value their views.
Haleon
Annual Report and Form 20-F 2022
15
Strategic Report
Corporate Governance
Financial Statements
Other Information
Stakeholder Engagement
Our culture and behaviours
Our culture is driven by our behaviours and Code of Conduct. Together, they guide
our approach to business, uphold our reputation as a well governed, trusted and
ethical company, and influence how we engage with our stakeholders.
At Haleon, our purpose drives us to meet
the everyday health needs of people in
new and better ways, alongside our
strategy which brings clarity to the choices
we will make, what we do and will not do.
To have the impact we want in the world,
we are consciously creating a culture
that actively supports both our purpose
and strategy.
Guided by this, our ambition is for our
culture to be purpose-led, consumer-
centric and performance-focused,
enabling us to deliver our strategy.
Centred around our core value of seeking
to always do the right thing, our culture is
defined by three key behaviours:
—
Go beyond: fostering the desire and
energy to continuously strive for
excellence and outperform ourselves
and competitors.
—
Do what matters most: using our
purpose and strategy to help prioritise
what’s important and challenge the
unnecessary.
—
Keep it human: having greater
understanding and empathy for our
consumers, the environment and
each other.
We are embedding these behaviours
through leader-led engagement,
employee storytelling and a dedicated
suite of online resources.
Leaders role model our culture through
additional leadership standards that set
out expectations on how to:
—
Drive growth.
—
Deeply understand our consumers and
customers.
—
Build ‘one’ Haleon.
—
Motivate and unleash potential.
Our Code of Conduct (Code), which
underpins our culture and behaviours,
promotes ethical business conduct, and
comprises a mixture of written standards,
a decision tree approach to making the
right choices, and guidance on when to
ask for advice. Available in 17 languages,
it guides the Board and Executive Team,
employees and contingent workers.
Supported by annual mandatory elearning,
it is part of the onboarding requirement for
new starters. The Code is an integral part
of our responsible business strategic pillar,
as well as our culture. It is at the heart of our
approach to compliance with applicable
laws and regulations. The table on page 17
details some of our key policies.
The Board is responsible for ensuring our
culture, core value and behaviours are
embedded and aligned to our strategy
and purpose. The Board, and Audit & Risk
Committee receive regular reports on
aspects of culture, including reports
from our Speak Up channels, data and
trends, and other metrics including
scorecards and dashboards.
Day-to-day responsibility for our
culture rests with the Executive Team
who keep employees engaged via
global broadcasts, fireside chats, our
internal social media channel, onsite
communications and newsletters.
Our culture is also driven by our
organisational and governance structure,
risk appetite, stakeholder engagement,
workplace environment and the strength
of our business model. The Executive
Team’s remit includes executing our
strategic plan (agreed with the Board),
monitoring the Group’s performance and
providing assurance to the Board on
overall performance, risk management
and our internal control framework. The
Disclosure Committee ensures proper
procedures are in place for statutory
and regulatory disclosure requirements.
Our workplaces are designed to
help empower our employees
and support our culture.
Our culture is defined by
three key behaviours:
Go beyond
Do what matters most
Keep it human
Haleon
Annual Report and Form 20-F 2022
16
Strategic Report
1
For period 1 December 2021–30 November 2022.
Speak Up
—
The Haleon Speak Up channel allows anyone, whether working for Haleon or not, to raise concerns about misconduct,
policy, procedure or regulatory breaches – confidentially or anonymously. We have zero tolerance for behaviour which
could be perceived as retaliation or harassment during the course of, or after, raising a concern.
—
Anyone can access Speak Up via the web, email, telephone or post. These channels are managed independently and
are available globally in multiple languages. Our Code and Anti-Bribery and Corruption (ABAC) training courses include
when and how we should use Speak Up, and are mandatory for new starters. Annual refresher training is also required.
—
We take all concerns raised seriously and review every report to assess whether to investigate formally. A disciplinary
committee is set up where necessary, and a stakeholder group may come together to determine lessons and take action
to prevent future problems. Regular updates and investigation reports are reviewed by senior management and the
Audit & Risk Committee. Where applicable, the Board receives reports.
Data privacy and
data security
—
We are committed to the responsible use, storage and protection of data and personal data, and comply with
applicable local law. Our commitment is fundamental to maintaining trust with our stakeholders. We secure the privacy,
availability and integrity of Haleon’s data, and important data is safeguarded from corruption, compromise or loss.
We have robust data retention schedules to guide us when to delete data. We run inherent risk assessments on key
third-party suppliers with additional due diligence assessments completed for higher-risk suppliers.
—
Our Chief Information Security Officer frequently provides updates to the Executive Team as well as the Audit & Risk
Committee, which has oversight for the Group’s information security and cyber risk strategy. We have internal
information security policies and maintain related standards and procedures, and we educate our employees on their
role in securing our critical data and operations. We continue to mature our cyber security systems and controls to seek
to keep pace with the threat landscape. Our preparedness activities include conducting cyber tabletop exercises and
penetration testing to develop our response to potential incidents, such as ransomware attacks.
Health and safety
—
As part of our responsible business strategy, we have a set of global standards, technical support documents, guidance
and tools outlining our Environment Health Safety & Wellbeing (EHS&W) practices and processes. Our monitoring
programme measures performance across our operations and facilities at three-yearly intervals, tracking corrective and
preventative actions and risk reduction through to closure. A global Audit & Assurance team provides a further layer of
protection performing EHS&W thematic risk-based audits across the organisation. We report on EHS&W measures to
the Executive Team in monthly business scorecards and to the Board quarterly.
—
Our three-year strategy is to develop a zero-harm culture and reduce significant incidents. We set objectives each year
to improve our results, and analyse our performance. In addition, we run risk-based health and safety training for
employees, which covers how to identify measures to reduce workplace risks. Towards the end of 2022, we launched
a new health and safety cultural programme, ‘Leading with Care’, which will continue to be deployed during 2023.
Our 2022 reportable injury and illness rate was 0.17 per 100,000 hours worked
1,
and there were no fatalities.
Our work environment and operating
model, that support our culture, are
organised around 14 business units, whose
activities and performance are overseen
by three regional Presidents. Our global
category and brand teams are responsible
for delivering long-term strategy,
innovation agenda and global brand
campaigns focused on Power Brands.
Global functions, including key areas of
compliance, communications, finance,
human resources, legal, marketing, and
R&D, focus on enterprise-wide strategy,
policies, standards and capabilities.
Our culture, risk appetite and tolerance
are cascaded through our Code and
behaviours, and are embedded in our
goals and targets, grant of authority,
global policies, monitoring and
assurance processes.
The demerger brought changes to our
work environment and many of our
workplaces. Some employees moved to
new offices, others to a hybrid approach.
Our ‘Hybrid at Haleon’ philosophy
empowers managers and teams to
trust each other and find the right
approach to drive performance.
Greater remote working involves more
digitalisation, and we have activated and
enhanced controls and systems to ensure
our Company data is secure, including
awareness campaigns.
>>
See also our responsible business strategy,
people and approach to risk sections on
pages 22, 26 and 56. As well as Board
activities from page 70.
>>
The Group publishes its Code of Conduct
on its website
www.haleon.com
Haleon
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Corporate Governance
Financial Statements
Other Information
Our culture and behaviours
1
>>
See page 19
>>
See page 21
>>
See page 20
>>
See pages 22-25
2
3
4
Increase
household
penetration
—
Maximise significant
growth opportunities
across our categories
by applying our
proven approach
to penetration-led
growth.
Capitalise on new
and emerging
opportunities
—
Increase growth of
our brands across
channels, routes-to
market and
geographies.
—
Expand our portfolio
through new and
emerging consumer
trends and by
pursuing Rx-to-OTC
switches.
Maintain strong
execution and
financial discipline
—
Focus on driving
efficiency,
effectiveness, and
agility to make every
investment count.
Run a responsible
business
—
Make everyday health
more inclusive.
—
Protect the
environment and
address social
sustainability barriers
to everyday health.
—
Embed strong
governance and
ethical business
behaviours.
Our strategy
Our strategy seeks to deliver sustainable above-market
growth and attractive returns, while running a responsible
business, which is integral to all we do.
Our purpose, together with our culture, commitment to
stakeholders, core value and behaviours, strong governance and
leadership standards, create the right environment where we can
focus on delivering our strategic priorities.
Taken together, the four pillars of our strategy help drive both our
reported revenue and 4-6% annual organic growth. Our annual
organic revenue growth, combined with our attractive gross
margins, allow us to invest in the business and deliver sustainable
moderate Adjusted operating margin expansion, along with
strong free cash flow. Progress against our strategy is tracked
through our KPIs as set out in pages 12-13.
>>
See Business review and Our approach to risk from page 36.
Haleon
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Strategic Report
Meaningful and
distinctive brands
—
Aligned to our purpose, our approach is to use consumer insights, data and analytics to ensure we understand
consumer needs. In 2022, Haleon’s bespoke trend-spotting tool, which analyses data from industry intelligence,
social media listing and search queries, was rolled out for use globally.
—
In 2022, we continued to drive awareness of health conditions, such as tooth sensitivity and pain management,
demonstrating how our brands can help consumers as part of our strategy to increase household penetration.
For example, the Panadol ‘Take Care’ campaign successfully launched in over 10 markets amplifying brand
activation and relevance during a key COVID-19 vaccination period.
Innovation
—
R&D is core to our innovation which underpins key elements of our strategy to increase growth. With Adjusted
R&D expenditure of £303m in 2022, we launched 52 new innovations and are progressing over 250 active
projects, including new products, line extensions and upgrades across all our categories.
—
In the US, Emergen-C continued to see growth with younger households through innovations such as Emergen-C
Kidz. In China, a gummy innovation for Caltrate enabled the brand to reach new younger consumers.
Expert advocacy
—
As part of our purpose and growth strategy, we have a focus on Health Professionals as recommendations from
these trusted experts can increase our brand reach and act as a driver of brand choice.
—
To increase expert advocacy in 2022, our representatives led 5.9m interactions with Health Professionals to
improve their knowledge of our products and the conditions they treat.
—
Based on research and Health Professional’s feedback, in 2022, we launched the Haleon HealthPartner portal,
where members can access key services and content such as webinars, training and sample ordering. We also
launched the Haleon Centre for Human Sciences, a collaborative community for Health Professionals dedicated
to addressing consumer behaviour challenges impacting everyday health.
Commercial
excellence
—
Effective commercial execution, both online and in-store, is a key driver to increasing household penetration.
To do this, we have focused on ensuring that our brands have the right levels of visibility and the right
assortment of packs to support commercial opportunities.
—
Haleon has been recognised for its commercial work across all channels in 2022 including Best of the Best Digital
Collaboration at A.S. Watson’s Global Supplier Conference in Asia; Dollar General’s Supplier of the Year and
Walgreen’s Customer Centricity Award in the US; and Tesco’s ‘Best in Class’ packaged good supplier in the UK.
Our focus for 2023
—
Continue to drive
penetration with new
audiences by further
enhancing our brands’
visibility and relevance
to their unmet needs.
—
Continue to build an
innovation pipeline focusing
on specialist solutions.
—
Maximise relationships with
Health Professionals to
increase consumer reach
through trusted experts.
Progress against our strategy
1
Increase household
penetration
We believe there are significant opportunities
to drive greater growth across our categories
by reaching more consumers and fulfilling their
unmet needs. We have a clear approach to driving
penetration growth using our key capabilities in
deep human understanding and trusted science,
supported by innovation, marketing and
commercial excellence.
Haleon
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Corporate Governance
Financial Statements
Other Information
Progress against our strategy
Progress against our strategy
continued
2
Capitalise on new and
emerging opportunities
We aim to use our world-class portfolio and
competitive capabilities to expand the reach of
our brands, grow the market and capitalise on
new consumer trends. This includes continued
channel expansion with a focus on e-commerce,
geographical expansion of our key brands
leveraging our extensive scale and powerful
routes-to-market, and portfolio expansion
including Rx-to-OTC switches.
Channel expansion:
e-commerce
—
We are committed to expanding our channel footprint, with a focus on growing e-commerce as a percentage
of group sales to mid-teens by 2025. To do this, in 2022, we improved content, optimised media, increased
investment in high traffic events and refreshed ‘brand stores’.
—
E-commerce grew 16% to 9% of total sales in 2022. In the US and China, Haleon’s two largest e-commerce
markets, sales grew 7% and 40% respectively.
—
We recognise that our categories, particularly OTC, are more regulated than most consumer staples. This
currently leads to us having a lower proportion of e-commerce sales here so we will continue to build our
capabilities via strategic relationships with leading e-commerce companies.
Geographic
expansion
—
To support our growth strategy, we continually assess opportunities to introduce or grow our brands in existing
and new markets. To do this, we explore opportunities and considerations for growth depending on local
market competition, regulatory restrictions on OTC products and unmet consumer needs.
—
In 2022, parodontax, one of the fastest-growing toothpaste brands globally, launched in South Africa and saw
double digit organic revenue growth in the Middle East and Africa.
—
In VMS, Centrum was launched in Egypt and India, which is the world’s sixth largest VMS market
1
and where
we see strong structural growth opportunities.
Portfolio
expansion:
emerging consumer
trends
—
In line with our purpose and strategy to identify and support new and emerging health trends, we launched
natural variants across a number of markets in 2022, which also allows us to expand demographically as our
natural launches often target a younger consumer base.
—
In 2022, our natural launches included Theraflu Naturals, Robitussin Elderberry and Emergen-C Botanicals in
the US, as well as Otrivin Breathe Clean and Theraflu Pro-Naturals in Central and Eastern Europe. We will be
applying learnings from these launches for future initiatives.
—
We are also investing in the future of everyday health with our global incubator programme, NEXT Re/Wire
Health Studio. This supported 12 new consumer health start-ups in 2022 with mentorship, R&D support and
commercialisation opportunities.
Portfolio
expansion: Rx-to-
OTC switches
—
We are committed to progressing switch opportunities, recognising that it is a long-term commitment
requiring specific capabilities, expertise and resource to manage the regulatory and clinical process.
—
As part of our strategy to expand our portfolio, we continued to work on our two active switch projects
led by our dedicated in-house team and further explored potential other opportunities.
Our focus for 2023
—
Grow e-commerce with
sustained investment and
building capability.
—
Explore and act on untapped
growth opportunities –
considering channels,
routes-to market,
geographies and trends
where we are under indexed
or don’t compete today.
—
Continue to progress
Rx-to-OTC switch
opportunities.
Haleon
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20
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3
Maintain strong
execution and
financial discipline
We fuel our growth agenda through strong
execution and disciplined cost management.
In combination with sales growth, this approach
enables us to free up resources for reinvestment,
while creating value for our stakeholders.
Quality and supply
chain (QSC)
—
In 2022, we successfully began operating as a standalone company and focused on evolving our supply chain
following the pandemic to improve customer service, continuity of supply and address challenges such as
commodity inflation.
—
With more than 70% of product supply sourced in the same region as the consumer, we are able to manufacture
at scale, while retaining the cost and responsiveness benefits of local sourcing.
—
We continued to improve productivity while building a programme of value engineering, supply chain efficiency
and procurement initiatives that aim to deliver increased value through cost savings in 2023.
—
Safety and quality in our supply chain operations is essential both for running a responsible business and
managing cost control. In 2022, we had fewer reportable incidents and recalls than target, as well as 75
inspections by national regulatory bodies with a 100% success rate across the internal supply network.
—
Like most industries, our supply chain faces challenges due to volatile demand levels, as well as the cost and
availability of materials and logistics. We have plans to increase capacity for key constrained products and to
enhance the agility and resilience of our supply chain.
Marketing
execution
—
In 2022 we focused on improving marketing effectiveness in line with our purpose and strategy. This included
an assessment of our approach to media spend which is split 50:50 (online: offline channels).
—
Our revised media strategy rolled out across 90+ markets and we launched Lumina, a state of the art tool to
increase our ability to monitor and evaluate spend.
—
With our purpose at their core, our marketing campaigns have been recognised with multiple awards, including
Cannes Lions, The Internationalist, US Self-Care, MMA Smarties and I-COM’s data creativity award.
Commercial
execution
—
As part of our commercial execution priority, we maintained strong relationships with customers throughout the
demerger providing continuous updates on timings, benefits and clarity on changes.
—
We continued to leverage our specialised tools to enable better execution, including our in-house shopper
science labs, digital customer relationship management systems, image recognition and machine learning.
—
We also carefully managed price and volume-led growth through targeted costing programmes. This sharp
focus on net revenue management has helped optimise margins and supported a healthy balance of organic
growth in 2022 with 4.3% price and 4.7% volume/mix.
Cash and cost
control
—
As part of our strategy to focus on driving efficiency, effectiveness and agility, we delivered incremental Pfizer
synergies during the year, taking the aggregate annual synergies to over £600m.
—
In 2022, we continued to look for opportunities to rationalise our SKU portfolio and improved logistics
productivity through warehousing and outbound freight consolidation which helped to partially offset freight
and distribution cost inflation. Simultaneously, the business continued its insourcing initiatives, improved return
on investment on promotional spend and optimised price-pack architecture across the portfolio.
Our focus for 2023
—
Simplify and future proof
our supply chains.
—
Build more responsive and
agile systems to improve
visibility, insights and
operations.
—
Continue to focus on
financial discipline to
improve profitability and
sustain reinvestment in solid
growth opportunities.
Haleon
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Strategic Report
Corporate Governance
Financial Statements
Other Information
Progress against our strategy
Progress against our strategy
continued
4
Run a responsible
business
True to our purpose, our responsible business strategic
pillar is committed to making everyday health more
inclusive, reducing our environmental impact, and
operating with ethical and responsible standards of
business conduct. We are a member of the United
Nations Global Compact (UNGC) and are committed
to aligning ourselves with its 10 principles.
>>
These pages should be read in conjunction with our other
disclosures that relate to this strategic pillar including KPIs,
our culture and behaviours, people, TCFD and our approach
to risk.
Our focus areas
During 2022, we engaged with our internal
and external stakeholders and refreshed
our ESG materiality assessment, to ensure
our continued commitment to areas
where we can make the greatest impact.
Our focus areas are outlined in the graphic
and our activities and 2023 priorities are
detailed in the following pages, as well
as in our culture and behaviours, and
people sections.
Governance
Day-to-day responsibility for setting and
embedding responsible business targets
sits at Executive Team level. Responsible
business is managed through executive-
led steering committees covering
environment, health inclusivity and human
rights. Haleon’s Board receives updates on
progress towards Haleon’s 2025 and 2030
responsible business commitments on a
regular basis. In March 2023, the Board
established an Environmental & Social
Sustainability Committee.
We have responsible business scorecards
at enterprise and business unit levels to
track progress on a quarterly basis.
Measures include carbon reduction,
recycle-ready packaging, people
empowered through our health inclusivity
initiatives, leadership gender diversity,
health and safety, and regulatory
inspection compliance.
>>
See also pages 13, 16, 26,28, 59 and 81.
E
n
v
i
r
o
n
m
e
n
t
H
e
a
l
t
h
I
n
c
l
u
s
i
v
i
t
y
S
t
a
n
d
a
r
d
s
U
p
h
o
l
d
i
n
g
o
u
r
Tackling social
and environmental
barriers to better
everyday health
Tackling carbon
emissions
Making our packaging
more sustainable
Sourcing trusted
ingredients
sustainably
Embedding strong
governance
Endeavouring to always
do the right thing
Supporting our
people’s health and
wellbeing
Championing diversity
equity and inclusion
Working with
responsible
suppliers and
partners to protect
people and the
environment
Investing in
research and
action
Empowering
self-care
Driving change
through our
purposeful brands
Haleon
Annual Report and Form 20-F 2022
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Strategic Report
Health inclusivity
We have set ourselves the goal of helping
millions of people to be more included in
opportunities for better everyday health.
We do this through inclusive products,
educational programmes and services.
Our aim is to reach 50m people a year by
2025. We track the number of people
engaging with a Haleon brand or expert
initiative, to improve their self-care in a
calendar year. We empowered 22.4m
people in 2022.
Investing in
research
and action
—
Haleon supported Economist Impact’s publication of the world’s first Health Inclusivity Index. The Index is a
comprehensive review that analyses efforts to improve health inclusivity around the world, focusing on 40
countries. It looks at a range of factors, from policies to healthcare provision, and whether health interventions
are designed to be inclusive, accessible, and tailored for individuals, communities and vulnerable groups.
—
Findings from the 2022 Index show that empowering people, including from marginalised and vulnerable
communities, to engage in their health is key to improving health inclusivity. 80%
1
of the countries in the top 10
overall also scored highest in the ‘People and Community Empowerment’ Index category.
—
We have convened several policy workshops with health inclusivity experts to discuss the Index results.
Internally, we are using the results to inform our health inclusivity activities, including community investment.
—
In 2023, we will continue to support Economist Impact as they deepen the research in year two to focus on
how policy is translated into practice to drive health inclusivity on the ground.
Empowering
self-care
—
Working with Health Professionals, we aim to help improve health knowledge and understanding, helping
consumers to improve their own health via self-care. One of the ways we engage is through our HealthPartner
portal, an online database of tools and materials to support Health Professionals when they have conversations
with patients.
—
One of our activities involves Caltrate, a calcium supplement in China. The brand has run several initiatives to
raise awareness of the risks of osteoporosis and how to actively prevent and manage it. This includes working
with Health Professionals to reach more consumers through online education, in-person outreach and bone
density tests.
—
In 2023, we plan to continue to expand our educational content and reach with the aim of engaging more
Health Professionals through the HealthPartner portal and reaching more people directly through current and
new brand programmes.
Driving change
through our
purposeful brands
—
We have a number of initiatives across our brands to help tackle specific barriers to better everyday health.
For example, to help make our brands more accessible, we have collaborated with Microsoft on expanding the
functionality of their Seeing AI app for Haleon products. Seeing AI is a free mobile app that scans the information
on product labels and reads it out loud. Consumers can scan the barcode on UK and US Haleon products and hear
crucial information such as name, ingredients, and usage instructions.
—
Otrivin, our nasal decongestant brand, has collaborated with the National Schools Partnership to help educate
young people on the actions they can take each day to minimise the health impacts of air pollution. To date, the
Otrivin educational programme has reached 3,000 school children and is now being rolled out widely across the
UK, Poland, India and Egypt.
—
In 2023, we are looking to launch more initiatives across more of our brands while continuing to grow
existing projects.
Building healthy
communities
—
Haleon works to build healthier communities as part of our commitment to make everyday health more inclusive.
—
We identify opportunities where we can have the most impact, providing local and global voluntary donations
to charities, through monetary, product, time, and in-kind donations.
—
For example, during 2022 we donated over £1.7m to the British Red Cross Ukraine Crisis Appeal. And
we established our volunteering programme, ‘Haleon Helps’, launched in February 2023. This aims to encourage
employees to volunteer time to their local communities in a variety of ways.
—
2023 will be an important year for us to embed our community investment strategy and governance structure,
as well as scale our community investment and volunteering efforts.
1
Source: Economist Impact Health Inclusivity Index.
Below are the key areas we are looking at,
they focus on the socially marginalised,
including those who are discriminated
against because of disability, age, race
and ethnicity, gender and sexuality.
Haleon
Annual Report and Form 20-F 2022
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Strategic Report
Corporate Governance
Financial Statements
Other Information
Progress against our strategy
Run a responsible business
continued
Progress against our strategy
continued
Haleon is focused on continually
reducing the environmental impact of its
products and operations, whilst equally
focusing on positive impacts and
identifying opportunities.
We are working with leading standards
and industry groups to do this. This
includes the Roundtable on Sustainable
Palm Oil (RSPO) and Action for Sustainable
Derivatives (ASD) for sustainable sourcing
of palm oil derivatives, and also the
Climate Pledge and Sustainability
Consortium to drive recycling of small
format packaging.
>>
This page should be read in conjunction
with our TCFD and SECR disclosures.
Tackling carbon
emissions
—
We have set emissions reductions targets aligned to the Intergovernmental Panel on Climate Change (IPCC)
pathway to 1.5
º
C. Using 2020 as our baseline, we aim to reduce by 100% our net Scope 1 and 2 carbon emissions
by 2030.
—
In our 2022 reporting period (1 December 2021 to 30 November 2022), we reduced our net Scope 1 and 2 carbon
emissions by 36,000 tCO
2
e, a 41% reduction versus our 2020 baseline. We did this through achieving 100%
renewable electricity across our directly owned and controlled sites.
—
In alignment with PAS 2060, we achieved our first carbon neutral site in Suzhou, China. We invested c.£9m in
procuring a solar farm in Guayama, Puerto Rico. In addition, we set up a long-term Power Purchase Agreement in
Oak Hill, US.
—
Our plans for 2023 include continuing to install site-based solar energy systems and addressing Scope 1 carbon
emissions by transitioning our sites to renewable energy powered systems for heating and cooling.
Making our
packaging more
sustainable
—
We are working to reduce the amount of virgin petroleum-based plastic we use by 10% by 2025 and a third by
2030, based on our 2020 baseline.
—
To transition our packaging to a more circular model, we aim to develop solutions for all product packaging to
be recycle-ready by 2025 where safety, quality and regulations permit.
—
Healthcare packaging currently has limited recyclability, which is why our recycle-ready goal is a key milestone
towards making all product packaging recyclable or reusable by 2030, where safety, quality and regulations permit.
We are driving global and local initiatives to collect, sort and recycle our packaging at scale by 2030, by
collaborating with industry peers and coalitions.
—
Our estimated virgin petroleum-based plastic footprint has increased by 3% in our 2022 reporting period (1 July
2021 to 30 June 2022) from our 2020 baseline, due to high revenue growth and increased inventory related to the
pandemic not being fully offset by our packaging reduction initiatives. We remain confident of delivering our
2025 ambition based on a pipeline of projects to reduce and move out of virgin petroleum-based plastic into
alternatives, e.g. recycled and bio-based plastic. 65% of our packaging in our 2022 reporting period (1 July 2021
to 30 June 2022), was recycle-ready, thanks to our continued roll-out of recycle-ready toothpaste tubes and the
launch of recycle-ready sachets with ENO in India.
—
Our aims for 2023 and beyond are to further reduce our usage of virgin petroleum-based plastic, use more
post-consumer recycled, bio-sourced and paper pulp-based packaging, and swap multi-layer laminates for more
recyclable mono-layer materials.
Sourcing trusted
ingredients
sustainably
—
Our goal is that all key agricultural, forest and marine-derived materials used in our ingredients and packaging are
sustainably sourced and deforestation-free by 2030.
—
Haleon is a member of ASD, and we now have greater transparency of our palm oil supply chain and suppliers
through ASD’s Sustainable Palm Index.
—
We also support the ASD Impact Fund and other initiatives that aim to protect the environment, support nature
and biodiversity and local communities.
—
Our focus on sustainably sourced palm oil derivatives continues to have a positive impact. In our 2022 reporting
period (1 July 2021 to 30 June 2022), 92% of our palm oil derivatives were mass-balance RSPO certified.
—
During 2023, we are focusing on other key material supply chains including paper, corn and wheat derivatives,
soy and mint.
Integrating water
stewardship and
waste circularity
—
Haleon sends zero waste to landfill from its own manufacturing sites, (where laws allow), and is moving towards
greater circularity in its manufacturing waste management as a whole. We support TRUE, a certification programme
dedicated to measuring, improving and recognising zero waste performance.
—
In addition, we are reducing the environmental impact of the water we use, and are a member of the Alliance
for Water Stewardship (AWS), a global network promoting the responsible use of fresh water.
—
We plan to achieve TRUE Certification at our own manufacturing sites by 2030, and achieve the AWS standard at
those sites by 2025, as well as water neutrality at all our manufacturing sites in water-stressed basins by 2030.
—
In 2022, we worked with WWF South Africa to support its water replenishment activities. We expect our Cape Town
site to become water-neutral during 2023.
—
In 2023, and beyond, we will focus on certifying our manufacturing sites to TRUE and AWS standards.
Environment
Our purpose, culture and behaviours
underpin our drive to be a net zero
carbon company. Our long-term aim
is to achieve net zero carbon
emissions from source to sale by
2040, aligned to guidance from The
Climate Pledge and Race to Zero,
versus our 2020 baseline. We have
submitted our Scope 1, 2 and 3 goals
to the Science Based Targets initiative
for verification and have registered
our commitment to net zero.
Haleon
Annual Report and Form 20-F 2022
24
Strategic Report
Upholding our standards
What we do matters. So does how we
do it. Our aim is to always ensure we are
a trusted company with high standards
of business conduct. We are committed
to consumer satisfaction, safety and
compliance with good practice
regulations. These assure the quality,
safety and efficacy of our products.
We have consumer, pharmacovigilance
and quality policies and processes
established to manage this and have
portals for consumers to get product
information and report adverse reactions.
Below are further key policies from our
Code of Conduct that are core to our
responsible business strategy and should
be read in conjunction with the policies
outlined in our culture and behaviours
and people sections.
>>
See pages 16, 26 and 70.
>>
Our Modern Slavery Statement and
Code of Conduct are available
at
www.haleon.com
Anti-bribery and
corruption (ABAC)
—
We have zero tolerance of all forms of corruption. Haleon is committed to acting with honesty, transparency and
integrity in all business dealings, and to complying with all relevant laws and regulations. Our ABAC policy sets out
our global principles, standards, and requirements. Haleon employees and contingent workers must observe and
uphold the policy.
—
All employees receive ABAC refresher training annually, and new employees and contingent workers are required
to complete ABAC training within four weeks of joining Haleon.
—
We run regular ABAC checks internally as part of our financial control procedures, and due diligence checks are
performed on all high-risk suppliers.
—
ABAC compliance is reported to the Executive Team and Audit & Risk Committee at least annually, as part of
wider policy compliance.
Human rights
—
We have policies and procedures in place that seek to uphold the UN Guiding Principles on Business and Human
Rights and the Organisation for Economic Co-operation and Development’s (OECD) guidelines for multinational
enterprises. We are committed to upholding the Universal Declaration of Human Rights and the core labour
standards set out by the International Labour Organization (ILO). Our Human Rights Policy sets out how we
integrate human rights into our business operations and our relationships with suppliers.
—
Ahead of demerger, we conducted a human rights risk assessment. Our assessment included internal stakeholder
participation, looking at our risks across our value chain, and a country and business activity risk analysis. Going
forwards, we will undertake human rights risk assessments annually.
—
Our January 2022 human rights gap assessment informed our human rights strategy and where we need to focus
our efforts to be more effective in risk management. We have developed key actions across three workstreams:
building our capacity to understand human rights risks, strengthening due diligence processes and investing in
partnerships to prevent and mitigate risks and, where necessary, to remediate impacts.
—
Our Human Rights Steering Committee, comprised of members of our Executive Team and senior management,
meet quarterly to provide oversight and support on issues in key areas. They are responsible for approving and
embedding our human rights action plan, which is reported to the Board annually.
—
We will be rolling out training on human rights across key parts of the business, and in particular to teams that
support supplier management, in 2023. Advanced training and a suite of resources will be provided to those
whose roles require it. Human rights is also included as part of our Code training.
Working with
responsible
suppliers
—
Our supply chain is vital to our continued success – it is complex and has significant scale, and includes a mixture of
direct and indirect supplies and services such as raw materials and logistics. We are committed to safe, responsible
and transparent business practices and follow set processes for contracting with new suppliers, and those we
continue to work with, including due diligence processes and using approved buying channels. Our Working with
Responsible Third Parties position paper outlines our expectations of suppliers and other third parties. Haleon is
also a member of Manufacture 2030, a platform to drive consistency and transparency of supplier sustainability
reporting.
—
Our Third-Party Risk Management (TPRM) process seeks to proactively assess risks across our supply chain, and
where necessary we undertake targeted in-depth due diligence. We use a combination of EcoVadis assessments
and Pharmaceutical Supply Chain Initiative audits to assess risks.
—
The Board considered our supply chain as part of its key considerations during 2022, see page 71.
Haleon
Annual Report and Form 20-F 2022
25
Strategic Report
Corporate Governance
Financial Statements
Other Information
Progress against our strategy
Our people
People at Haleon are motivated by and engaged with their
new company, its exceptional brands and strong purpose.
Our focus
Our aim is to have people policies and
initiatives that are designed to provide
equal opportunities, create an inclusive
culture, and support our purpose, strategy
and long-term success. They reflect
relevant employment law, including the
provisions of the Universal Declaration
of Human Rights and ILO Declaration on
Fundamental Principles and Rights at
Work. We review our policies regularly,
including by our Board and Remuneration
Committee where relevant.
Attracting, fostering and
developing talent
We are committed to investing in and
building high performing, diverse teams to
meet our strategic and long-term ambitions.
We have a comprehensive and inclusive
approach, including apprenticeship and
mentoring programmes, and an open,
inclusive culture that promotes career
development and equal opportunities.
During 2022, we launched ‘The Haleon
Experience’, our employee value
proposition designed to help current
and potential employees understand
Haleon culture. The demerger provided
a unique opportunity to amplify this
proposition with key launch events and
employee input into the brand and Haleon
headquarters. Employee representatives
helped design the Haleon culture and
branding, including a crowdsourcing
campaign to create the ‘Haleon Sonic’
(the audible sound at the end of
advertisements) sung by employees.
We hosted briefings specifically for hiring
managers focusing on how to introduce
Haleon to external candidates, and drove
external awareness of Haleon as an
employer of choice with our social
employer brand strategy and will monitor
outcomes to determine the effect of the
employee value proposition on our
hiring goals.
We offer a suite of tools to help our
people get the most out of their careers
at Haleon, from learning and development
to our annual performance review process
and leadership development programmes.
Every employee has access to our internal
development portal with its extensive
development courses, videos and articles
on a range of topics including decision
making, building change capability,
coaching, influencing others and health
and wellbeing. Based on recent feedback,
we continue to evaluate how we can
better support employees.
As a driver of our culture, we have
articulated a set of leadership standards for
Haleon that captures the expectations of
leaders at Haleon. The Haleon Leadership
Standards are a benchmarkable set of
descriptions against which we can assess
our current leaders, promotable talent and
external hires in a globally consistent way.
Our people comprise permanent
and fixed-term direct employees.
Our business is also supported by
third-party contingent workers
and contractors.
Our 2023 approach (subject to ongoing
consultation in some regions), includes
increasing the frequency of conversations
(at least quarterly), increasing feedback
opportunities across the year and a
simpler process, with managers trusted
to apply their own judgement using
principles and guidance rather than
following strict policies.
Employee health and wellbeing
As a company with a focus on everyday
health with humanity, the health and
wellbeing of our employees is one of our
top priorities. We offer a number of tools
and initiatives to support this including:
—
A free, confidential global Employee
Assistance Programme (EAP) for
personal, workplace, relationship
breakdown, financial and crisis issues.
—
Mindfulness training for managers
—
Mental health and resilience training,
along with webinars on topics such as
men’s mental health.
—
Access to local occupational
health teams.
—
Leadership development standards on
how to care for and inspire teams.
—
A Partnership for Prevention programme
giving employees and eligible family
members access to a core set of
preventive healthcare services at little
to no cost.
—
Global No Meetings days for office-
based employees to give people
protected time to focus.
Haleon
Annual Report and Form 20-F 2022
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Strategic Report
Haleon is committed to supporting
the recommendations of the
FTSE Women Leaders Review and
promoting gender balance
throughout the business. We are
proud to be acknowledged as one
of the top 10 performers in 2022.
In 2022, we introduced a Global Caregiver
Leave Policy which provides four weeks
fully paid leave for employees within a
calendar year when they need to care
for a loved one, providing them with
financial stability and security when they
need it most.
We are in the early stages of developing
plans and policies aimed at supporting
women in the workplace during various
phases of their lives, including menopause
and perimenopause, and are looking to
provide constructive and supportive
activities during the coming year.
Strong culture with engaged
employees
Keeping our employees up to date with
Company strategy, performance and
progress, as well as listening to our
employees is vital to the health of our
culture and Company performance. We do
this via a number of formal channels,
including: global broadcasts, site visits,
mentoring, employee communications,
performance check-ins, ERGs, a Workforce
Engagement Director and our annual
employee engagement survey. We also
engage informally through our internal
social media tools and face to face
engagement with senior leaders.
The main route to capturing and measuring
employee engagement levels is our annual
survey. Our 2022 results showed that on
average 80% of employees feel that
Haleon is fulfilling its core engagement
values. The survey highlighted areas where
we do well, including our commitment to
our core Code of Conduct intent to always
do the right thing and our understanding
of our consumer and customer needs.
Areas where we can do better include
work processes that enhance productivity
and opportunities to grow and develop.
We are prioritising these areas in 2023 and
have identified further opportunities to
optimise existing processes and structures
to become more agile. We acknowledge
employee feedback about development
opportunities and are actively considering
ways to address it.
>>
See Directors’ Remuneration Report for
details about employee remuneration
from page 82.
>>
See also related disclosures in our KPI,
stakeholders, responsible business strategy,
approach to risk, and Board activities
sections, including Workforce engagement,
pages 12, 14, 22, 56 and 70.
Diversity, equity and inclusion
(DEI)
We want Haleon to be a place where all
our employees feel they truly belong and
can be their authentic selves. We are
committed to creating a diverse, inclusive
and respectful workplace, and view this
as key to delivering our purpose.
As part of our responsible business
strategy, we are committed to ensuring
our business reflects the diversity of the
communities within which we operate and
we support regular internal and external
reporting to ensure transparency. We have
a number of DEI policies and initiatives
that incorporate key areas of diversity
(race, disability, LGBTQ+ gender), and are
driven by strong focus areas in ethnicity
and gender.
Our aspiration is to achieve gender parity
in our leadership community globally by
2030 (48-52%); proportionate to the
percentage in society. Gender goals apply
to all our leadership population which
is defined as employees in regular or
fixed-term contracts. Gender goals are
aligned to leader’s individual incentives
and Long-Term Incentive (LTI) pay-outs.
Our 2022 DEI initiatives include:
—
Using data and analytics to strengthen
our recruitment practices, where legally
permitted.
—
Recruiting from more diverse talent
pools and channels.
—
Embedding inclusion and diversity
in talent management frameworks
and processes.
—
ERGs, including four global ERGs on
ethnicity, gender, LGBTQ+ and disability
—
Embedding DEI into learning and
development, including annual inclusion
and diversity training for all employees
and modules on representation and
unconscious bias.
—
Gender pay gap reports (where local
law requires them).
—
Our Global Parental Leave Policy.
Company gender diversity
As at 31 December 2022
Men
Women
Other
Non-disclosed
Total
Directors
6
5
-
-
11
Executive Team
1
8
6
-
-
14
Executive Team direct
reports
59
52
-
1
112
Senior managers
2
990
770
-
6
1,766
All employees
12,802
11,587
9
224
24,622
1
At 20 March 2023, the Executive Team comprised seven males, six females and 13 members overall.
2
Comprised of Leadership roles as defined in our glossary.
We have established a Global DEI Council,
with endorsement and sponsorship from
the CEO and Executive Team, which meets
quarterly to set priorities and drive
accountability to initiate, fund and oversee
the implementation of Haleon’s global
DEI activities. Regular discussions are
held at Board level, (further details are
on page 81).
During 2022, Haleon announced its Global
Parental Leave Policy. All new parents,
regardless of gender and sexuality, where
they live, or how long they have worked
with us, are entitled to 26-weeks fully
paid parental leave. It means that all
employees, whether having a child
biologically, via surrogacy or through
adoption, do not have to choose between
raising a young family and progressing
their careers.
We appreciate DEI is an area that we
continually need to prioritise. At the end of
2022 we introduced a range of measures
to track our initiatives, so that in the future
we will be able to report our progress.
In 2023, we intend to develop a Haleon
DEI Policy and key objectives to support
our DEI goals, further embed our existing
initiatives, and explore ways where we can
support diversity, for example better
supporting those with disabilities.
Haleon
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Our people
Strategic Report
Corporate Governance
Financial Statements
Other Information
Task Force on Climate-related
Financial Disclosures (TCFD)
Our approach
We are committed to continually
reducing our environmental footprint and
the impact of our operations and products
(see page 22-25). In 2022, we conducted a
detailed analysis of our business following
the TCFD recommendations. This process
improved our understanding of the
strength and resilience of our business
under different climate scenarios, and
emphasised the importance of having
risk mitigation plans. Our knowledge
of physical and transition risks and
opportunities linked to climate change,
and the expectations of investors,
customers and consumers will continue
to evolve. Therefore, we plan to refine
our analysis and strategy regularly. The
effects of climate change, such as extreme
weather conditions, temperature rises or
water scarcity, impact people’s daily lives
and companies such as Haleon.
Being a responsible business is one of
Haleon’s four key strategic priorities.
Our responsible business strategy consists
of three elements: environment, health
inclusivity, and upholding our standards.
It plays an integral role in fulfilling our
purpose of delivering better everyday
health with humanity. The environment
pillar of our responsible business strategy
covers climate change and includes targets
which drive our actions to tackle carbon
emissions and make our business more
resilient to the impacts of climate change.
Compliance
We comply with the FCA’s Listing Rule
9.8.6R(8), and make disclosures consistent
with the SEC’s Guidance Regarding
Disclosure Related to Climate Change
(2010), and 2021 TCFD guidance and
recommended disclosures across all
four of the TCFD pillars, as set out on
Our purpose underpins our drive to tackle carbon
emissions. We aim to achieve net zero carbon emissions
from source to sale by 2040 aligned to guidance from
The Climate Pledge and Race to Zero.
pages 28-35. Haleon was established
as a standalone business in July 2022
and is working to fully adopt all TCFD
recommendations. The ‘comply or explain’
obligation has been considered, and due
to the ongoing development of internal
processes and data verification, we have
chosen to explain our current position in
Strategy, parts B (page 33) and C (page 33),
and Metrics and Targets parts A (page 35)
and C (page 34). We aim to be consistent
with all TCFD recommendations and
disclose these in our 2023 Annual Report.
The rationale for explaining Haleon’s plans
are provided within respective disclosures.
Next steps
Within each responsible business target
we have established focus areas for 2023,
which are described on pages 23-25.
Governance
Board’s oversight of climate-related
risks and opportunities
The Board oversees the Group’s risks and
opportunities, including climate change.
Haleon has an Audit & Risk Committee
(ARC) that supports the Board in
risk-related responsibilities. The ARC’s
responsibilities include oversight of
the Group’s risk management system.
It receives regular reports from the
Head of Audit & Risk, which include
climate-related risks. Further information
about risk governance is set out on
page 56. In September 2022, the Board
approved Haleon’s climate strategy and
carbon-emission targets. Subsequently,
the carbon-emissions targets were
submitted to the Science Based Targets
initiative (SBTi) for validation.
Together, the Executive Team and Heads
of Audit & Risk and Ethics & Compliance
form the Enterprise Risk and Compliance
Committee (ERCC). The ERCC meets
quarterly and ensures that risks are
managed effectively. The ERCC discusses
principal and emerging risks, including
reviewing industry trends, regulatory
developments, high-profile incidents, and
critical audit findings. Each principal risk
has an assigned ERCC member responsible
for designing and implementing a risk
mitigation strategy and regularly reporting
risk updates to both ARC and ERCC. This
structure and process is applied to
Haleon’s environmental, social and
governance (ESG) principal risk, which
covers climate-related risks (see page 59).
This is owned by the Head of
Transformation and Sustainability and
monitored through Haleon’s risk
management framework and processes
built into the global functions’ and
business units’ day-to-day activities.
Working groups in our global functions,
categories and business units integrate
responsible business targets, principles
and initiatives (including climate change)
into Haleon’s strategic business planning
process, capital planning and budgeting,
day-to-day responsibilities and key
performance indicator (KPI) management.
This ensures that the Executive Team
considers climate-related factors and
monitors performance against metrics
and targets as part of our core business
activities. Climate change and wider
responsible business considerations will
be incorporated into the decision-making
process for future potential divestments
or acquisitions. Haleon was formed in July
2022 and at the date of publication of this
Annual Report has not yet undertaken any
significant divestments or acquisitions.
Day-to-day responsibility for setting and
embedding responsible business targets,
which include climate change, sits at the
Executive Team level. Business scorecards
at Enterprise and business unit levels are
used to track KPI delivery and progress
towards our external sustainability targets
on a quarterly basis across both our
environmental and social targets, including
our targets to reduce carbon emissions.
The Executive Team and regional
leadership teams review scorecard
performance quarterly and KPI delivery
is linked to employee personal objectives
and individual performance where
relevant. Additionally, performance
against our Scope 1 and 2 carbon emission
reduction goal is linked to Haleon’s Long
Term Incentive Performance Share Plan.
Haleon
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Strategic Report
The Executive Team receives quarterly
updates on the status of KPIs measured on
Haleon’s responsible business scorecard
and progression towards Haleon’s 2025
and 2030 responsible business targets.
Management’s role in assessing and
managing climate-related risks and
opportunities
Responsible business governance is an
Executive Team responsibility managed
via three executive-led committees (see
diagram, right). These are the Environment,
the Health Inclusivity, and the Human
Rights Steering Committees. Our Head of
Transformation and Sustainability (member
of the Executive Team) chairs our
Environment Steering Committee that
makes strategic recommendations on
managing our environmental footprint for
approval by the Executive Team and the
Board. It also monitors climate-related
issues and works to integrate our
sustainability strategy into our broader
organisation. The Environment Steering
Committee meets at least quarterly and
regularly reviews our climate performance
and other environmental KPIs. It is
composed of members of senior
management, including the Vice President
of Sustainability, representatives from our
categories and business units, the Chief
Supply Chain Officer, the Chief Corporate
Affairs Officer, the Chief Scientific Officer,
the Chief Procurement Officer, the R&D
Head of Packaging, the Head of Global
Ethics & Compliance plus appropriate
experts from the Sustainability team.
Members of the Environment Steering
Committee were chosen due to their
functional expertise, and ownership of
and responsibility for delivering our
responsible business targets, including
carbon emissions reduction targets.
To embed risk management in day-to-day
business, a series of Compliance and Risk
Forums (CRF) is run by our functional
teams, categories and business units,
including the sustainability team. The
Sustainability CRF is responsible for
monitoring, assessing, and mitigating
potential risks that may impact Haleon’s
responsible business strategy delivery,
including risks associated with climate
change. The Sustainability CRF meets
monthly and consists of the Vice President
of Sustainability, the members of the
sustainability team and the Director of
Sustainability Corporate Affairs. The
outputs from the Sustainability CRF across
the organisation feed into the ERCC as
detailed above.
Strategy
Climate-related risks and
opportunities
In 2022, with support from EY, we
conducted a detailed analysis using
TCFD’s recommendations. The aim was to
determine Haleon’s risk resilience and
identify the opportunities associated with
transitioning to a low-carbon economy. We
used three time horizons: short term (0-20
years), medium term (20-50 years) and long
term (50-80 years). Going forward, Haleon
will look to align the time horizons to our
2030 and 2040 carbon emissions reduction
targets. We used three different scenarios:
—
‘Business As Usual’ (BAU) scenario with a
+4.5°C temperature rise by 2100. In line
with the Intergovernmental Panel on
Climate Change (IPCC) RCP8.5 and the
Network for Greening the Financial
System (NGFS) scenario: Current Policies
and Nationally Determined Contributions
(NDCs).
—
‘Policy-led transition’ scenario with a
temperature rise well below 2°C by 2100.
In line with IPCC RCP2.6 and the NGFS
scenarios: Divergent Net Zero and
Delayed Transition.
—
‘Consumer-led transition’ scenario with
+1.5°C temperature rise by 2100. In line
with IPCC RCP2.6 and the NGFS scenario:
Net Zero 2050.
The Representative Concentration Pathways
(RCPs), developed by the IPCC, were used
for the physical risks. We chose the IPCC
scenarios because they are commonly
known, used and provide a high level of
granularity. We used the NGFS scenarios for
the transition risks. The NGFS is a common
starting point for analysing economic and
financial climate risks. However, due to the
complex nature and interconnectedness of
climate policy, technological progress and
consumer preferences, transition risk may
materialise in ways that are difficult to
foresee, and this is a limitation of this
scenario analysis. Within the scenarios, we
established the key factors driving exposure
to risks and opportunities:
—
Environmental factors: impact of climate
change on business and society.
—
Regulatory factors: implementation of
carbon-related regulation, investment
in low-carbon technologies.
—
Competition: sustainable consumption
trends, with new entrants from FMCG
industries and the rise of e-commerce.
The team, which consisted of critical
functions (including Finance, Sustainability,
Risk Management, Procurement, Insurance,
and Global Categories) and was supported
by EY consultants, identified, and assessed
Haleon’s climate-related risks and
opportunities. Our analysis was conducted
at geographical level and covered Haleon’s
manufacturing sites, key third-party contract
manufacturing organisations (CMOs) and
key direct suppliers selected based on
strategic importance. We used the expertise
of these stakeholders combined with
relevant data and tools such as EY Predict
to assess the potential impact of identified
risks. We did this in line with the process
described in the ‘Risk Management’ TCFD
disclosure on page 33.
As a result of the above process, we
identified a group of risks and
opportunities related to climate change:
—
Increased occurrence of extreme-
climate events (heavy rainfall, flooding,
storm) impacting operations and
supply chain.
—
Impact of chronic and acute climate
change on nature-based raw materials
Human Rights Steering
Committee
Oversight on human rights
strategy and action plan.
Health Inclusivity Steering
Committee
Sets strategic direction of
Haleon’s health inclusivity
strategy.
Board of Directors
Overall responsibility for Haleon’s responsible business strategy.
Environment Steering
Committee
Sets strategic direction
of Haleon’s environmental
strategy.
Haleon Executive Team
Responsible for overseeing and driving responsible business performance and execution
of the strategic initiatives.
Responsible Business governance structure
Cross-functional steering committees help deliver our strategies and action plans and
embed responsibility into our business and investment decisions.
Haleon
Annual Report and Form 20-F 2022
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Strategic Report
Corporate Governance
Financial Statements
Other Information
Task force on climate-related financial disclosures (TCFD)
Task Force on Climate-related
Financial Disclosures (TCFD)
continued
Risk or opportunity
Potential impact
How it is managed
Physical risks
Damage and
disruption caused
by extreme
weather events
All our manufacturing sites were included in the scope of
the analysis with the aim of understanding the potential
impact of risks caused by acute (flooding, heavy
precipitation, extreme winds) and chronic (drought and
water stress, temperature variations) extreme weather
events. The main outcomes were:
—
Flooding risk (flash flood and riverine flooding)
that may impact our largest sites remains the main
risk in terms of potential property damage and
business interruption.
—
Drought risk that may impact our largest sites remains
the main risk in terms of potential increase of operating
expenses and capital expenditures, and reduced
labour/capital productivity.
—
Drought risks and temperature-induced increase in
operating expenses can be exacerbated by local
water stress context leading to restrictions and
strengthened regulations.
Risk
Sites with the highest potential exposure
Flood
TSKF (China), Dungarvan (Ireland), Nyon
(Switzerland), Suzhou (China)
Extreme wind
Guayama (Puerto Rico), Mount Lavinia (Sri
Lanka), Hsinchu (Taiwan), Suzhou (China)
Drought
Aprilia (Italy), Suzhou (China), TSKF
(China)
This analysis covered Haleon’s key third-party
manufacturing organisations and suppliers. It was
identified that:
—
61 out of 67 strategic CMO and suppliers’ locations
could be impacted by 2050 by acute climate-related
risks.
—
33 out of 67 strategic CMO and suppliers’ locations
selected could be impacted by 2050 by chronic
climate-related risks.
This physical risk is expected to have the highest potential
impact under the assumptions of the BAU scenario and to
materialise at the short- to mid-term time horizon.
Production sites are all included within a loss-prevention
survey programme and are routinely visited to ensure
appropriate resilience measures are in place, including
flood, wind and storm protection. A continuous
improvement programme is in operation to further enhance
the ability of the sites to withstand extreme weather
events. Our manufacturing sites have emergency plans,
disaster recovery plans (DRPs) and business continuity
plans (BCPs). DRPs cover recovery plans for any type of
disaster. BCPs, where appropriate (especially for sites
previously affected by climate-related events, such as
hurricanes (Guayama, Puerto Rico site in 2017) or floods
(Nyon, Switzerland site in 2015 and 2018)), have guidelines
for environmental events. We established BCPs to:
—
Set out strategy and tactical steps to ensure business
operations can recover in an appropriate time frames
aligned with company objectives.
—
Minimise supply chain impact and time disruption
through effective contingency and recovery of strategies
—
Allow for a quick and organised response.
Our BCPs include options for multiple sourcing for
manufacturing of our products. This is achieved by using
a combination of Haleon or key third-party manufacturing
organisations sites spread across different geographies.
This strategy is supporting Haleon’s supply continuity
and aims to protect revenue, margin and market share.
In response to the potential increase and impact of the
physical risks we regularly review our network strategy.
Over the coming years, we may need to relocate
manufacturing sites or find alternative supply routes.
To understand and manage water risks, we have two
operational water targets which guide sites to consider
their water use and impacts, and work collaboratively
and transparently with others to address shared water
challenges at the catchment-scale. Currently, we are
working on a value-chain water footprint analysis which will
help us better understand potential physical risks related
to water in specific geographies and prioritise actions.
The ‘How it is managed’ section of the risk ‘Reduced
availability and increased price volatility of raw materials
due to climate change’ describes how we are ensuring
supply continuity. However, Haleon needs to engage with
strategic suppliers and CMOs to assess their awareness
and readiness to respond to the potential physical risks
related to climate change.
Climate-related risks and opportunities
—
Impact of increased extreme
temperatures on demand for
respiratory products.
—
Increase in fossil energy costs.
—
Limited ability of strategic suppliers/
CMOs to quickly adapt to increased
regulatory pressure.
—
Increase in carbon pricing.
—
Growing demand for sustainable and
zero-deforestation raw materials.
—
Increasing sustainability competition
in the consumer healthcare segment.
—
Strengthening of climate-related
regulations (corporate-level
requirements and mandates on
products).
—
Increasing customer expectations
on sustainability and demand for
sustainable products.
—
Strengthening of relationship with
strategic suppliers/CMOs around
sustainability issues.
—
Decreasing cost of renewable and
energy-efficient technologies.
Haleon assessed the likelihood and
impact of the risks and opportunities to
understand their materiality. Specific
climate-related issues potentially arising
in each time horizon that could have a
material fiscal impact on Haleon are
described in the table below. Haleon,
aware that the risks may increase in
impact, or coincide, will continue to work
with the relevant functions internally to
ensure proper risk management is in place.
Risks’ financial impact
Low risk
Medium risk
High risk
Opportunity
£10m-£40m
£40m-£80m
>£80m
Time horizon for impact
Short-term
Medium-term
Long-term
0-20 years
20-50 years
50-80 years
Key
Haleon
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Strategic Report
Risk or opportunity
Potential impact
How it is managed
Physical risks
continued
Reduced
availability and
increased price
volatility of raw
materials due to
climate change
Within the scope of this risk assessment were the materials
from which we source key derivatives: corn, mint, palm oil
and cellulose. Derivatives of these crops account for more
than 95% of Haleon’s key agricultural, forest and marine
materials. We used qualitative analysis for all of the
materials above. For corn, due to the high importance of
corn derivatives (such as sorbitol), a quantitative analysis
was also carried out. The table below is a summary of key
findings for each raw material. The highest exposure to
the physical risks is expected to materialise in the BAU
scenario at short- to medium-term time horizon.
Continuity of supply is a priority for our procurement team.
The strategy involves multiple sourcing from different
geographical regions and holding materials’ safety stocks
where feasible. The effects of climate change and the need
to comply with global legislation and NGOs’ requirements
have influenced the development of a Sustainable
Sourcing, Scope 3 carbon emissions and Sustainable
Packaging strategy. All programmes involve work between
the Sustainability, Procurement and R&D teams and our
suppliers. Our aim is to deliver on our responsible business
targets and, through this, reduce our carbon emissions,
source key agricultural, forest and marine-derived materials
sustainably and deforestation free and make our packaging
more sustainable. We are aware that physical risks may
impact material availability and price, therefore we may
need to reformulate our products to overcome long-term
supply issues. Progress against our sustainable sourcing
strategy is described on page 24.
Raw material
Key findings
Corn
—
By 2050, up to 30% of corn yield loss could occur in the most exposed sourcing regions (US, China,
France).
—
Significantly, a 1% decrease in yield induces a corresponding increase in corn prices from 0.3% up to
5% (depending on the country).
—
NGFS modelling anticipates a potential 25% yield gap for cereal by 2050 between a low (Consumer-
led/Policy-led transition) and high (BAU) carbon emissions scenarios (RCP2.6 Vs. RCP8.5).
Mint
—
Mint sourcing locations are expected to be under a very high exposure to water stress (India, US) and
flooding (US) within the medium-term horizon in the BAU scenario.
—
India is the main global sourcing region for mint and is already suffering from high levels of water
stress that will continue. Sourcing locations within India will be highly exposed, while the increased
frequency and intensity of drought events will further increase the wildfire susceptibility (more than
150 days per year under a very high likelihood of wildfire within Barabanki region, for instance).
—
Moreover, as most of India’s mint oil comes from smallholder farms, this might lead to increased
vulnerability due to smallholders having less mature adaptation and monitoring plans compared
to large growers.
Palm oil
—
Palm oil mills from which Haleon sources from are mostly located in Asia (Indonesia, Malaysia),
in areas very highly exposed to flooding and heavy precipitations.
—
Some mills in Indonesia and the southern part of Malaysia are exposed to coastal flooding events
or riverine flooding events.
Cellulose
—
Cellulose sourcing regions are located all over the world, therefore it was challenging to cover them
all. We conducted analysis for sourcing based in the US. It was found that flooding (riverine and
coastal) and heavy precipitation are the main physical risks.
Risks’ financial impact
Low risk
Medium risk
High risk
Opportunity
£10m-£40m
£40m-£80m
>£80m
Time horizon for impact
Short-term
Medium-term
Long-term
0-20 years
20-50 years
50-80 years
Key
Haleon
Annual Report and Form 20-F 2022
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Strategic Report
Corporate Governance
Financial Statements
Other Information
Task force on climate-related financial disclosures (TCFD)
Risk or opportunity
Potential impact
How it is managed
Transitional risks and opportunities
Carbon pricing
regulations
The strengthening of carbon emissions control by
introducing and increasing carbon taxes could expose
Haleon to an increase in direct operating costs and an
increase in the costs of purchasing carbon-intensive raw
materials. Suppliers could pass on their increase in
production costs to Haleon.
Haleon and its suppliers have manufacturing, R&D and
sales operations across the globe. Carbon taxes on energy
supply already exist in several countries e.g., UK and some
EU countries.
Haleon used two forward-looking scenarios (Consumer-
led transition and Policy-led transition) to calculate the
potential impact of carbon price changes in the short-term
(£78-113/tCO
2
e by 2030).
Analysis of the trends related to carbon pricing
regulations found that:
—
Carbon price is expected to be higher in the Policy-led
transition scenario to incentivise investment in
low-carbon technologies in the absence of strong
market pressure.
—
Carbon price will not significantly increase in the BAU
scenario, only geographical coverage will evolve.
—
Evolution of the sectoral coverage of the EU Emissions
Trading System (ETS) and UK-ETS in 2025 is the main
short-term risk.
—
Extension of carbon pricing regulation to new states/
provinces in the US and China is the main risk in the
short-term.
Haleon has committed to reducing net Scope 1 and 2
carbon emissions by 100% by 2030, versus its 2020
baseline. This target is underpinned by a 95% absolute
reduction target. Delivering these targets will mitigate
our operations’ exposure to future carbon pricing and
environmental taxation.
Haleon has an ambitious aim to reduce its Scope 3 carbon
emissions by 42% by 2030, versus its 2020 baseline.
Carbon emissions from purchased goods and services
account for over half of our carbon emissions across
Scope 1, 2 and 3. Therefore, we are working with our
suppliers and partners like Manufacture 2030 to help
suppliers map their carbon emissions and take actions to
reduce them by: switching to renewable electricity and
energy, making efficiency improvements and by identifying
low or no greenhouse gas alternatives to feedstocks they
use to make raw and packaging materials.
More details about our Scope 1, 2 and 3 carbon emissions
reduction strategy can be found in the ‘Strategy’ part of
the TCFD disclosure on page 33.
Risk/ Opportunity
Loss of
attractiveness due
to consumers’
increasing
expectations
described, not
quantified
Consumers’ and customers’ expectations and demand
for sustainable products are increasing. We analysed the
relationship between sustainability and market share
and estimated potential opportunities associated with
improved sustainability performance. Investing in
sustainability is expected to positively impact Haleon’s
performance in all three scenarios we tested. In the
short-term (2030), demographic evolutions and regional
growth differences will drive an increase in sustainably
marketed products and services. Currently OECD and
Europe represent the largest sustainability market. High
consumer concern for sustainability issues in emerging
economies, where fast market growth is expected and
among generations Z and Alpha whose purchasing power
is increasing over time, will accelerate the shift toward
more sustainable products. The expansion and high
growth rates of retailer-led sustainable choices ranges
will also drive sustainability market growth.
We strive to always meet or exceed legal requirements and
the expectations and requirements of our investors, NGOs,
consumers, and customers. As part of this, we are fully
committed to deliver on our responsible business strategy
and targets (for details, see pages 22-25). We have carried
out life cycle assessments for 11 key products across our
top brands to better identify the risks and opportunities
across their life cycle stages. Through collaborations with
suppliers, external stakeholders, and organisations we are
making progress within Scope 3 carbon emissions,
sustainable sourcing and packaging workstreams which will
help reduce our overall Haleon environmental impact and
the impact of the key products across our top brands.
Sustainability claims help make it easier for our consumers
to fulfil their growing desire to buy sustainably. We are
participating in externally verified sustainable choice
ranges such as Amazon’s Climate Pledge Friendly
Programme and other customers’ sustainable ranges (e.g.
A.S. Watson Sustainable Choices), as well as making direct
claims on our products and at point of sale. Where we do
this, we see higher growth – driven by increased consumer
appeal and preferential display and shelf position in retail.
Our social strategy is focused on improving health
inclusivity – empowering millions of people to be more
included in opportunities for better everyday health. The
health of people is inextricably linked to the health of the
planet and our social target actions include equipping
consumers and Health Professionals with advice on how to
mitigate the impacts of climate change and related health
impacts such as rising levels of air pollution on their
everyday health (for more details, see page 23).
Additional revenue
with sustainable
products
Task Force on Climate-related
Financial Disclosures (TCFD)
continued
Climate-related risks and opportunities
continued
Risks’ financial impact
Low risk
Medium risk
High risk
Opportunity
£10m-£40m
£40m-£80m
>£80m
Time horizon for impact
Short-term
Medium-term
Long-term
0-20 years
20-50 years
50-80 years
Key
Haleon
Annual Report and Form 20-F 2022
32
Strategic Report
Strategy
continued
Impact of climate-related risks and
opportunities
Where relevant, knowledge of how the
risk or opportunity impacts our supply
chain, operations or adaptation and
mitigation activities is provided (see the
table on the previous page). Haleon will
assess how climate-related risks and
opportunities may affect the remaining
areas of our business, strategy, and
financial planning: products and services,
investment in research and development,
acquisitions or divestments and access to
capital. Climate-related issues are
currently being considered as part of our
manufacturing site network strategy and
investment plans. Going forward we aim
to integrate climate-related issues more
widely into Haleon’s financial planning
process. As part of the TCFD analysis, the
potential fiscal impact of climate-related
issues was estimated using different
scenarios as described in the tables on
pages 30-32. Haleon provided this
information using low, medium, and
high-risk financial ranges. We see this
as a first step towards considering
climate-related issues as an input to
financial planning.
Haleon’s carbon emissions reduction
targets are detailed on pages 24 and 34.
We aim to meet our Scope 1, 2 and 3
commitments by the following actions.
Scope 1.
We have completed a desktop
analysis of our Scope 1 footprint and
created a bespoke high-level
decarbonisation route map for each of
our manufacturing sites. From this, we
have built a high-level investment plan for
capital planning purposes, which has been
included in our strategic planning process.
In 2023 and 2024, we will develop the
decarbonisation route map into a fully
costed plan and detailed engineering
designs that will be taken forward into
execution in time to meet our targets.
The decarbonisation solutions combine
technologies, including: heat pumps,
steam generators and renewable fuels,
including green gas and hydrogen.
Scope 2.
In the 2022 reporting period
(1 December 2021 to 30 November 2022),
we achieved our target of using 100%
renewable electricity across all of Haleon’s
manufacturing sites (where we have
operational control). This has been
achieved through the procurement of
renewable electricity via RECs, solar
installation at 12 of our 24 sites and two
flagship projects in North America (see
page 199). Where we have generated
electricity on site, we have procured
carbon offsets to cover the fossil fuels
we have used. We have a small amount
of municipal steam and minimal fugitive
emissions remaining.
Scope 3.
We updated our 2020 scope-3
carbon-emission baseline and calculated
our 2022 carbon-emission footprint
(reporting period 1 July 2021 to 30 June
2022). The result shows that in the 2022
reporting period, our Scope 3 carbon
emissions from source to sale had
decreased marginally by c.5,000 tonnes,
a ~0% change versus our 2020 baseline.
This modest reduction in Scope 3 carbon
emissions, despite strong sales volume
growth and an increase in strategic
inventory of raw and packaging materials
linked to the Pandemic, shows we are
starting to decouple business growth from
Scope 3 carbon emissions. To build on this
our priority focus is on reducing carbon
emissions from purchased goods and
services, which account for over half of our
total carbon emissions across scope 1, 2,
and 3. Our action plan includes working
with third-party manufacturing
organisations and critical raw and
packaging materials suppliers to drive
their transition to renewable electricity.
Our medium-term action plan includes
removing, reducing, and replacing
carbon-intensive raw and packaging
materials and is likely to require us to
offset residual emissions, to achieve our
aim of reducing our Scope 3 carbon
emissions from source to sale by 42% by
2030, versus our 2020 baseline. To fulfil
our 2040 Net Zero carbon emissions target
from source to sale will require significant
development work across our product
portfolio and innovation in new formats
and alternative raw and packaging
materials. Given the development, testing
and regulatory lead times associated with
this, work is starting now to identify low/
no carbon sources alternatives. Haleon has
decided to ‘explain’ its current position on
this recommendation. In the future, where
we determine that carbon offsets are
required, we will consider the Climate
Pledge and Race to Zero guidance on
appropriate practice.
Resilience of the organisation’s
strategy
The TCFD analysis conducted in 2022
provided Haleon with many insights on
how climate change may impact Haleon
under assumptions of different scenarios.
Haleon used three scenarios: one ‘high
carbon’ (BAU) and two ‘low carbon’
(Consumer-led and Policy-led transition).
Information on how our strategy and its
resilience may be impacted by climate
change is captured on pages 30-32.
The column ‘Potential impact’ explains
scenarios and how our strategy may be
affected. The column ‘How it is managed’
explains how resilient the strategy is and
what solutions Haleon has. Haleon has
decided to ‘explain’ its current position
on this recommendation.
Risk management
Organisation’s processes for
identifying and assessing climate-
related risks
Functional groups in Haleon, including
the Sustainability team, have regular CRF
meetings. As described in the ‘Governance’
section, the Sustainability CRF consists of
the Vice President of Sustainability,
experts from the Sustainability team,
including experts in climate, water,
sustainable sourcing and nature/
biodiversity and the Corporate Affairs
team representative.
At Haleon, continual assessment and
management of risk are embedded in our
strategy to achieve our long-term targets,
including climate-related targets. We
continuously assess and evaluate the risks
posed by the changing environments in
which we operate to ensure an
appropriate, measured, and timely
response by considering potential impacts
and most likely scenarios.
The Sustainability CRF, used its team of
experts to map the circumstances that
could lead to failure or delay in delivering
our responsible business targets, including
climate-related targets. This involved
asking a series of questions: What could
go wrong? Therefore, what risk does this
create? Resulting in an impact/
consequence/likelihood of? This resulted
in a risk rating that guided prioritisation.
This top-down process is complemented
by horizon scanning to identify external
trends, such as legal and regulatory
developments, evolving customer and
consumer expectations and opportunities,
and emerging science/expert opinion.
In addition, inputs from CRFs in different
parts of the organisation were sought to
help identify risks and opportunities.
Haleon
Annual Report and Form 20-F 2022
33
Strategic Report
Corporate Governance
Financial Statements
Other Information
Task force on climate-related financial disclosures (TCFD)
Task Force on Climate-related
Financial Disclosures (TCFD)
continued
Risk management
continued
Organisation’s processes for
managing climate-related risks
The purpose of CRFs is to stimulate the
identification of risks using a combination
of internal knowledge and external factors
and to develop action plans to mitigate,
transfer or accept the risks. The
Sustainability CRF is dedicated to
identifying and managing risks impacting
the responsible business strategy,
including transition and physical climate-
related risks. In addition, thanks to the
tiered accountability for risk management
across the organisation, other groups may
identify climate-related risks and
discharge them to the appropriate CRF
where the risk is best managed (e.g.,
Sustainability, Procurement, Supply Chain
CRFs). Identified risks are then processed
to establish materiality using an internally
documented process.
Integration of climate-related
risks into the organisation’s overall
risk management
Haleon’s procedure for risk management,
including climate-related risks, uses an
internal control framework (ICF)
methodology based on recognised
international standards (e.g., ISO31000,
COSO) and is used at all levels of the
organisation. Haleon’s ICF helps identify,
prioritise, and mitigate risks as follows.
Firstly, the ICF quantifies the risk’s
likelihood and its impact, then it applies
a series of checks and balances designed
to reduce the likelihood of any risk
materialising and its impact as well as
tracking that planned mitigations are
working. Combining these elements
produces a risk heat map and classifies the
risks as ‘low’, ‘medium’, ‘high’, or ‘very high’.
For TCFD, we are treating ‘high’ and ‘very
high’ risks as one category: ‘high’. Risks
classified as ‘high’ are prioritised, and
mitigating action plans are developed to
reduce such risks’ impact, likelihood, or
both. The next step is to record the risk
rating rationale and assign an action
owner. With support from the
Sustainability CRF’s members and other
relevant stakeholders, the risk owner
proposes risk mitigation actions. The
Sustainability CRF meets monthly and
assesses the progress of risk mitigation
plans to ensure these are effective and
that the risk is controlled. If necessary, the
Sustainability CRF can escalate unresolved
issues (including climate-related issues)
to senior leaders via the Environment
Steering Committee and onwards to the
Executive Team, ARC and the Board,
if needed.
Metrics and targets
Targets used by the organisation
to manage climate-related risks
and opportunities
In September 2022, the Board approved
Haleon’s responsible business targets
(including climate-related targets that are
part of the Environment pillar). Haleon’s
2022 performance and focus areas for
2023 are described on pages 22-25.
Haleon’s responsible business scorecards,
described in the ‘Governance’ section of
the TCFD disclosure on page 28, are used
to track, and performance-manage
progress against our external targets. We
do not have a target regarding avoided
carbon emissions through the entire
product life cycle or net revenue targets
for products and services designed for
a low-carbon economy. However, as part
of our innovation process, we have
developed a quantitative impact
assessment tool which enables the team
to quantify the carbon, packaging and
trusted ingredient impact of product and
packaging design choices. Results are
reviewed as part of Project Management
Board meetings (PMB meetings) to ensure
the climate impact of design choices is
considered when progressing projects.
Haleon has decided to “explain” its current
position on this recommendation.
Haleon’s targets
We aim to:
—
Reduce our net Scope 1 and 2 carbon emissions by 100% by 2030.
1
—
Reduce our Scope 3 carbon emissions from source to sale by 42% by 2030.
1
—
Achieve Net Zero carbon emissions by 2040 aligned to guidance from The
Climate Pledge and Race to Zero.
—
Reduce our use of virgin petroleum-based plastic by 10% by 2025 and a third
by 2030.
2
—
Develop solutions for all product packaging to be recycle-ready by 2025 and
recyclable or reusable by 2030.
3
—
Work with partners to drive global and local initiatives to collect, sort and
recycle our packaging at scale by 2030.
—
Ensure that all of our key agricultural, forest and marine-derived materials used
in our ingredients and packaging are sustainably sourced and deforestation free
by 2030.
4
—
Achieve TRUE certification at our own manufacturing sites by 2030.
—
Achieve the Alliance for Water Stewardship standard at all our own
manufacturing sites by 2025 and to achieve water neutrality at all our own
manufacturing sites in water-stressed basins by 2030.
1
Versus our 2020 baseline. Our goal to reduce net Scope 1 and 2 carbon emissions by 100% by 2030 is
underpinned by a 95% absolute reduction target. We have submitted our Scope 1, 2 and 3 goals to the Science
Based Targets initiative for verification and have registered our commitment to Net Zero.
2
Versus our 2020 baseline.
3
Where safety, quality and regulations permit.
4
Scope includes Haleon’s globally managed spend on key materials which are agricultural, forestry or marine-
derived. Globally managed spend covers the majority of our internal spend and expands across some of our
third-party manufacturing network.
Haleon
Annual Report and Form 20-F 2022
34
Strategic Report
Metrics used by the organisation
to assess climate-related risks
and opportunities
Since its creation in 2022, Haleon has
made rapid progress in establishing its
standalone responsible business strategy,
targets, delivery plans, performance and
risk management forums, and processes.
However, we are still developing some
metrics recommended by TCFD: transition
risks (amount and extent of assets or
business activities vulnerable to transition
risks), climate-related opportunities
(proportion of revenue, assets, or other
business activities aligned with climate-
related opportunities), capital deployment
(amount of capital expenditure, financing,
or investment deployed toward climate-
related risks and opportunities). Currently,
we are measuring our carbon emissions
(disclosed, in the table on the right) and
the number of sites under water-stress
(now four out of 24 sites). Regarding
remuneration, at Haleon, specific
responsible business-related (including
climate-related) KPIs are built into
individuals’ objectives and performance
where relevant. Additionally, performance
against our Scope 1 and 2 carbon emission
reduction target is linked to Haleon’s
Performance Share Bonus Plan. During the
TCFD analysis, to understand our exposure
to carbon pricing regulations, we used the
following carbon prices £78-£113/tCO
2
e.
In 2023 and 2024, we will focus on
developing the remaining metrics
recommended by TCFD. Haleon uses
metrics related to renewable energy and
electricity (as shown below).
2020
Baseline
Year
2021
2022
% Renewable
electricity consumed
85
86
100
% Renewable energy
consumed
47
47
55
Additionally, Haleon has started to
measure progress against waste reduction
and circularity, water reduction and energy
reduction. Haleon has decided to ‘explain’
its current position on this
recommendation.
Scope 1, Scope 2 and Scope 3
disclosure
Haleon calculates and discloses Scope 1, 2
and 3 carbon emissions, on page 199,
where we disclose Scope 1 and 2 in line
with Streamlined Energy and Carbon
Reporting guidance. We used carbon
emissions calculated based on 2020 data
as the baseline for determining our targets
related to carbon emissions. This data was
crucial for determining our exposure to
carbon pricing regulations risk. The
analysis showed that this risk is the most
material for Haleon. The potential impact
and risk management are described on
page 32.
2020
Baseline Year
2021
2022
Total Scope 1 emissions
(thousands of tonnes CO
2
e,
including on-site fuel use, fleet mileage and
refrigerant losses)
57
60
55
Total Scope 2 emissions (location-based)
(thousands of tonnes CO
2
e)
141
145
137
Total Scope 2 emissions (market-based)
(thousands of tonnes CO
2
e)
32
15
7
Total Scope 1 & 2 emissions (location-based)
(thousands of tonnes CO
2
e)
198
205
192
Total Scope 1 & 2 emissions (market-based)
(thousands of tonnes CO
2
e)
89
75
62
Total Scope 3 emissions
(thousands of tonnes CO
2
e)
1,755
1,830
1,721
Our Net Zero Commitment
Net Zero Goal
We aim to achieve Net Zero carbon emissions from source to sale by 2040 aligned
to guidance from The Climate Pledge and Race to Zero (versus our 2020 baseline).
We have submitted our Scope 1, 2 and 3 goals to the Science Based Targets
initiative for verification and registered our commitment to Net Zero carbon
emissions
*
.
—
Our short-term action plan includes working with suppliers to accelerate their
transition to renewable electricity
—
Our medium-term action plan includes reducing and/or replacing carbon
emission intensive raw and pack materials, to achieve our aim of reducing our
Scope 3 emissions from source to sale by 42% by 2030.
Impact on our business
Achieving Net Zero carbon emissions from source to sale by 2040 requires
significant change in our upstream supply chain.
—
We are focusing first on Purchased Goods and Services (over half of our total
carbon emissions across Scope 1, 2 and 3), building joint action plans with
suppliers to address our highest carbon emission intensive raw and pack
materials.
—
Challenges include the availability at affordable cost and scale of low/no carbon
emission intensive raw and pack materials
Progress
In our first reporting year, our Scope 3 carbon emissions from source to sale
decreased marginally by about 5,000 tonnes, a 0% change from our 2020 baseline.
—
This modest reduction in Scope-3 carbon emissions, despite high volume growth
and increased inventory related to the pandemic shows we are starting to
decouple business growth from Scope 3 carbon emissions.
*
Scope-3 carbon emissions are reported in line with the Greenhouse Gas Protocol Corporate Standard |
Greenhouse Gas Protocol (ghgprotocol.org), the industry standard for corporate reporting on scope-3 carbon
emissions. Our Net Zero and Scope 3 carbon emissions targets span all carbon-emission categories from source
to sale (excluding GHG-protocol categories 6, 7, 10-15).
Haleon
Annual Report and Form 20-F 2022
35
Strategic Report
Corporate Governance
Financial Statements
Other Information
Task force on climate-related financial disclosures (TCFD)
2022 Business review
Chief Financial Officer’s review
Tobias Hestler
Chief Financial Officer
2022 was a landmark year for Haleon.
Over the last decade, we have been
focused on integrating the Novartis and
Pfizer Consumer Healthcare businesses
and devoted significant energy towards
separating the business from GSK.
Ahead of the demerger, we put in place
new functions and structures to be fit for
life as a standalone company and built
out processes and capabilities across the
business. I am pleased to report that all
integration and separation projects were
successful, and we became an
independently listed company on 18 July
2022. We have done this while also
ensuring that the business remained
competitive, delivered market share gains
and strong profitable growth along with
healthy cash flow. This was a significant
undertaking, and I would like to thank
everyone at Haleon for helping in this
effort and ensuring our long-term success.
Delivering value
We remain focused on driving value for
our stakeholders, which starts with our
medium-term guidance of delivering 4-6%
annual organic revenue growth and,
coupled with our strong gross margin,
provides us with capacity to invest in A&P
and R&D ahead of sales growth. This
affords us sustainable moderate Adjusted
operating margin expansion, (constant
currency), over the medium term with high
cash conversion.
Organic revenue growth ahead
of medium-term guidance
Trading throughout the year was strong,
with reported revenue growth of 13.8%
and organic revenue growth of 9.0%. We
delivered good growth across all regions
and categories, demonstrating the
long-term attractiveness of our brands and
geographic presence. Our organic growth
was balanced, with price of 4.3% and
volume/mix 4.7%.
We are structurally advantaged given that
commodity and commodity-related costs
make up less than 10% of revenue,
meaning that we can be thoughtful about
how we price our products. Given
inflationary pressures, we took increasing
incremental pricing over the course of the
year and were able to deliver volume
growth and market share gains.
Delivering profitable growth
Operating profit was £1.8bn and Adjusted
operating profit was up 13.8% (AER) and
5.9% (CER) to £2.5bn. Adjusted operating
profit growth was driven by healthy
revenue growth and strong cost
management which combined with Pfizer
synergies allowed us to absorb higher
commodity related and raw material costs,
freight cost inflation, £0.2bn of incremental
costs for operating as a standalone
company and increased investment in R&D.
This resulted in operating profit margin of
16.8% (2021: 17.2%) and Adjusted
operating profit margin of 22.8%, flat year
on year (down 60bps constant currency).
Focus on costs
Across the business, we remain focused on
driving efficiency, effectiveness, and agility
to make every investment count. In 2022,
we delivered ahead of our targeted Pfizer
synergies, taking the combined total to
over £600m, up from our initial
expectation of £500m at the time of the
Pfizer Transaction.
Initiatives to drive value from third-party
expenditure and offset strong headwinds
from input prices and commodity inflation
were a key focus area, which included
forward buying, value engineering and
new supplier introduction, and initiatives
to ensure continuity of supply. This, along
with pricing and efficiencies, enabled us
to deliver a healthy gross margin.
Healthy investment in the business
Our A&P spend was up 4% at actual
exchange rates (AER) and flat at constant
currency (CER) for the year. We drove
further efficiencies in spend from bringing
production in house. Importantly,
consumer facing A&P spend, excluding
Russia, was up 6% (CER) for the year,
showing our continued commitment to
invest in our brands, with spend focused
on Power Brands and Local Growth Brands
which drive our revenue growth ambitions.
Adjusted R&D expenditure totalled £303m,
up 22.2% and 16.1% at CER (2021: £248m)
and included the transfer of additional
activities to the R&D functions, following
the implementation of a new operating
model in Q4 2021.
Net capex was £292m which we believe
represents a healthy level of investment in
our business for long-term growth. Spend
was focused on manufacturing sites,
supply chain resilience, technology, and
automation.
Strong cash generation
and liquidity
Prior to demerger, Haleon raised £9.2bn
in notes across US Dollar, Euro and Pound
Sterling at attractive rates and long
duration, and we drew down £1.5bn on
a term loan. Proceeds were used to pay
pre-separation dividends of £11bn to
GSK and Pfizer.
As a result, following the demerger, we
had total borrowings of £11.8bn and net
debt of £10.7bn, representing around 4x
net debt/Adjusted EBITDA. Strong cash
generation following separation allowed
us to fully repay the £1.5bn term loan
through a combination of strong
operational cash flows and commercial
paper issuance. As a result, we were able
to finish the year with a significantly
reduced leverage of 3.6x net debt/
Adjusted EBITDA. Reflecting our stated
priorities on uses of cash, the Board has
declared a final full year 2022 dividend of
2.4p per ordinary share, which represents
approximately 30% of Adjusted earnings
for the period since listing.
Confidence in future growth
Looking to the future, we are encouraged
by the strength of our portfolio, our
geographic footprint and the categories
in which we operate, as well as by the
resilience of the broader consumer
health industry.
Haleon
Annual Report and Form 20-F 2022
36
Strategic Report
Reported results
For the year ended 31 December
2022
2021
Change
Revenue (£m)
10,858
9,545
13.8%
Revenue growth
13.8%
(3.5)%
17.3%
Operating profit (£m)
1,825
1,638
11.4%
Operating profit margin
16.8%
17.2%
(40)bps
Earnings per share (pence)
1
11.5
15.1
(23.8)%
Net cash inflow from operating activities (£m)
2,063
1,356
707
Adjusted results
For the year ended 31 December
2022
2021
Change
Organic revenue growth
2
9.0%
3.8%
–
Adjusted operating profit (£m)
2
2,472
2,172
5.9%
3
Adjusted operating profit margin
2
22.8%
22.8%
(60)bps
3
Adjusted earnings per share (pence)
2
18.4
17.9
2.8%
Free cash flow (£m)
2
1,579
1,173
406
1
Earnings per share calculation for the year ended 31 December 2021 has been adjusted retrospectively as required by IAS 33 ‘Earnings per share’ due to the increase in the number
of ordinary shares outstanding as a result of the demerger activities that took place in July 2022.
2
Definitions and calculations of non-IFRS measures can be found from page 46.
3
Change at constant currency exchange rate.
2022 Highlights
Strong growth with a healthy balance of price and positive volume/mix
—
Reported revenue +13.8% (£10,858m), organic growth +9.0% with 4.3% price and 4.7% volume/mix.
—
2/3 of our business gained or maintained market share in the period ended 31 December 2022.
Pricing and efficiencies offsetting inflationary pressures
—
Reported operating profit increased 11.4% to £1,825m.
—
Adjusted operating profit increased 13.8% to £2,472m, up 5.9% at constant currency.
—
Operating profit margin 16.8%, down 40bps and Adjusted operating profit margin 22.8%, flat on a reported basis.
Continued high cash generation
—
Net cash flow from operating activities was £2,063m, which included £435m related to the net cash outflow from separation,
restructuring and disposals; free cash flow of £1,579m.
—
Total borrowings were £10,440m, with 9.3x total borrowings/profit after tax. Net debt was £9,868m with 3.6x net debt/
Adjusted EBITDA.
—
Final full year 2022 final dividend proposed of 2.4p per ordinary share in respect of trading since demerger.
We expect to see another year of profitable
growth, with operating leverage from
revenue growth along with efficiencies
offsetting increased investment in the
business and cost inflation. If current
exchange rates hold (as at 10 February
2023), this will result in a broadly flat
Adjusted operating margin after absorbing
around 40bps of adverse transactional
foreign exchange impact.
Beyond this, we have identified further
opportunities to optimise existing
processes and structures to become more
agile. This will lead to annualised gross
cost savings of c.£300m over the next
three years, with the benefits largely in
2024 and 2025. We expect to incur
c.£150m restructuring costs in both 2023
and 2024. These initiatives give us the
capacity to invest and fuel our confidence
in delivering 4-6% organic top line growth,
whilst delivering on our guidance of
sustainable moderate margin expansion
and continued strong cash conversion.
Our priorities for uses of cash are to invest
for growth, strengthen the balance sheet,
explore acquisitions and return surplus
capital to shareholders.
Haleon
Annual Report and Form 20-F 2022
37
Strategic Report
Corporate Governance
Financial Statements
Other Information
2022 Business review
Revenue
Group revenue of £10,858m (2021:
£9,545m) reflects an increase of 13.8% on
a reported basis and 9.0% on an organic
basis. Favourable foreign exchange added
£478m to total revenue, mainly due to
strengthening of the US Dollar and
Chinese Renminbi against Sterling.
Gross profit
Reported gross profit increased by 10.5%
to £6,577m (2021: £5,950m) with gross
profit margin down 170bps at 60.6%.
Similarly, Adjusted gross profit increased
by 12.8% with Adjusted gross profit margin
of 62.4% (2021: 62.9%).
Gross profit growth and Adjusted gross
profit growth were each largely driven by
pricing, favourable mix, Pfizer synergies
and ongoing supply chain and
manufacturing efficiency benefits. This
was offset by higher commodity related
costs and freight cost inflation along with
transactional foreign exchange losses.
Operating profit and
operating profit margin
Operating profit increased by 11.4% to
£1,825m (2021: £1,638m) and operating
profit margin decreased by 40bps to
16.8% (2021: 17.2%). Adjusted operating
profit increased by 13.8% to £2,472m
(2021: £2,172m) and Adjusted operating
profit margin at actual exchange rates
was flat at 22.8% and declined by 60bps
at CER.
Adjusting items within operating profit
totalled £647m in 2022 (2021: £534m),
representing £41m (2021: £195m) of costs
related to restructuring activities largely
associated with the Pfizer Transaction
(see History and development of the
Group on page 201) at a reduced level as
we concluded the programme. Separation
and admission costs of £411m (2021: £278m)
represented the culmination of costs
relating to separating the business from
GSK and listing. Amortisation and
impairment of £172m (2021: £16m)
including intangible amortisation of £43m
(2021: £40m) and an impairment charge
of £129m largely relating to Preparation H
and a brand primarily sold in Ukraine.
Disposals and others totalled £15m
(2021: £45m) which included £20m of net
gains related to the disposal of assets and
business changes, offset by other items
including a legal provision with respect to
the Proton Pump Inhibitor (PPI) litigation.
Beyond this, transaction-related costs
were £8m (2021: £nil).
Adjusted operating profit growth was
driven by strong revenue growth including
a healthy balance of price and volume/mix,
combined with Pfizer synergies partly
offset by higher commodity-related and
raw material costs, freight cost inflation,
incremental costs of operating as a
standalone company and increased
investment in R&D.
For the year, A&P spend was up 4% and
flat at CER representing 18.7% of revenue
(2021: 20.3%). A&P spend was flat due to
scale benefits from bringing production
in-house and ceasing advertising in Russia.
Consumer facing A&P spend excluding
Russia was up 6% at CER. R&D expenditure
was £300m and Adjusted R&D expenditure
totalled £303m, up 22.2% and 16.1% at CER
(2021: £248m). R&D included the transfer
of additional activities following the
implementation of a new operating model
in Q4 2021.
Net finance costs
Net finance costs increased to £207m
(2021: £2m), reflecting interest of £258m
primarily related to the issuance of £9.2bn
in notes in March 2022 offset partly by
interest income of £51m mainly related to
the on-lend of funds to GSK and Pfizer
before demerger.
2022 Business review
continued
2022
£m
2021
3
£m
% change
Revenue
10,858
9,545
13.8
Revenue growth
13.8%
(3.5)%
17.3%
Organic revenue growth
1
9.0%
3.8%
–
Gross profit
6,577
5,950
10.5
Adjusted gross profit
1
6,772
6,002
12.8
Operating profit
1,825
1,638
11.4
Adjusted operating profit
1
2,472
2,172
13.8
Net finance costs
(207)
(2)
NM
Profit before tax
1,618
1,636
(1.1)
Adjusted profit before tax
1
2,265
2,170
4.4
Profit after tax attributed to shareholders of the Group
1,060
1,390
(23.7)
Adjusted profit after tax attributed to shareholders of the Group
1
1,700
1,652
2.9
Earnings per ordinary share
2
Basic and Diluted (pence)
11.5
15.1
(23.8)
Adjusted
1
(pence)
18.4
17.9
2.8
1
Definitions and calculations of non-IFRS measures can be found from page 46.
2
Earnings per share calculation for the year ended 31 December 2021 have been adjusted retrospectively as required by IAS 33 Earnings per share due to the increase in the number of
ordinary shares outstanding as a result of the demerger activities that took place in July 2022. Diluted earnings per share for the year ended 31 December 2022 has been calculated
after adjusting the weighted average number of shares used in the basic calculation to assume the conversion of all potential dilutive shares. There were no dilutive equity instruments
for the year ended 31 December 2021.
3
For a discussion of the Group’s financial and operating performance for the year ending 31 December 2020 and 31 December 2021, see the Group’s registration statement on
Form 20-F, pages 161-187, filed with the SEC on 1 June 2022.
Income statement summary
Haleon
Annual Report and Form 20-F 2022
38
Strategic Report
Geographical segment performance
Revenue by geographical segment for the year ended 31 December
Revenue (£m)
Revenue change (%)
2022
2021
Reported
Constant
currency
1
Organic
1
Price
1
Vol/Mix
1
North America
4,116
3,525
16.8%
5.6%
5.9%
2.9%
3.0%
EMEA & LatAm
4,270
3,877
10.1%
10.0%
10.9%
6.4%
4.5%
APAC
2,472
2,143
15.4%
11.6%
10.6%
2.6%
8.0%
Group
10,858
9,545
13.8%
8.7%
9.0%
4.3%
4.7%
1
Price and volume/mix are components of organic revenue growth. Definitions and calculations of non-IFRS measures can be found from page 46.
Adjusted operating profit by geographical segment for the year ended 31 December
Adjusted operating
profit (£m)
YoY
change
YoY constant
currency
1
2022
2021
2022
2022
Group operating profit
1,825
1,638
11.4%
2.3%
Reconciling items between Adjusted operating profit and operating profit
2
647
534
21.2%
17.0%
Group Adjusted operating profit
3
2,472
2,172
13.8%
5.9%
North America
1,070
828
29.2%
11.4%
EMEA & LatAm
977
960
1.8%
1.1%
APAC
506
461
9.8%
5.2%
Corporate and other unallocated
(81)
(77)
5.2%
0.0%
Group Adjusted operating profit
2,472
2,172
13.8%
5.9%
1
Definitions and calculations of non-IFRS measures can be found from page 46.
2
Reconciling items for these purposes are the Adjusting Items, which are defined under Use of non-IFRS Measures. A reconciliation between operating profit and Adjusted operating
profit is included under Use of non-IFRS Measures.
3
On a segment basis, Adjusted operating profit is the measure of segment profit or loss reviewed by the Company’s chief operating decision maker. Adjusting items are not allocated
by segment, as these items are managed centrally by the Group, and therefore are not part of the measure of segment profit or loss reviewed by the Company’s chief operating
decision maker.
Tax charge
The statutory tax charge of £499m (2021:
£197m) represented an effective tax rate
on IFRS results of 31% (2021: 12%). The
2022 tax charge included a £102m
non-cash charge due to the revaluation
of US deferred tax liabilities given the
increase in the blended rate of US state
taxes expected to apply as a result of the
demerger. In 2021, the tax charge included
a £164m non-cash credit relating to an
uplift in the tax basis of certain intragroup
brand transfers. The tax charge on an
Adjusted basis was £506m (2021: £469m)
and the effective tax rate on an Adjusted
results basis was 22% (2021: 22%).
Earnings per share
Diluted earnings per share decreased by
3.6 pence to 11.5 pence (2021: 15.1 pence).
Adjusted diluted earnings per share
increased by 0.5 pence to 18.4 pence
(2021: 17.9 pence).
Net capital expenditure
Net capital expenditure of £292m (2021:
£149m) included £328m (2021: £298m)
related to the purchase of property, plant
and equipment and software. Proceeds
from disposals of intangible assets
declined to £36m (2021: £137m). There
were no proceeds from the sale of
property, plant and equipment (PP&E)
(2021: £12m).
Haleon
Annual Report and Form 20-F 2022
39
Strategic Report
Corporate Governance
Financial Statements
Other Information
2022 Business review
2022 Revenue
North America
38%
North America
change (%)
2022
£m
2021
£m
YoY
Constant
currency
1
Organic
1
Price
2
Vol/Mix
2
Revenue
4,116
3,525
16.8%
5.6%
5.9%
2.9%
3.0%
Adjusted operating profit
1
1,070
828
29.2%
11.4%
n/a
n/a
n/a
Adjusted operating profit margin
1
26.0%
23.5%
2.5%
1.3%
n/a
n/a
n/a
1
Definitions and calculations of non-IFRS measures can be found from page 46.
2
Price and volume/mix are components of organic revenue growth.
Revenue was £4,116m (2021: £3,525m),
a growth of +16.8% on a reported basis,
driven largely by favourable exchange rate
impact, with revenue growth on a constant
currency basis of +5.6%. Revenue growth
was +5.9% on an organic basis (with 2.9%
price and 3.0% volume/mix), excluding,
among others, an +11.2% increase in
revenue growth as a result of favourable
exchange rate movements (included in
revenue at AER).
Drivers of revenue at AER (including the
favourable impact of foreign exchange
movements), CER and organic revenue
included Oral Health, where reported
revenue was up double-digit and organic
revenue was flat with Sensodyne flat due
to changes in retailer inventory patterns.
Consumption of Sensodyne for the year
was up mid-single digit. Low double-digit
growth was seen in parodontax and
mid-single digit growth in Denture Care
offsetting a decline in Aquafresh.
In VMS, revenue declined by low-single
digit with low-single digit growth in
Emergen-C offset by a modest decline
in Centrum. Underlying consumption in
Centrum has remained broadly steady
throughout the year and the brand
continues to see market share gains.
High-single digit revenue growth in Pain
Relief was underpinned by Advil benefiting
from price increases and market activation
combined with increased demand during
periodic COVID-19 waves. Voltaren was
up high-single digit.
In Respiratory Health, revenue was up mid-
30s percent underpinned by sustained
incidences of cold and flu, including some
benefit from new COVID-19 variants with
similar symptoms, and successful market
activation. During Q4, elevated incidences
of cold and flu led to mid-20s percent
growth across Respiratory Health, with the
cold and flu sales being significantly ahead
of 2019 levels. Theraflu and Robitussin
were particularly strong helped by new
innovations including Theraflu Max.
In Digestive Health and Other, revenue
was up low-single digit with strong growth
in ChapStick offset by mid-single digit
decline in Smokers’ Health and a slight
decline in Digestive Health.
Adjusted operating profit margin increased
250bps at AER to 26.0% and by 130bps at
CER. Margin expansion was driven by
pricing as well as benefits from
productivity improvements, portfolio
optimisation and strong cost management.
This was partially offset by commodity
and freight headwinds and costs incurred
as a standalone company. The prior year
reflected a favourable comparative
following site investments and one-time
manufacturing write offs.
2022 Business review
continued
Geographical segment performance
continued
Revenue growth
16.8
%
Adjusted operating
profit margin
1
26.0
%
Organic revenue growth
1
5.9
%
Haleon
Annual Report and Form 20-F 2022
40
Strategic Report
2022 Revenue
EMEA & LatAm
39%
Europe, Middle East & Africa (EMEA) and Latin America (LatAm)
change (%)
2022
£m
2021
£m
YoY
Constant
currency
1
Organic
1
Price
2
Vol/Mix
2
Revenue
4,270
3,877
10.1%
10.0%
10.9%
6.4%
4.5%
Adjusted operating profit
1
977
960
1.8%
1.1%
n/a
n/a
n/a
Adjusted operating profit margin
1
22.9%
24.8%
(1.9)%
(2.0)%
n/a
n/a
n/a
1
Definitions and calculations of non-IFRS measures can be found from page 46.
2
Price and volume/mix are components of organic revenue growth.
Revenue was £4,270m (2021: £3,877m),
a growth of +10.1% on a reported basis,
+10.0% on a constant currency basis and
+10.9% on an organic basis (with 6.4%
price and 4.5% volume/mix), excluding
an +0.1% increase in revenue growth as
a result of favourable exchange rate
movements (included in revenue at AER),
and decreases in revenue growth of 0.4%
from the effect of disposals and 0.5%
from the effect of manufacturing service
agreements (MSAs).
Drivers of revenue at AER (including the
favourable impact of foreign exchange
movements), CER and organic revenue
included Oral Health, where revenue grew
high-single digit with good parodontax
growth, robust recovery in Denture Care
and continued Sensodyne growth, up
mid-single digit.
In VMS, revenue up high-single digit driven
by high-single digit growth in Centrum
supported by entry into new markets
including Egypt in November 2022 along
with high single digit growth from Local
Growth Brands.
Pain Relief experienced mid-single digit
revenue growth largely reflecting double-
digit Panadol growth.
In Respiratory Health, revenue was up
low-thirties percent due to a strong cold
and flu season significantly ahead of
2019 levels.
Digestive Health and Other revenue
was up double digits with good results
in all categories.
Particularly strong double digit revenue
growth was seen in LatAm and Middle East
& Africa (MEA) underpinning full year
revenue. Additionally, Europe saw
high-single digit revenue growth in
Northern Europe and Southern Europe,
along with double digit growth across
Central and Eastern Europe. This was
partly offset by challenging performance
in Germany, albeit with a marked
improvement during the fourth quarter.
Adjusted operating profit margin
decreased by 190bps at AER or 200bps
at CER largely driven by costs incurred as
a standalone company and adverse
transactional foreign exchange. Beyond
this, higher commodity and freight costs
were largely offset by pricing and
operational efficiency improvements
across the business.
Revenue growth
10.1
%
Adjusted operating
profit margin
1
22.9
%
Organic revenue growth
1
10.9
%
Haleon
Annual Report and Form 20-F 2022
41
Strategic Report
Corporate Governance
Financial Statements
Other Information
2022 Business review
2022 Revenue
Asia Pacific
23%
Asia Pacific (APAC)
change (%)
2022
£m
2021
£m
YoY
Constant
currency
1
Organic
1
Price
2
Vol/Mix
2
Revenue
2,472
2,143
15.4%
11.6%
10.6%
2.6%
8.0%
Adjusted operating profit
1
506
461
9.8%
5.2%
n/a
n/a
n/a
Adjusted operating profit margin
1
20.5%
21.5%
(1.0)%
(1.2)%
n/a
n/a
n/a
1
Definitions and calculations of non-IFRS measures can be found from page 46.
2
Price and volume/mix are components of organic revenue growth.
Revenue was £2,472m (2021: £2,143m),
a growth of +15.4% on a reported basis
(including exchange rate impact of +3.8%,
with revenue growth on a constant
currency basis of +11.6%) and +10.6% on
an organic basis, excluding the +3.8%
exchange rate movement (included in
revenue at AER) and included a one-off
benefit of c.1% related to separation from
changes in distribution in Vietnam with
2.6% price and 8.0% volume/mix.
Drivers of revenue at AER (including the
favourable impact of foreign exchange
rate changes), CER and organic revenue
included Oral Health where high-single
digit revenue growth was underpinned by
double digit growth in Sensodyne. Results
reflected strong growth in India, partly
offset by some weakness in China from
COVID-19-related lockdowns.
In VMS, high-single digit revenue growth
was supported by strong growth in China
and South East Asia and Taiwan (SEAT)
along with momentum following the
launch of Centrum in India. Innovations
around gender-based vitamins and
probiotics contributed to growth. Caltrate
continued to see strong growth with high
single digit growth in China.
Pain Relief saw revenue growth in the
twenties percent, benefitting from over
20% growth across Panadol with strong
growth in SEAT and Australia. Voltaren
was up mid-single digit with good growth
in China.
In Respiratory Health, a rebound in cold
and flu season resulted in revenue up
mid-20s percent.
Digestive Health and Other revenue was
slightly down due to weakness in Smokers’
Health and Skin Health brands.
Performance in SEAT and India were
particularly strong during the year, up
over 20%. Revenue in China increased
high single digit for the year reflecting
softness in the second quarter from
COVID-19-related lock downs and a
progressive recovery during the second
half of the year.
Adjusted operating profit margin
decreased by 100bps at AER to 20.5%
or 120bps at CER due to higher A&P
investment and costs incurred to be a
standalone company, more than
offsetting positive operating leverage
from strong revenue growth.
2022 Business review
continued
Geographical segment performance
continued
Revenue growth
15.4
%
Adjusted operating
profit margin
1
20.5
%
Organic revenue growth
1
10.6
%
Haleon
Annual Report and Form 20-F 2022
42
Strategic Report
Oral Health
Revenue was £2,957m (2021: £2,724m),
a growth of +8.6% on a reported basis
(including exchange rate impact, with
revenue growth on a constant currency
basis of +5.8%) and +5.6% on an
organic basis.
Organic revenue growth was primarily
driven by the same principal factors, but
notably excluded a +2.7% increase in
revenue growth as a result of favourable
exchange rate movements (included in
revenue at AER), among others.
Growth in revenue at AER (in addition
to the impact of foreign exchange rate
movement), CER and organic revenue
was driven by Sensodyne, whose strong
performance reflected its underlying
brand strength, continued innovation
and strong growth across key markets
particularly India and MEA. Sales in
China declined mid-single digit driven
by lockdown restrictions.
parodontax delivered high-single digit
organic revenue growth, with low-teens
percent organic revenue growth in
North America. Throughout the year,
consumption remain strong, running at
approximately three times that of the
global oral health market.
Denture care organic revenue was up
high-single digit as a result of strong
growth in EMEA and LatAm driven by
easing of lockdown restrictions coinciding
with strong innovation and marketing
around the product.
VMS
Revenue was £1,675m (2021: £1,501m),
a growth of +11.6% on a reported basis
(including exchange rate impact, with
revenue growth on a constant currency
basis of +5.3%) and +5.0% on an
organic basis.
Organic revenue growth was primarily
driven by the same principal factors, but
notably excluded a +6.4% increase in
revenue growth as a result of favourable
exchange rate movements (included in
revenue at AER), among others.
Growth in revenue at AER (including the
favourable impact of foreign exchange rate
changes), CER and organic revenue was
driven by Centrum revenue’s mid-single
digit growth reflecting good growth across
APAC and EMEA & LatAm with global
market share gains across the year.
Revenue by product category for the year ended 31 December 2022
Revenue (£m)
Revenue change (%)
2022
2021
Reported
Constant
currency
1
Organic
1
Oral Health
2,957
2,724
8.6%
5.8%
5.6%
VMS
1,675
1,501
11.6%
5.3%
5.0%
Pain Relief
2,551
2,237
14.0%
9.4%
8.9%
Respiratory Health
1,579
1,132
39.5%
32.6%
32.6%
Digestive Health and Other
2,096
1,951
7.4%
0.9%
2.9%
Group revenue
10,858
9,545
13.8%
8.7%
9.0%
1
Price and volume/mix are components of organic revenue growth. Definitions and calculations of non-IFRS measures can be found from page 46.
Revenue by product category
Emergen-C revenue also grew organically
by low-single digit with consumption
skewed towards COVID-19-related
demand and benefiting from new
innovations including Emergen-C Kidz.
Caltrate saw organic revenue growth in
mid-single digit given growth in China with
a slight slowdown in December reflecting
COVID-19 lockdowns resulting in
decreasing traffic to pharmacies.
Pain Relief
Revenue was £2,551m (2021: £2,237m),
a growth of +14.0% on a reported basis
(including exchange rate impact, with
revenue growth on a constant currency
basis of +9.4%) and +8.9% on an
organic basis.
Organic revenue growth was primarily
driven by the same principal factors, but
excluded, among others, a +4.7% increase
in revenue growth as a result of favourable
exchange rate movements (included in
revenue at AER).
Growth in revenue at AER (including the
favourable impact of foreign exchange rate
changes), CER and organically was driven
by Panadol. Revenue grew organically by
high-teens percent with double digit
growth organically across all three regions
and particular strength in MEA, Australia
and SEAT.
Advil organic revenue growth was in the
low-double-digit percent benefiting from
increased incidences of flu, COVID-19 and
Respiratory Syncytial virus (RSV). The latter
particularly led to strong growth and
market share gains for Advil Kids in the US.
Low single digit organic revenue growth
from Voltaren with high single digit organic
revenue growth in US and mid-single digit
organic revenue growth in China partly
offset by a decline in Germany.
Haleon
Annual Report and Form 20-F 2022
43
Strategic Report
Corporate Governance
Financial Statements
Other Information
2022 Business review
Respiratory Health
Revenue was £1,579m (2021: £1,132m),
a growth of +39.5% on a reported basis
(including exchange rate impact, with
revenue growth on a constant currency
and organic basis of +32.6%).
Organic revenue growth was primarily
driven by the same principal factors,
but excluded a +6.9% increase in revenue
growth as a result of favourable exchange
rate movements (included in revenue
at AER).
A strong cold and flu season, well ahead
of the historically low season in 2021
underpinned the results across all regions
with sales up c.30% compared to 2019.
This added 3% to group revenue growth
in 2022.
Theraflu and Robitussin were up over 50%
and Otrivin was up over 30%. Results were
underpinned by a number of new
innovations including the launch of
Theraflu Max in the US which drove
incremental share and penetration gain
for Theraflu.
Digestive Health and Other
Revenue was £2,096m (2021: £1,951m),
a growth of +7.4% on a reported basis
(including significant exchange rate
impact, with revenue growth on a constant
currency basis of +0.9%) and +2.9% on an
organic basis.
Organic revenue growth was primarily
driven by the same principal factors,
but excluded a +6.7% increase in revenue
growth as a result of favourable exchange
rate movements (included in revenue at
AER) and decreases in revenue growth
of 2.2% from the effect of organic
adjustments 0.8% from the effect of
disposals and 1.4% from the effect
of MSAs.
Growth in revenue at AER (including the
favourable impact of foreign exchange rate
changes), CER and organic revenue was
driven by Digestive Health, which is around
half of this reported product category, and
saw growth in Eno. Smokers’ health
revenues declined slightly and Skin Health
brands were up high-single digit.
2022 Business review
continued
Revenue by product category
continued
Haleon
Annual Report and Form 20-F 2022
44
Strategic Report
Currency mix of net debt
(including swaps)
*
includes £307m of net cash
in other currencies
USD
62%
EUR
17%
GBP
*
12%
CNH
9%
Currency mix of total borrowings
(as issued)
USD
71%
EUR
20%
GBP
8%
Other
1%
0
450
900
1350
1800
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2052
Bond Debt Maturity Profile
(£m)
USD
EUR
GBP
830
694
663
659
398
806
299
1,653
1,652
1,385
822
Indebtedness
At 31 December 2022, the Group’s total
borrowings were £10,440m (£11,765m on
18 July 2022 and £166m on 31 December
2021), and the Group’s net debt was
£9,868m (£10,707m on 18 July 2022 and
£(246)m on 31 December 2021).
In July 2022 the Group drew down
£1,493m under a three-year term loan
to complete the financing required for
payment of the separation dividends. This
term loan was fully repaid by 31 December
2022 as a result of the issuance of
commercial paper and the operational
strength of the business.
Long-term financing consists of $8,750m in
USD bonds, as well as €2,350m Euro bonds
and £700m GBP bonds issued in March
2022 under a £10,000m Euro Medium Term
Note programme.
As at 31 December 2022, the Group’s
long-term and short-term credit ratings
were Moody’s: Baa1/P-2 and S&P: BBB/A-2.
Total borrowings/profit after tax was 9.3x
and net debt/Adjusted EBITDA was 3.6x as
at 31 December 2022. Haleon expects to
reduce the ratio of net debt/Adjusted
EBITDA to less than 3.0x during 2024.
Indebtedness, liquidity and financial risk management
2022
£m
2021
£m
Profit after tax
1,119
1,439
Add Back: Income tax
499
197
Add Back: Net finance expense
207
2
Operating profit
1,825
1,638
Add Back: Adjusting items
1,2
647
534
Adjusted operating profit
2,472
2,172
Add Back: Depreciation and impairment
258
241
Adjusted EBITDA
2,730
2,413
Net debt
9,868
(246)
Net debt to adjusted EBITDA
3.6x
NM
1
Definitions and calculations of non-IFRS measures can be found from page 46.
2
Reconciling items for these purposes are the Adjusting items, which are defined under Use of non-IFRS Measures.
A reconciliation between operating profit and Adjusted operating profit is included under Use of non-IFRS Measures.
Cash generation
Net cash from operating activities totalled
£2,063m in 2022 (2021: £1,356m), which
included a net cash outflow of £435m
related to separation, restructuring and
disposals. Free cash flow was £1,579m,
a £406m increase versus 2021.
Liquidity
At 31 December 2022, the Group had total
liquidity of £2,472m comprising £2,163m of
bank facilities and £684m of cash and cash
equivalents, less £73m of bank overdrafts
and £302m of commercial paper
outstanding. The $1,400m and £1,000m
Revolving Credit Facilities are undrawn.
The Group uses short-term financing to
manage working capital requirements and
has access to a $10,000m US commercial
paper programme and a £2,000m Euro
commercial paper programme.
Management believes that the Group
has sufficient working capital for present
requirements and to minimise liquidity risk,
the Group has policies to limit the amount
of debt maturing in any year. In addition,
policies require the Group to always
maintain a minimum available liquidity,
including undrawn revolving credit
facilities and available cash, less
commercial paper issued.
Interest rate risk
The Group’s strategic priorities are to
minimise interest costs and minimise
income statement volatility arising from
interest rates.
The Group has a policy to limit the amount
of floating rate debt it holds to manage the
amount of income statement volatility. The
Group will regularly assess its interest rate
profile in light of changes to market
interest rates.
At 31 December 2022, 87% of debt was
fixed with the balance being exposed to
floating rates.
Foreign exchange translation risk
The Group’s policy is to manage Group
net debt such that the currency mix of
debt broadly aligns with the currency mix
of earnings, considering relative interest
costs and practical implications.
The currency mix of debt includes the
impact of foreign exchange and cross-
currency swaps.
Haleon
Annual Report and Form 20-F 2022
45
Strategic Report
Corporate Governance
Financial Statements
Other Information
2022 Business review
Constant currency
The Group’s reporting currency is Pound Sterling, but the Group’s
significant international operations give rise to fluctuations in
foreign exchange rates. To neutralise foreign exchange impact
and to better illustrate the change in results from one year to
the next, the Group discusses its results both on an “as reported
basis” or using actual exchange rates (AER) (local currency
results translated into Pound Sterling at the prevailing foreign
exchange rate) and using constant currency exchange rates (CER).
To calculate results on a constant currency basis, the Group
restates current year comparatives translating the income
statements of consolidated entities from their non-Sterling
functional currencies to Pound Sterling using prior year
exchange rates. The currencies which most influence the
constant currency results of the Group and their exchange
rates are shown in the table below.
Average rates:
2022
2021
2020
USD/£
1.24
1.38
1.29
Euro/£
1.17
1.16
1.13
CNY/£
8.31
8.86
8.91
CHF/£
1.18
1.25
1.21
Adjusted results
Adjusted results comprise Adjusted cost of sales, Adjusted
gross profit, Adjusted gross profit margin, Adjusted selling,
general and administration (SG&A), Adjusted research and
development (R&D), Adjusted other operating income/(expense),
Adjusted operating expenses, Adjusted operating profit, Adjusted
operating profit margin, Adjusted net finance costs, Adjusted
profit before tax, Adjusted income tax, Adjusted effective tax
rate, Adjusted profit after tax, Adjusted profit attributable to
shareholders, Adjusted diluted earnings per share. Adjusted
results exclude net amortisation and impairment of intangible
assets, restructuring costs, transaction-related costs, separation
and admission costs, and disposals and others, in each case net
of the impact of taxes (where applicable) (collectively the
Adjusting items).
We believe that Adjusted results, when considered together
with the Group’s operating results as reported under IFRS,
provide investors, analysts and other stakeholders with helpful
complementary information to understand the financial
performance and position of the Group from period to period and
allow the Group’s performance to be more easily comparable.
Adjusting items
Adjusted results exclude the following items (net of the impact
of taxes, where applicable):
Net amortisation and impairment of intangible assets
Net impairment of intangibles, impairment of goodwill and
amortisation of acquired intangible assets, excluding computer
software. These adjustments are made to reflect the performance
of the business excluding the effect of acquisitions.
Restructuring costs
From time to time, the Group may undertake business
restructuring programmes that are structural in nature and
significant in scale. The cost associated with such programmes
includes severance and other personnel costs, professional fees,
impairments of assets, and other related items.
Transaction-related costs
Transaction-related accounting or other adjustments related
to significant acquisitions including deal costs and other
pre-acquisition costs when there is certainty that an acquisition
will complete. It also includes costs of registering and issuing
debt and equity securities and the effect of inventory
revaluations on acquisitions.
Separation and admission costs
Costs incurred in relation to and in connection with separation,
UK Admission and registration of the Company’s Ordinary Shares
represented by the Company’s American Depositary Shares
(ADSs) under the US Exchange Act of 1934 and listing of ADSs on
the NYSE (the US Listing). These costs are not directly attributable
to the sale of the Group’s products and specifically relate to the
foregoing activities, affecting comparability of the Group’s
financial results in historical and future reporting periods.
We use certain alternative performance measures to make financial, operating,
and planning decisions and to evaluate and report performance. We believe
these measures provide useful information to investors and as such, where clearly
identified, we have included certain alternative performance measures in this
document to allow investors to better analyse our business performance and allow
greater comparability. To do so, we have excluded items affecting the comparability
of period-over-period financial performance. Adjusted results and other non-IFRS
measures may be considered in addition to, but not as a substitute for or superior
to, information presented in accordance with IFRS. Additionally, we are unable to
present reconciliations of forward-looking information for non-IFRS measures
because we are unable to forecast accurately certain adjusting items required
to present a meaningful comparable IFRS forward-looking financial measure.
Use of non-IFRS measures
Haleon
Annual Report and Form 20-F 2022
46
Strategic Report
Disposals and others
Includes gains and losses on disposals of assets, businesses
and tax indemnities related to business combinations, legal
settlement and judgements, impact of changes in tax rates
and tax laws on deferred tax assets and liabilities, retained or
uninsured losses related to acts of terrorism, significant product
recalls, natural disasters and other items. These gains and losses
are not directly attributable to the sale of the Group’s products
and vary from period to period, which affects comparability of
the Group’s financial results. From period to period, the Group
will also need to apply judgement if items of unique nature
arise that are not specifically listed above.
The following tables set out a reconciliation between IFRS and Adjusted results for the year ended 31 December 2022:
2022
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Revenue
10,858
—
—
—
—
—
10,858
Gross profit
6,577
172
19
—
4
—
6,772
Gross profit margin %
60.6%
62.4%
Operating profit
1,825
172
41
8
411
15
2,472
Operating profit margin %
16.8%
22.8%
Net finance costs
(207)
—
—
—
—
—
(207)
Profit before tax
1,618
172
41
8
411
15
2,265
Income tax
(499)
(37)
(7)
(2)
(55)
94
(506)
Effective tax rate %
31%
22%
Profit after tax for the year
1,119
135
34
6
356
109
1,759
The following table shows the adjusting items to reconcile cost of sales to Adjusted cost of sales:
2022
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Cost of sales
(4,281)
172
19
—
4
—
(4,086)
Cost of sales
(4,281)
172
19
—
4
—
(4,086)
The following table shows the adjusting items to reconcile operating expenses to Adjusted operating expenses among the relevant
components thereof:
2022
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Selling, general and administration
(4,483)
—
25
8
407
44
(3,999)
Research and development
(300)
—
(3)
—
—
—
(303)
Other operating income/(expense)
31
—
—
—
—
(29)
2
Operating expenses
(4,752)
—
22
8
407
15
(4,300)
The following table shows the adjusting items used to reconcile diluted earnings per share to Adjusted diluted earnings per share:
2022
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Profit attributable to shareholders (£m)
1,060
135
34
6
356
109
1,700
Weighted average number of shares (millions)
9,239
9,239
Diluted earnings per share (pence)
11.5
1.4
0.4
0.1
3.8
1.2
18.4
1
Net amortisation and impairment of intangible assets:
includes impairment of intangible assets of £129m and amortisation of intangible assets excluding computer software of £43m.
2
Restructuring costs:
includes amounts related to business transformation activities.
3
Transaction-related costs:
includes amounts related to acquisition of a manufacturing site.
4
Separation and Admission costs:
includes amounts incurred in relation to and in connection with the separation and listing of the Group as a standalone business.
5
Disposals and others:
includes net gains on disposals of assets and business changes totalling £20m, offset by other items including a provision with respect to PPI litigation.
The tax effect includes a £102m tax charge related to the revaluation of US deferred tax liabilities due to the increase in the blended rate of US state taxes expected to apply
as a result of the demerger.
Haleon
Annual Report and Form 20-F 2022
Use of non-IFRS measures
47
Strategic Report
Corporate Governance
Financial Statements
Other Information
The following tables set out a reconciliation between IFRS and Adjusted results for the year ended 31 December 2021:
2021
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
Separation and
Admission
costs
3
Disposals
and others
4
Adjusted
results
Revenue
9,545
—
—
—
—
—
9,545
Gross profit
5,950
8
44
—
—
—
6,002
Gross profit margin %
62.3%
62.9%
Operating profit
1,638
16
195
—
278
45
2,172
Operating profit margin %
17.2%
22.8%
Net Finance costs
(2)
—
—
—
—
—
(2)
Profit before tax
1,636
16
195
—
278
45
2,170
Income tax
(197)
8
(36)
—
(47)
(197)
(469)
Effective tax rate %
12%
22%
Profit after tax for the year
1,439
24
159
—
231
(152)
1,701
The following table shows the adjusting items used to reconcile cost of sales to Adjusted cost of sales:
2021
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
Separation and
Admission
costs
3
Disposals
and others
4
Adjusted
results
Cost of sales
(3,595)
8
44
—
—
—
(3,543)
Cost of sales
(3,595)
8
44
—
—
—
(3,543)
The following table shows the adjusting items to reconcile operating expenses to Adjusted operating expenses among the relevant
components thereof:
2021
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
Separation and
Admission
costs
3
Disposals
and others
4
Adjusted
results
Selling, general and administration
(4,086)
—
150
—
278
76
(3,582)
Research and development
(257)
8
1
—
—
—
(248)
Other operating income/(expense)
31
—
—
—
—
(31)
—
Operating expenses
(4,312)
8
151
—
278
45
(3,830)
The following table shows the adjusting items used to reconcile diluted earnings per share to Adjusted diluted earnings per share:
2021
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
Separation and
Admission
costs
3
Disposals
and others
4
Adjusted
results
Profit attributable to shareholders (£m)
1,390
24
159
—
231
(152)
1,652
Weighted average number of shares (millions)
9,235
9,235
Diluted earnings per share (pence)
15.1
0.2
1.7
—
2.5
(1.6)
17.9
1
Net amortisation and impairment of intangible assets:
includes impairment of intangible assets of £12m, reversal of impairment of £36m and amortisation of intangible assets
excluding computer software of £40m.
2
Restructuring costs:
includes amounts related to business transformation activities.
3
Separation and Admission costs:
includes amounts incurred in relation to and in connection with the separation and listing of the Group as a standalone business.
4
Disposals and others:
includes net gains on disposals of assets and businesses totalling £31m, offset by tax indemnities related to business combinations and other expense items
totalling £76m. Income tax includes a £164m tax credit related to an uplift of the tax basis of certain intra-group brand transfers.
Use of non-IFRS measures
continued
Haleon
Annual Report and Form 20-F 2022
48
Strategic Report
The following tables set out a reconciliation between IFRS and Adjusted results for the year ended 31 December 2020:
2020
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Revenue
9,892
—
—
—
—
—
9,892
Gross profit
5,910
81
89
91
—
2
6,173
Gross profit margin %
59.7%
62.4%
Operating profit
1,598
97
411
91
66
(189)
2,074
Operating profit margin %
16.2%
21.0%
Net finance costs
(7)
—
—
—
—
—
(7)
Profit before tax
1,591
97
411
91
66
(189)
2,067
Income tax
(410)
(19)
(90)
(20)
(13)
69
(483)
Effective tax rate %
26%
23%
Profit after tax for the year
1,181
78
321
71
53
(120)
1,584
The following table shows the allocation of the adjusting items used to reconcile cost of sales to Adjusted cost of sales:
2020
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Cost of sales
(3,982)
81
89
91
—
2
(3,719)
Cost of sales
(3,982)
81
89
91
—
2
(3,719)
The following table shows the adjusting items to reconcile operating expenses to Adjusted operating expenses among the relevant
components thereof:
2020
£m
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Selling, general and administration
(4,220)
—
314
—
66
21
(3,819)
Research and development
(304)
16
8
—
—
—
(280)
Other operating income/(expense)
212
—
—
—
—
(212)
—
Operating expenses
(4,312)
16
322
—
66
(191)
(4,099)
The following table shows the adjusting items used to reconcile diluted earnings per share to Adjusted diluted earnings per share:
2020
IFRS
Results
Net
amortisation
and impairment
of intangible
assets
1
Restructuring
costs
2
Transaction-
related costs
3
Separation and
Admission
costs
4
Disposals
and others
5
Adjusted
results
Profit attributable to shareholders (£m)
1,145
78
319
71
53
(120)
1,546
Weighted average number of shares (millions)
9,235
9,235
Diluted earnings per share (pence)
12.4
0.7
3.5
0.8
0.6
(1.3)
16.7
1
Net amortisation and impairment of intangible assets:
includes impairment of intangible assets of £47m and amortisation of intangible assets excluding computer software of £50m.
2
Restructuring costs:
includes amounts related to business transformation activities.
3
Transaction costs:
includes unwinding of inventory fair value uplift.
4
Separation and Admission costs:
includes amounts incurred in relation to and in connection with the separation and listing of the Group as a standalone business.
5
Disposals and others:
includes net gains on disposals of assets and businesses totalling £212m, offset by tax indemnities related to business combinations and other expense
items totalling £23m.
Haleon
Annual Report and Form 20-F 2022
Use of non-IFRS measures
49
Strategic Report
Corporate Governance
Financial Statements
Other Information
Organic revenue growth
Organic revenue growth represents the change in organic
revenue at CER from one accounting period to the next.
Organic revenue represents revenue, as determined under
IFRS and excluding the impact of acquisitions, divestments
and closures of brands or businesses, revenue attributable
to manufacturing service agreements (MSAs) relating to
divestments and the closure of sites or brands, and the
impact of currency exchange movements.
Revenue attributable to MSAs relating to divestments and
production site or brand closures has been removed from
organic revenue because these agreements are transitional and,
with respect to production site closures, include a ramp-down
period in which revenue attributable to MSAs gradually reduces
several months before the production site closes. This revenue
reduces the comparability of prior and current year revenue
and is therefore adjusted for in the calculation of organic
revenue growth.
Organic revenue is calculated period to period as follows, using
prior year exchange rates to restate current year comparatives:
—
Current year organic revenue excludes revenue from brands
or businesses acquired in the current accounting period.
—
Current year organic revenue excludes revenue attributable
to brands or businesses acquired in the prior year from
1 January to the date of completion of the acquisition.
—
Prior year organic revenue excludes revenue in respect
of brands or businesses divested or closed in the current
accounting period from 12 months prior to the completion
of the disposal or closure until the end of the prior
accounting period.
—
Prior year organic revenue excludes revenue in respect of
brands or businesses divested or closed in the previous
accounting period in full.
—
Prior year and current year organic revenue excludes revenue
attributable to MSAs relating to divestments and production
site closures taking place in either the current or prior year,
each an Organic Adjustment.
To calculate organic revenue growth for the period, organic
revenue for the prior year is subtracted from organic revenue in
the current year and divided by organic revenue in the prior year.
The Group believes that discussing organic revenue growth
contributes to the understanding of the Group’s performance
and trends because it allows for a year on year comparison
of revenue in a meaningful and consistent manner.
Organic revenue growth by individual geographical segment is
further discussed by price and volume/mix changes, which are
defined as follows:
—
Price: defined as the variation in revenue attributable to
changes in prices during the period. Price excludes the impact
to organic revenue growth due to (i) the volume of products
sold during the period and (ii) the composition of products
sold during the period. Price is calculated as current year net
price minus prior year net price multiplied by current year
volume. Net price is the sales price, after deduction of any
trade, cash or volume discounts that can be reliably estimated
at point of sale. Value added tax and other sales taxes are
excluded from the net price.
—
Volume/mix: defined as the variation in revenue attributable
to changes in volumes and composition of products sold in
the period.
Use of non-IFRS measures
continued
Haleon
Annual Report and Form 20-F 2022
50
Strategic Report
The following tables reconcile reported revenue growth for the years ended 31 December 2022, 31 December 2021 and
31 December 2020 to organic revenue growth for the same period by geographical segment and by product category.
Geographical segments
North America
EMEA &
LatAm
APAC
Total
2022 vs 2021 (%)
Revenue growth
16.8
10.1
15.4
13.8
Organic adjustments
0.3
0.9
(1.0)
0.2
of which:
Effect of Acquisitions
—
—
(1.1)
(0.3)
Effect of Divestments
0.1
0.4
—
0.2
Effect of MSAs
0.2
0.5
0.1
0.3
Effect of Exchange Rates
(11.2)
(0.1)
(3.8)
(5.0)
Organic revenue growth
5.9
10.9
10.6
9.0
Price
2.9
6.4
2.6
4.3
Volume/mix
3.0
4.5
8.0
4.7
North America
EMEA &
LatAm
APAC
Total
2021 vs 2020 (%)
Revenue growth
(6.7)
(4.5)
4.3
(3.5)
Organic adjustments
2.4
3.4
2.0
2.7
of which:
Effect of Acquisitions
—
—
—
—
Effect of Divestments
2.5
3.1
2.2
2.7
Effect of MSAs
(0.1)
0.3
(0.2)
—
Effect of Exchange Rates
5.6
4.6
2.8
4.6
Organic Revenue Growth
1.3
3.5
9.1
3.8
Price
2.2
Volume/mix
1.6
North America
EMEA &
LatAm
APAC
Total
2020 vs 2019 (%)
Revenue growth
31.2
4.1
20.7
16.7
Organic adjustments
(32.1)
(5.0)
(15.9)
(16.6)
of which:
Effect of Acquisitions
(33.9)
(8.8)
(19.9)
(19.7)
Effect of Divestments
1.2
4.5
4.0
3.2
Effect of MSAs
0.6
(0.7)
—
(0.1)
Effect of exchange rates
1.6
4.0
0.9
2.7
Organic revenue growth
1
0.7
3.1
5.7
2.8
1
Organic revenue growth for the year ended 31 December 2020 excludes revenue attributable to brands acquired as part of the Pfizer Transaction for the period 1 January 2020 to
31 July 2020 and includes revenue attributable to these brands for the period 1 August 2020 to 31 December 2020. Sales patterns during these two periods were materially impacted
by the COVID-19 pandemic with increased sales during the former period driven by accelerated purchases by consumers combined with increased consumption and sales during the
latter period negatively impacted by a reduction in consumer inventories and weak cold and flu incidence.
Haleon
Annual Report and Form 20-F 2022
Use of non-IFRS measures
51
Strategic Report
Corporate Governance
Financial Statements
Other Information
Product categories
Oral Health
VMS
Pain Relief
Respiratory
Health
Digestive
Health and
Other
Total
2022 vs 2021 (%)
Revenue growth
8.6
11.6
14.0
39.5
7.4
13.8
Organic adjustments
(0.3)
(0.2)
(0.4)
—
2.2
0.2
of which:
Effect of Acquisitions
(0.3)
(0.3)
(0.5)
—
—
(0.3)
Effect of Divestments
—
0.1
0.1
—
0.8
0.2
Effect of MSAs
—
—
—
—
1.4
0.3
Effect of exchange rates
(2.7)
(6.4)
(4.7)
(6.9)
(6.7)
(5.0)
Organic revenue growth
5.6
5.0
8.9
32.6
2.9
9.0
Oral Health
VMS
Pain Relief
Respiratory
Health
Digestive
Health and
Other
Total
2021 vs 2020 (%)
Revenue growth
(0.8)
0.5
2.1
(12.8)
(9.8)
(3.5)
Organic adjustments
—
0.3
0.3
6.4
7.6
2.7
of which:
Effect of Acquisitions
—
—
—
—
—
—
Effect of Divestments
—
0.3
0.3
6.4
7.5
2.7
Effect of MSAs
—
—
—
—
0.1
—
Effect of exchange rates
5.2
3.4
4.1
4.6
5.3
4.6
Organic revenue growth
4.4
4.2
6.5
(1.8)
3.1
3.8
Oral Health
VMS
Pain Relief
Respiratory
Health
Digestive
Health and
Other
Total
2020 vs 2019 (%)
Revenue growth
3.3
150.3
25.8
(1.5)
(0.1)
16.7
Organic adjustments
—
(133.5)
(23.5)
(6.7)
(5.4)
(16.6)
of which:
Effect of Acquisitions
1
—
(133.9)
(23.7)
(10.5)
(14.2)
(19.7)
Effect of Divestments
—
0.4
0.2
3.8
9.4
3.2
Effect of MSAs
—
—
—
—
(0.6)
(0.1)
Effect of exchange rates
2.6
2.5
2.6
1.9
3.0
2.7
Organic revenue growth
1
5.9
19.3
4.9
(6.3)
(2.5)
2.8
1
Organic revenue growth for the year ended 31 December 2020 excludes revenue attributable to brands acquired as part of the Pfizer Transaction for the period 1 January 2020
to 31 July 2020 and includes revenue attributable to these brands for the period 1 August 2020 to 31 December 2020. Sales patterns during these two periods were materially
impacted by the COVID–19 pandemic with increased sales during the former period driven by accelerated purchases by consumers combined with increased consumption and
sales during the latter period negatively impacted by a reduction in consumer inventories and weak cold and flu incidence.
Use of non-IFRS measures
continued
Haleon
Annual Report and Form 20-F 2022
52
Strategic Report
Adjusted EBITDA
Adjusted EBITDA is calculated as profit after tax excluding
income tax, finance income, finance expense, Adjusting items (as
defined on page 46), depreciation of property, plant and
equipment and right-of-use assets, amortisation of computer
software, impairment of property, plant and equipment, right-of-
use assets and computer software net of impairment reversals.
Adjusted EBITDA does not reflect cash expenditures, or future
requirements for capital expenditures or contractual
commitments. Further, Adjusted EBITDA does not reflect changes
in, or cash requirements for, working capital needs, and although
depreciation and amortisation are non-cash charges, the assets
being depreciated and amortised are likely to be replaced in the
future and Adjusted EBITDA does not reflect cash requirements
for such replacements.
Adjusted EBITDA eliminates differences in performance caused
by variations in capital structures (affecting net finance costs), tax
positions (such as the availability of net operating losses against
which to relieve taxable profits), the cost and age of tangible
assets (affecting relative depreciation expense) and the extent to
which intangible assets are identifiable (affecting relative
amortisation expense). As a result, we believe that Adjusted
EBITDA provides useful information to understand and evaluate
the Group’s operating results.
The reconciliation between profit after tax for the year and
Adjusted EBITDA for the years ended 31 December 2022, 31
December 2021 and 31 December 2020 is provided below:
£m
2022
£m
2021
£m
2020
£m
Profit after tax
1,119
1,439
1,181
Add Back: Income tax
499
197
410
Less: Finance income
(51)
(17)
(20)
Add Back: Finance expense
258
19
27
Operating profit
1,825
1,638
1,598
Net amortisation and impairment of intangible assets
172
16
97
Restructuring costs
41
195
411
Transaction-related costs
8
—
91
Separation and admission costs
411
278
66
Disposals and others
15
45
(189)
Adjusted operating profit
2,472
2,172
2,074
Add Back: Depreciation of property, plant and equipment
142
139
167
Add Back: Depreciation of right of use assets
38
35
48
Add Back: Amortisation of computer software
64
54
40
Add Back: Impairment of property, plant and equipment, rights
of use assets and computer software net of impairment reversals
14
13
22
Adjusted EBITDA
2,730
2,413
2,351
Haleon
Annual Report and Form 20-F 2022
Use of non-IFRS measures
53
Strategic Report
Corporate Governance
Financial Statements
Other Information
Free cash flow
Free cash flow is calculated as net cash inflow from operating
activities plus cash inflows from the sale of intangible assets,
the sale of property, plant and equipment and interest received,
less cash outflows for the purchase of intangible assets,
the purchase of property, plant and equipment, distributions
to non-controlling interests and interest paid.
We believe free cash flow is meaningful to investors because
it is the measure of the funds generated by the Group available
Net capital expenditure
Net capital expenditure includes purchases net of sales of
property, plant and equipment and other intangible assets.
Free cash flow conversion
Free cash flow conversion is calculated as free cash flow,
as defined above, divided by profit after tax. Free cash flow
conversion is used by management to evaluate the cash
The reconciliation of net cash inflow from operating activities to free cash flow for the years ended 31 December 2022,
31 December 2021 and 31 December 2020 is provided below:
£m
2022
2021
2020
Net cash inflow from operating activities
2,063
1,356
1,407
Less: Net capital expenditure
1
(292)
(149)
612
Less: Distributions to non-controlling interests
(48)
(35)
(31)
Less: Interest paid
(163)
(15)
(19)
Less: Interest received
19
16
19
Free cash flow
1,579
1,173
1,988
1
Refer to Net capital expenditure below for calculation.
The reconciliation of net capital expenditure for the years ended 31 December 2022 and 31 December 2021 is provided below:
£m
2022
2021
2020
Purchase of property, plant and equipment
(304)
(228)
(222)
Proceeds from sale of property, plant and equipment
–
12
6
Purchase of intangible assets
(24)
(70)
(96)
Proceeds from sale of intangible assets
36
137
924
Net capital expenditure
(292)
(149)
612
The reconciliation of free cash flow conversion for the years ended 31 December 2022, 31 December 2021 and 31 December 2020 is
provided below:
£m
2022
2021
2020
Free cash flow
1,579
1,173
1,988
Reported profit after tax
1,119
1,439
1,181
Free cash flow conversion
141%
82%
168%
for distribution of dividends, repayment of debt or to fund the
Group’s strategic initiatives, including acquisitions. The purpose
of presenting free cash flow is to indicate the ongoing cash
generation within the control of the Group after taking account
of the necessary cash expenditures for maintaining the capital
and operating structure of the Group (in the form of payments
of interest, corporate taxation and capital expenditure).
Net capital expenditure is used by management to
measure capital invested in the operating activities
of the Group’s business.
generation of the business relative to its profit, by measuring the
proportion of profit after tax that is converted into free cash
flow as defined above.
Use of non-IFRS measures
continued
Haleon
Annual Report and Form 20-F 2022
54
Strategic Report
Net debt
Net debt at a period end is calculated as short-term borrowings
(including bank overdrafts and short-term lease liabilities),
long-term borrowings (including long-term lease liabilities),
and derivative financial liabilities less cash and cash
equivalents and derivative financial assets.
We analyse the key cash flow items driving the movement in net
debt to understand and assess cash performance and utilisation
in order to maximise the efficiency with which resources are
The reconciliation of net debt to the different balance sheet items as at 31 December 2022 and 31 December 2021 is provided below:
£m
2022
2021
Short-term borrowings
(437)
(79)
Long-term borrowings
(10,003)
(87)
Derivative financial liabilities
(206)
(19)
Cash and cash equivalents
684
414
Derivative financial assets
94
17
Net debt
1
(9,868)
246
1
The sum of the Group’s cash and cash equivalents and derivative financial assets exceeded the sum of its short-term borrowings, long-term borrowings and derivative financial
liabilities as at the year ended 2021 (a net cash position).
allocated. The analysis of cash movements in net debt allows
management to more clearly identify the level of cash generated
from operations that remains available for distribution after
servicing the Group’s debt. In addition, the ratio of net debt
to Adjusted EBITDA is used by investors, analysts and credit
rating agencies to analyse our operating performance in the
context of targeted financial leverage.
Haleon
Annual Report and Form 20-F 2022
Use of non-IFRS measures
55
Strategic Report
Corporate Governance
Financial Statements
Other Information
H
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Responding
to problems
Business
Activities
Control
monitoring
Discipline
and
enforcement
Risk
assessment
Written
standards
Communication
Training
3
2
We understand the challenges and uncertainties we
face and take a proactive approach to risk management
to maximise opportunities, drive informed commercial
decision-making, and protect our people and assets.
Our approach to risk
Risk management framework
At Haleon, continual assessment and
management of risk is embedded in our
strategy to achieve our long-term goals.
The nature of these risks is diverse,
and we need to have the appropriate
processes and tools to identify risks
before they materialise.
We have implemented a risk management
framework which ensures accountability
for the identification, assessment,
monitoring and mitigation of risks aligned
with the strategic objectives of our new
global company. The framework supports
information flow and open communication
between the Board, the Audit & Risk
Committee (ARC), the Executive Team,
our functions, business units,
markets and sites.
Our Internal Control Framework (ICF)
defines the essential elements of the
Group’s risk management and compliance
programmes, ensuring risks associated
with conducting business activities are
effectively controlled, in line with the
Board’s risk appetite and compliance
with regulatory requirements.
The ICF is aligned to the Three Lines of
Defence model which assigns roles and
responsibilities for risks and controls
within Haleon. Our business leaders are
responsible for risk management and
control execution (First Line of Defence).
Management is supported by dedicated
risk, control and compliance functions
providing expertise, oversight and
management monitoring (Second Line of
Defence). Our internal audit function
(Third Line of Defence) independently and
objectively assesses the adequacy and
effectiveness of our risk management
programme and the ICF.
Risk governance
The Board has ultimate accountability
for managing the Group’s risks and setting
our risk appetite in line with our strategic
objectives. The Board ensures appropriate
oversight through various mechanisms,
including strategy meetings, management
reports and reviews of selected risk areas.
To assist the Board in discharging its
responsibilities, the ARC is responsible for
reviewing and assessing the effectiveness
of the Group’s risk management and
internal control systems, covering the
Group’s principal risks, financial and
operational controls and procedures.
The Executive Team is joined by the Heads
of Audit & Risk and Ethics & Compliance
to form the Enterprise Risk and Compliance
Committee (ERCC). The ERCC meets
quarterly and ensures that risks are
adequately managed and the risk
management framework is effectively
deployed throughout the Group. The ERCC
discusses principal and emerging risks,
including reviewing industry trends,
regulatory developments, high-profile
incidents, and critical audit findings.
Each principal risk is owned by an ERCC
member, who is accountable for designing
and implementing risk mitigation strategies
and regularly reporting risk updates to
the ARC and ERCC.
At a functional, business unit, market and
site level, regular Compliance and Risk
Forum (CRF) meetings ensure a more
granular review of the enterprise risks
and operationalise the strategies defined
by the ERCC. These governance forums
provide the ERCC with the bottom-up
escalation of risks and issues, reporting
on risk mitigation plans, and corrective
and preventative actions to address issues.
As such, communication and adequate
reporting remain essential to ensure
Haleon’s leaders keep a sound risk culture
and are kept informed to allow swift
decisions and meaningful actions.
An annual management confirmation
review across each business unit and
function ensures key risks are well
managed and that corrective and
preventative actions are in place to
address any significant gaps.
Internal Control Framework
2
3
Three Lines of Defence
Risk taking and management
Risk oversight and business
monitoring
Independent assurance
Haleon
Annual Report and Form 20-F 2022
56
Strategic Report
Assessing risk
We continuously assess and evaluate
the risks posed by the changing
environments in which we operate to
ensure an appropriate, measured, and
timely response by considering potential
impacts and most likely scenarios.
In 2022, we conducted our first annual
enterprise risk assessment (ERA), which
gave us a top down, strategic view of risk
at the enterprise level. This assessment
included a risk survey with our top 40
leaders, followed by interviews with Board
and Executive Team members to identify
and evaluate both current and emerging
risks, and to inform the 2023 internal audit
plan. The ERA outcome also reflects on
whether we think the impact and
likelihood associated with each of our
principal risks are increasing or decreasing.
The top-down process is complemented
by horizon scanning to identify external
trends, and inputs from Compliance
and Risk Forums at all levels of the
organisation help us identify
opportunities and/or emerging risks.
The ERA results have been shared with
the Audit & Risk Committee and the
Board to confirm the principal risks and
agree on the Group’s risk management
priorities for 2023.
Our principal risks
The Board considers the following
principal risks to be the most significant
risks faced by the Group, including
those that can materially impact our
performance and/or reputation and could
threaten our long-term business model
or liquidity. They are not listed in any
particular order and do not comprise an
exhaustive list of risks associated with the
business. While the Directors have carried
out a robust assessment of these risks,
additional risks not known to the Board or
assessed to be less significant may also
materialise and result in an adverse effect
on the business. Following demerger, the
Board no longer considers separation and
listing related issues as a principal risk.
Risks recorded in the June 2022
Prospectus and the half year results have
been incorporated into the Group’s risk
management framework, where applicable
post listing. Haleon also faces other
enterprise risks that we manage as part of
our integrated risk management framework,
such as employee health and safety,
regulatory and legal compliance, product
quality and safety.
Increase household penetration
New and emerging opportunities
3
Strong execution and financial discipline
4
Responsible business
1
2
Increasing risk
Decreasing risk
Unchanged
Trend key
Strategy key
Principal risk and
link to strategy
Description and risk development
Mitigation
1
2
3
4
Growth model
Our success depends
on our ability to
identify and
explore business
opportunities to
deliver organic
growth.
The risk of not meeting our medium-term organic growth
objectives means that we could become less relevant,
resulting in erosion of shareholder value and damage to
our reputation as a leading consumer health business
which can ultimately jeopardise our prospects as a
standalone company.
As one of the fastest growing and most resilient consumer
staples within FMCG segments, the consumer healthcare
market will continue to attract competitors at a global
and local level. This exposes us to the risk of our product
portfolio not being aligned to consumer needs or
demands, and innovation not being responsive to
competitor offerings, changes in consumer preference
or market structure.
In addition, the risk of increasing customer concentration,
market consolidation and shifts in sales channel structures
can lead to increasing pressure on pricing, margins and
product distribution.
We have implemented a clear strategy to achieve our
organic growth objectives by increasing household
penetration and capitalising on new and emerging
opportunities. This is underpinned by detailed category,
brand and market strategies. We continuously review
and benchmark our performance against competitors,
analysing internal and external data when performing
our annual business planning and budgeting process,
and monthly business reviews.
Our business unit leaders are aligned to execute our
growth strategy, capitalising on our Power Brands
and expanding them across geographies and leading
markets. This approach has simplified the forecast
and demand planning process while keeping discipline
in pricing drivers across markets and driving efficient
commercial execution. Global and local teams are
mobilised and functioning to deliver effective growth
across all product portfolio categories.
We continue to foster trust when engaging with
Health Professionals leveraging expert advocacy
and delivering multi-channel experiences through
the Haleon HealthPartner portal. We remain resilient
in our value proposition across sales channels,
exploring opportunities in established routes to
market and working to grow the e-commerce presence
through investments in our digital capabilities.
>>
See Our business model from page 10.
Haleon
Annual Report and Form 20-F 2022
57
Strategic Report
Corporate Governance
Financial Statements
Other Information
Our approach to risk
Principal risk and
link to strategy
Description and risk development
Mitigation
3
4
People and
organisation
Talent attraction and
retention is pivotal
towards a Haleon fit
for the future.
The risk of being unable to attract, develop and retain a
diverse range of skilled employees means we could miss
our strategic objectives and downgrade our corporate
reputation in a highly competitive market.
Employee requirements have evolved to include hybrid
ways of working as a consequence of COVID-19. If we
do not promote and execute talent recognition, career
progression and people engagement, we will not be
successful in establishing our employer position.
Failing to pursue a fit for the future, efficient organisation
in a fast-paced environment could impair the achievement
of our objectives and prevent employees from realising
their full potential.
>>
See Our people on page 26.
We continuously work to attract and retain the best
talent. Our first Haleon employee survey saw high-level
participation (82%) and provided valuable insights
that will drive our actions.
We have developed and launched our Haleon
Leadership standards and a new approach to talent
management. Further, we are have implemented a new
competitive approach to performance management
and long-term incentives (LTI) to reward our talent.
We implemented a global hybrid working model and
are launching other progressive measures to enable
work flexibility. Our Employer Value Proposition
initiatives through social media channels further
develop our corporate brand and reputation.
As a modern employer, our purpose is central
to everything we do. It continuously shapes the brand,
community and employee strategies with DEI
and running a responsible business acting as
pivotal commitments.
We continue to embed our culture and develop our
structures towards a rewarding workplace that delivers
a fit for the future consumer organisation focused on
simplification and investment for growth.
2
4
Trusted ingredients
Haleon’s brands
must reflect
trusted science
and ingredients
to consumers.
The risk of not pursuing best-in-class science or not
monitoring and responding to emerging ingredient
data and changes in consumer perception of product
ingredients has the potential to negatively impact our
brands and reputation.
There is increased regulatory and public scrutiny of the
safety, purity and potential environmental impact of
ingredients in healthcare products. Failure to actively
monitor ingredient-related risks and address emerging
ingredient regulations and industry and market trends
can negatively impact our business and reputation.
Among our priority areas: responsible practices to
address active pharmaceutical ingredients in the
environment; appropriate use of titanium dioxide
inclusive of nanomaterials; and monitoring the potential
for nitrosamine formation in our products. We take these
responsible business actions to ensure our products
are safe when used as directed and compliant with
existing regulations.
>>
See The Group may incur liabilities or be forced to recall
products as a result of real or perceived product quality
or other product-related issues on page 205.
Our approach and success as a global consumer
health company is underpinned by our understanding
of the evolving science of ingredients and deep human
understanding of consumer needs and preferences.
We have extensive controls in place designed to
evaluate benefits and risks and identify potential
concerns about ingredients. Whenever we introduce
a new ingredient into our portfolio, we conduct an
independent evidence-based review of the
ingredient’s safety.
We manage ingredient-related risks through an
established Trusted Ingredients Framework, enabling
us to collect intelligence from multiple external
sources, anticipating and detecting early signals
to inform our approach and action plans to tackle
ingredient risk.
We have cross-functional dedicated resources across
Haleon that provide expertise in informing our
choices of active ingredients and excipients/additives.
We actively participate in industry associations to gain
insights and to impact the environment we operate
in for the benefit of consumers.
>>
Find more information on Haleon’s Trusted ingredients,
sustainably sourced on
www.haleon.com
.
Our approach to risk
continued
Strategy key
Increase household penetration
New and emerging opportunities
3
Strong execution and financial discipline
4
Responsible business
1
2
Trend key
Increasing risk
Decreasing risk
Unchanged
Haleon
Annual Report and Form 20-F 2022
58
Strategic Report
Principal risk and
link to strategy
Description and risk development
Mitigation
1
2
3
4
Supply chain
resilience
Continued challenges
to our supply chain
capacity test our
resilience to ensure
we meet increasing
customer demand.
The risk of supply disruption or constraints in our global
sourcing and supply network due to external or internal
factors or insufficient capacity leading to the inability to
meet customer demand and desired service levels.
Several of our manufacturing sites are heavily utilised,
especially for the production of Panadol, for which
customer demand has doubled over the last five years.
In 2022, we faced unprecedented demand uplift for
Panadol and other cold and flu products due to a very
strong season in the US and Europe and China’s COVID-19
strategy change, which has impacted our ability to achieve
our desired customer service level.
The end-to-end supply chain has also been impacted by
rising commodity and energy costs. While our consumer
health portfolio has proven to be less exposed to cost
increases than other consumer staples businesses within
FMCG, this remains a key area of focus and requires
procurement and value management activities.
We are working to grow our capacity to respond to
future needs and deliver to customers efficiently while
adhering to local regulations and safety standards.
We continue to invest in internal and third-party
capacity and alternate raw material suppliers.
This includes significantly increasing our cold and
flu manufacturing capacity compared to pre-COVID-19
levels, installing additional Panadol packaging lines
in our manufacturing sites in Ireland and Malaysia,
and further regionalising our supply base.
Similarly, we have implemented dual sourcing for the
most critical raw materials to increase supply chain
resilience and accommodate changes in our portfolio
and geopolitical and market conditions. The
programme is dynamic and is expected to further
mature in 2023 and beyond.
Crisis and business continuity management plans are
in place and tested every year with different scenarios.
These are opportunities for continuous improvement,
enabling teams to respond to incidents. We rely on
transparent team communication to support swift
decision-making towards recovering critical business
functions and assets after a disruption. Such a
structured approach allowed an effective response
to severe weather event disruption in sites (e.g. the
Puerto Rico hurricane and Pakistan floods).
2
4
Environmental,
social and
governance
Sustainability and
climate-related risks
are integrated into
our business and
investment decisions.
The risk of missing our responsible business goals could
materially damage our reputation leading to significant
financial losses. This is because responsible performance
is critical to our investors, customers, consumers and
employees.
We are partially reliant on infrastructure changes and
external factors to achieve our goals. Important
dependencies include the pace at which global energy
supplies switch to renewables, the recycling industry
developing technology to recycle small formats, the
availability of responsibly and sustainably sourced or
recycled materials and the rapidly changing regulatory
and legislative environment.
The uncertain nature of climate change, governmental
response and consumer behaviour bring additional
challenges and opportunities.
Our responsible business strategy is central to
Haleon’s purpose, underpinned by robust Executive
Team sponsorship and governance processes.
When setting our responsible business goals, we
completed detailed analyses, benchmarking, and
materiality assessments to ensure that our goals
were ambitious, relevant, and achievable.
Our responsible business goals cover the key areas of
carbon, plastics/packaging, responsible, sustainable
sourcing, waste, water and health inclusivity.
We have developed collaborative relationships with
external partners and organisations to find solutions
for complex interconnected issues.
We are proactively working on health inclusivity
initiatives representing opportunities to build
relevance and loyalty through our brands with
customers and consumers.
>>
See Environment page 24 and TCFD disclosures
from page 28.
Strategy key
Increase household penetration
New and emerging opportunities
3
Strong execution and financial discipline
4
Responsible business
1
2
Trend key
Increasing risk
Decreasing risk
Unchanged
Haleon
Annual Report and Form 20-F 2022
59
Strategic Report
Corporate Governance
Financial Statements
Other Information
Our approach to risk
Our approach to risk
continued
Principal risk and
link to strategy
Description and risk development
Mitigation
4
Cyber security
Haleon’s operations
depend on robust
and secure IT
systems and
information
management.
The risk of a major disruption to our IT systems, including
through cyber attacks, could materially impact our
operations, harm our reputation and lead to significant
financial losses.
Cyber security threats with misuse of sensitive information
and unauthorised access attempts continue to grow in
number, velocity, and sophistication. As our activities rely
on digital services, such adversity could disrupt our global
business, our research and development, supply chain
and sales, ultimately impacting our results.
The likelihood of such threats is increasing due to our
extended public profile as a large new organisation.
We therefore regard cyber security as a key risk and
continue to respond accordingly.
We remain focused on ensuring Haleon operates
with secure, resilient IT systems and manages
information adequately.
We operate and continuously improve the maturity
of our Technology Control Framework. In addition,
we have embedded best-in-class tooling in areas such
as identity and access management, vulnerability
management, endpoint protection, and logging
and monitoring.
We are harnessing a resilient, cloud-first
architecture to identify and remove dependencies on
individual components and locations, reducing outages
in our most critical applications. We monitor key risk
indicators covering end-to-end cyber security to
facilitate targeted intervention as necessary.
We engage leading external organisations to optimise
our cyber defences and the maturity of our operating
practices. This includes regular assurance of our
cyber maturity, independent security and penetration
testing and crisis response tabletop exercises.
2
3
4
Geopolitical
instability
Our operations
benefit from a
reliable and
cooperative global
environment.
The risk of current and increasing geopolitical tensions
could destabilise key markets, impair our ability to
conduct our globally connected business, challenge
the exchange of products and services, and restrict
the movement of talent.
The Russian invasion of Ukraine has resulted in
additional supply and pricing uncertainties in tight
energy and commodity markets.
International cooperation remains under pressure,
including the increasingly complex political relationship
between China and the US, our two largest markets,
which may hinder the prospects of current trade deals
and increase retaliation.
Increased sanctions, other supranational guidelines and
the imposition of tariffs raise our risk profile and could
lead to severe trade disruptions, cash flow constraints,
and restricted opportunities for strategic growth.
The consideration and effective mitigation of
geopolitical risks has become a critical factor within our
continuity planning for both our internal resilience and
the resilience of our extended supply chain. We remain
vigilant in monitoring the geopolitical trends and how
they are likely to impact our business from a people,
cashflow and access to products perspective.
Our leadership teams are connected to assess the
robustness of crisis management and business
continuity plans which are in place for all key markets
and sites. We apply scenario analysis in our planning
processes to assess potential impacts. Our trade
compliance and sanctions teams monitor upcoming
changes in regulation and oversee import and
export activities.
Alongside the global community, we share the deep
concern about the ongoing war in Ukraine. We continue
to take actions guided by our purpose to deliver better
everyday health with humanity, putting our employees’
safety, security and wellbeing first. We remain focused
on ensuring access to our essential health products and
providing humanitarian support. In Russia, we stopped
advertising in March 2022, reduced our portfolio and
prioritised importing our medicines. To the best of our
knowledge, we fully comply with all applicable global
sanction requirements.
Emerging risks
We define emerging risks as uncertainties
or potential disruptors that have not yet
crystallised into specific risks whose
potential impact is difficult to predict.
Emerging risks are reviewed by the Board
alongside our principal risks.
Macroeconomic uncertainty represents
challenging conditions that affect the
economies where we operate.
For instance, significant increases in
energy costs and inflationary pressures,
including materials, wages and
transportation costs, may adversely
impact consumer behaviours and our
cost structure. A continued rise in interest
rates could result in higher financing costs
and cash outflows. As governments and
Central Banks seek to address budget
challenges, changes to the fiscal and
monetary policies may lead to unexpected
tax exposure for the Group. Fluctuations
between trading currencies introduce
exposure to transactional and
translational currency risks.
While global financial institutions
cannot accurately predict a medium-term
economic outlook, a macroeconomic
downturn in key markets remains an
uncertain scenario for 2023. We remain
proactive and vigilant in monitoring the
financial conditions and assessing the
potential impact of these scenarios on
our business model and financial targets.
>>
See also Run a responsible business from
page 21, Our people page 26, TCFD from
page 28 and Risk factors from page 202.
>>
See Audit & Risk Committee Report from
page 74.
Haleon
Annual Report and Form 20-F 2022
60
Strategic Report
Viability statement
In accordance with provision 31 of the 2018 UK Corporate
Governance Code, the Directors have assessed the viability of the
Group by considering the activities and principal risks together
with factors likely to affect the Group’s future development,
performance, financial position, cash flows, liquidity position
and borrowing facilities as described in the Annual Report.
The Directors’ assessment of viability has been made over a
three-year period, which corresponds to the Group’s planning
cycle. Additionally, the Directors believe this presents the readers
of the Annual Report with a reasonable degree of confidence
over the period assessed.
The assessment considered the Group’s prospects related to
revenue, operating profit and free cash flow. The Directors
considered the maturity dates for the Group’s debt obligations
and its access to public and private debt markets, including its
committed credit facilities. The Directors also carried out a
robust review and analysis of the principal risks facing the Group,
including those risks that could materially and adversely affect
the Group’s business model, future performance, solvency
and liquidity.
Stress testing was performed on a number of scenarios, including
the potential impact of severe but plausible scenarios over the
viability period for each potential combination of principal risks
identified below. In total, four individual scenarios have been
created incorporating a combination of principal risks, with a fifth
collective scenario, which combines all the individual scenarios.
Mitigating actions for such scenarios include reducing A&P spend,
reducing capital spend, pausing M&A activity and cancelling
shareholder dividends.
Based on the assessment described above and considering the
Group’s current financial position, debt maturity profile, stable
cash generation, access to liquidity, geographic diversification
and lack of concentration of supply, the Directors have a
reasonable expectation that the Group is well positioned to
manage principal risks and potential downside impacts of
such risks materialising, and that the Company will be able
to continue in operation and meet its liabilities as they fall
due over the assessment period.
Scenario modelled
Key assumptions
Link to principal risks
Scenario 1:
A breakdown of a major
manufacturing site resulting in a closure of the
site for 18 months and causing a disruption
to the supply chain increasing commodity,
freight and labour costs and a Group-wide
cyber event which would cause lost sales for
two weeks.
–
Decrease in net revenue and gross profit
as a result of a loss of product sales.
–
Increase in commodity, freight and labour
costs of other manufacturing sites.
–
Supply chain resilience.
–
Trusted ingredients.
–
Environmental, social & governance.
–
Cyber security.
Scenario 2:
No sales price increases and
volume growth over the forecast period
across all product categories to reflect slower
economic growth and competitor activity.
–
No price increases and forecasted growth,
with a corresponding impact on cost of
goods sold due to lower volumes.
–
Growth model.
–
Geopolitical instability.
–
Macroeconomic uncertainties
(emerging risk).
Scenario 3:
Other sensitivities to
reflect inflationary pressure, foreign
currency volatility, interest and tax risks,
geopolitical risks (Russia-Ukraine) and
inability to refinance.
–
Increase in tax charges resulting from an
increase in the effective tax rate of 5%.
–
No revenue and operating profit generated
from Russia, Ukraine and Belarus across the
plan period.
–
Failure to refinance bonds in 2025.
–
Double interest costs on floating rate
debt bonds.
–
Depreciation of pound sterling against
major local currencies impacting the Group
by 5%.
–
Geopolitical instability.
–
Macroeconomic uncertainties
(emerging risk).
Scenario 4:
A significant incident that leads
to a product recall and reputational damage
of a key brand resulting in nil sale of products
from this brand for six months.
–
75% decrease in sales and operating profit
for a Power Brand for six months.
–
Write off all inventories relating to the
product of the above Power Brand.
–
Additional investment in A&P to rebuild
the brand.
–
Growth model.
–
Supply chain resilience.
–
Trusted ingredients.
Scenario 5:
Combination of all the above
scenarios together with mitigating actions
that could reasonably be implemented.
–
Reduced A&P spend, reduced capital
spend, pause in M&A activity, and
cancellation of shareholder dividends.
–
All the above risks.
Haleon
Annual Report and Form 20-F 2022
61
Strategic Report
Corporate Governance
Financial Statements
Other Information
Viability statement
Section 172 statement
Details of how the Directors have had regard to the matters set out in Section 172(1)(a) to (f) of the Companies Act 2006 is provided
on page 71.
Non-financial and sustainability information statement
Non-financial and sustainability information, including a description of policies, due diligence processes, outcomes and risks and
opportunities can be found as set out below. Internal verification and disclosure controls apply to all the information covered in
these areas.
Statement of compliance
A description of the business model
Our business model
10
Impact of activities on the environment
Key performance indicators
12
Progress against our
strategy – environment
24
Task Force on Climate-related
Financial Disclosures
28
Our approach to risk
56
Section 172 Statement
71
Nominations & Governance
Committee Report
80
Streamlined Energy and
Carbon Reporting
199
Employee matters
Key performance indicators
12
Stakeholder engagement
14
Our culture and behaviours
16
Our People
26
Our approach to risk
56
Section 172 Statement
71
Workforce engagement
72
Directors’ Remuneration Report
82
Miscellaneous Reporting
Requirements
197
Social matters
Progress against our strategy –
Health inclusivity
23
Section 172 Statement
71
Human rights
Progress against our strategy –
upholding our standards
25
Anti-corruption and anti-bribery
Progress against our strategy –
upholding our standards
25
Audit & Risk Committee Report
74
Policy, due diligence and outcomes
Our approach to risk
56
Viability statement
61
Audit & Risk Committee Report
74
Non-financial key performance
indicators
Key performance indicators
12
>>
Key policies are available at
www.haleon.com
The Strategic Report on pages 2 to 62 was approved by the Board on 20 March 2022.
Amanda Mellor,
Company Secretary
Haleon
Annual Report and Form 20-F 2022
62
Strategic Report
Corporate
Governance
Rituparna
Global R&D, Analytical Science
Rituparna is one of our scientists based
in our global R&D site in Richmond, USA.
As part of the Analytical Science team,
Rituparna works closely on our US-based
Theraflu and Advil brands. Sold since 1960
and winner of the Consumer Healthcare
Products Association (CHPA) 2022 People’s
Choice Award, Theraflu was the fastest
growing of the top four global cold and
flu brands.
Contents
Our Board of Directors
64
Our Executive Team
66
Letter from the Chair
68
Governance structure
69
Board activities
70
Section 172 Statement
71
Audit & Risk Committee Report
74
Nominations & Governance
Committee Report
80
Directors’ Remuneration Report
82
Directors’ Remuneration Policy
86
Annual Report on Remuneration
95
Compliance with the UK Corporate
Governance Code
106
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
63
Corporate Governance
Board composition
Chair
1
Executive
Directors
2
Independent
Non-Executive
Directors
6
Non-Executive
Directors
2
Ethnicity
White
9
Mixed/Multiple
ethnic groups
2
Gender
Men
6
Women
5
Chair and Executive Directors
Independent Non-Executive Directors
Our Board of Directors
Deirdre Mahlan
Independent Non-Executive
Director
A
N
R
Appointed:
18 July 2022
Skills and experience:
Deirdre is a
qualified accountant and held a
number of senior finance and
general management roles during
her 27-year career at Diageo,
including President, Diageo North
America and Chief Financial Officer
of Diageo plc. Prior to Diageo, she
held senior finance roles in Joseph
Seagram and Sons, Inc. and PwC.
Deirdre was a non-executive
director of Experian plc from 2012
to 2022.
Other significant appointments:
—
Duckhorn Portfolio, Inc.
(Non-Executive Director and
Audit Committee Chair )
—
Kimberly-Clark Corporation
(Non-Executive Director)
Manvinder Singh (Vindi) Banga
Senior Independent Non-Executive
Director (SID)
A
N
R
Appointed:
18 July 2022
Skills and experience:
Vindi spent
33 years at Unilever plc, culminating
in becoming President of the Global
Foods, Home and Personal Care
businesses and executive board
member. He has subsequently held
a range of non-executive
directorships, including at GSK plc
(as Senior Independent Director),
Marks & Spencer plc (as Senior
Independent Director), the
Confederation of British Industry
(CBI) and Thomson Reuters Corp.
Other significant appointments:
—
Clayton Dubilier & Rice LLC
(Operating Partner)
—
UK Government Investments
Limited (Chairman)
—
Marie Curie Trust (Chairman)
Tracy Clarke
Independent Non-Executive
Director
A
N
R
E
Appointed:
18 July 2022
Skills and experience:
Tracy held a
range of senior executive positions
during her 30-year tenure at
Standard Chartered Bank, where
her last role was Private Bank CEO
and Regional CEO, Europe &
Americas. Tracy’s prior non-
executive roles include Chair of the
Remuneration Committees of
Sky plc and Eaga plc and
Remuneration Committee member
of Inmarsat plc.
Other significant appointments:
—
TP ICAP plc (Non-Executive
Director and Remuneration
Committee Chair)
—
Starling Bank Limited (Non-
Executive Director and
Remuneration Committee Chair)
Sir Dave Lewis
Chair
N
Appointed:
23 May 2022
Skills and experience:
Dave was
Group Chief Executive Officer of
Tesco plc from 2014 until
September 2020. Prior to joining
Tesco, he spent 28 years at Unilever
plc, holding a variety of leadership
roles in Europe, Asia and the
Americas, including President
Americas and Global President for
Personal Care.
Other significant appointments:
—
PepsiCo Inc. (Non-Executive
Director)
—
World Wildlife Fund UK
(Chairman)
Brian McNamara
Chief Executive Officer
Appointed:
23 May 2022
Skills and experience:
Brian joined
GSK’s Consumer Healthcare
business as Head of Europe and the
Americas in 2015. He was
previously at Novartis AG where he
held senior leadership roles,
including serving as OTC Division
Head and a member of the Novartis
Executive Committee. He began his
career at Procter & Gamble, where
he gained extensive experience in
product supply, brand marketing,
and customer leadership.
Other appointments:
—
The Consumer Goods Forum
(Board Member)
Tobias Hestler
Chief Financial Officer
Appointed:
23 May 2022
Skills and experience:
Tobias
joined GSK’s Consumer Health Joint
Ventures as CFO in 2017. He has
previously held a number of local
and global finance leadership roles
at Novartis in the US and Europe,
culminating in the position of CFO
at Sandoz, the generics division
of Novartis AG.
Other appointments:
—
No external appointments
Board and Committee
membership key:
Committee Chair
A
Audit & Risk
N
Nominations &
Governance
R
Remuneration
E
Environmental &
Social Sustainability
Haleon
Annual Report and Form 20-F 2022
64
Corporate Governance
Skills and experience
(excluding Executive Directors)
This table shows the number of Directors with each relevant skill/experience.
Consumer
Healthcare
International
Supply chain
Technology
Digital/innovation
Regulatory
Finance
M&A/transformation
Sustainability/
responsible business
Employee engagement
Governance/investor
7
5
9
3
1
2
3
3
7
5
2
5
Independent Non-Executive Directors
Non-Executive Directors
(Nominated by Pfizer Inc.)
Company Secretary
Dame Vivienne Cox
Independent Non-Executive
Director
A
R
E
Appointed:
18 July 2022
Skills and experience:
Vivienne
worked for BP plc for 28 years,
holding senior leadership roles
including Executive Vice President
and Chief Executive of BP’s gas,
power and renewable business.
Vivienne’s previous non-executive
directorships include GSK plc,
where she was Workforce
Engagement Director, BG Group plc,
Rio Tinto plc, Pearson plc and the
UK Government’s Department for
International Development.
Other significant appointments:
—
Victrex plc (Chair)
—
Stena AB (Non-Executive Director)
—
Montrose Associates (Advisory
Board member)
Asmita Dubey
Independent Non-Executive
Director
Appointed:
18 July 2022
Skills and experience:
Asmita has
over 25 years of experience working
in consumer businesses and is
currently Chief Digital & Marketing
Officer of L’Oreal Groupe. She has
extensive experience of working
and building joint business
partnerships in China and served on
GSK’s Consumer Healthcare Digital
Advisory Board for two years from
March 2020 to March 2022.
Other significant appointments:
—
L’Oreal (Chief Digital & Marketing
Officer and Member of Executive
Committee)
Marie-Anne Aymerich
Independent Non-Executive
Director
E
Appointed:
18 July 2022
Skills and experience:
Marie-Anne
previously led the worldwide Oral
Care category at Unilever plc where
she developed a portfolio of new
premium brands. Prior to that,
Marie-Anne was Brand General
Manager of LVMH Group’s Dior
Perfume and Beauty business.
Before joining LVMH, Marie-Anne
was Managing Director for
Unilever’s Home and Personal Care
business in France.
Other significant appointments:
—
Pierre Fabre Group
(Non-Executive Director )
—
Academy of St Martin in the
Fields (Trustee, Member of
Nomination Committee)
David Denton
Non-Executive Director
Appointed:
1 March 2023
Skills and experience:
Dave is
Chief Financial Officer and
Executive Vice President for Pfizer
Inc. providing strategic global
financial leadership. He has over 25
years of finance and operational
expertise including more than 20
years in the healthcare sector. Prior
to joining Pfizer in 2022, he was
CFO and Executive Vice President
of Lowe’s Companies Inc. from
2018. Previously he was executive
vice president and CFO of CVS
Health Corporation.
Other significant appointments:
—
Pfizer Inc. (Chief Financial Officer
and Executive Vice President)
—
Tapestry Inc. (Board member)
Bryan Supran
Non-Executive Director
Appointed:
18 July 2022
Skills and experience:
Bryan is SVP
& Deputy General Counsel for
Pfizer Inc. with responsibility for
counselling Pfizer management and
directors on strategic initiatives and
business development
transactions. During his tenure at
Pfizer, he also has led Pfizer’s
intellectual property and
international legal teams and
provided legal support for Pfizer’s
R&D and manufacturing
organisations. Previously, Bryan
worked at Ropes & Gray LLP.
Other significant appointments:
—
Pfizer Inc. (Senior Vice President
and Deputy General Counsel)
>>
Full biographies can be found on our website at:
www.haleon.com
Amanda Mellor
Company Secretary
Appointed:
23 May 2022
Skills and experience:
Amanda
brings extensive experience in
company secretarial, corporate
governance, investor relations and
investment banking.
Other appointments:
—
Volution Group plc (Senior
Independent Director).
John Young served as
Non-Executive Director
nominated by Pfizer from 18 July
2022 to 28 February 2023.
Haleon
Annual Report and Form 20-F 2022
65
Board of Directors
Strategic Report
Corporate Governance
Financial Statements
Other Information
Ethnicity
White
11
Mixed/Multiple
ethnic groups
2
Gender
Men
7
Women
6
Teri Lyng
Head of Transformation
and Sustainability
Appointed:
16 December 2021
Skills and experience:
Teri led the
transformation office managing
the integration of the Pfizer
Consumer Healthcare business
and the subsequent programme
to demerge Haleon. Previously,
Teri led the Quality function for
GSK’s Consumer Healthcare
business and had also held
similar roles in Novartis’s OTC
business and the consumer
health divisions of both Wyeth,
LLC and Merck Group.
Keith Choy
President, Asia Pacific
Appointed:
16 December 2021
Skills and experience:
Keith has
almost 30 years’ experience in the
consumer-packaged goods and
health industries and joined GSK’s
Consumer Healthcare business in
2019. He was previously President,
International Markets for Pfizer
Consumer Healthcare. Keith
has also held roles at Wyeth
Pharmaceutical and Gillette.
Bart Derde
Chief Supply Chain Officer
Appointed:
16 December 2021
Skills and experience:
Bart has
over 30 years’ experience in the
consumer goods industry and
joined GSK’s Consumer
Healthcare business in 2018.
He was previously Head of
Quality, Safety Sustainability
and Compliance at Reckitt
Benckiser Group plc after holding
various roles in the organisation’s
global health supply chain. Prior
to that, he held various roles
at Unilever plc.
Amy Landucci
Chief Digital and Technology
Officer
Appointed:
16 December 2021
Skills and experience:
Before
joining GSK’s Consumer Healthcare
business in 2017, Amy spent more
than a decade at Novartis AG,
where she was most recently the
Global Head of Digital Medicines
and prior to that, Chief Information
Officer for the Novartis OTC
Division. Amy began her career
at Accenture plc. She previously
served on the Board of Directors
for HealthyWomen.
Filippo Lanzi
President, EMEA and LatAm
Appointed:
16 December 2021
Skills and experience:
Filippo
joined GSK in 2015 holding
leadership roles in South and
Central Eastern Europe prior to
becoming APAC Regional Head.
He then became Head of EMEA in
2019, prior to leading LatAm too.
Before GSK he worked for Novartis
OTC as General Manager in Italy
and Greece. Previously, Filippo
worked at Johnson & Johnson
and Nestlé S.A.
Jooyong Lee
Head of Strategy and Office of the
CEO
Appointed:
16 December 2021
Skills and experience:
Before
joining GSK’s Consumer Healthcare
business in 2019, Jooyong oversaw
market strategy across all global
markets at Diageo plc. Before that
she was Vice President of Strategy
for InterContinental Hotels Group.
Jooyong is a former management
consultant with McKinsey &
Company, having started her
career at Procter & Gamble.
In addition to Brian McNamara and Tobias Hestler, the Executive Team comprises:
Our Executive Team
Haleon
Annual Report and Form 20-F 2022
66
Corporate Governance
Mairéad Nayager
Chief Human Resources Officer
Appointed:
1 March 2022
Skills and experience:
Mairéad
was Chief Human Resources Officer
at Diageo plc for six and a half
years until January 2022, having
previously held a number of HR
leadership roles across Diageo’s
businesses in Europe and Africa
during her 16-year tenure. Prior to
joining Diageo, Mairéad spent three
years at the Irish Business and
Employers’ Confederation (IBEC).
Lisa Paley
President, North America
Appointed:
16 December 2021
Skills and experience:
Prior to
joining GSK’s Consumer Healthcare
business in 2019, Lisa spent a
decade at Pfizer Consumer
Healthcare where she was most
recently President, North America.
She was previously Vice President
of Sales at Johnson & Johnson and
also held various roles at Pfizer
Consumer Health/Warner Lambert.
Franck Riot
Chief R&D Officer
Appointed:
16 December 2021
Skills and experience:
Franck has
over 20 years’ experience leading
R&D in consumer-led industry.
Prior to joining GSK’s Consumer
Healthcare business in 2019, he
was Vice President of Research and
Innovation for the Essential Dairy
and Plant-Based Division, Danone
S.A. Before this, he was Group R&D
Director at Nomad Foods and
previously held a variety of R&D
leadership roles at Danone.
Tamara Rogers
Chief Marketing Officer
Appointed:
16 December 2021
Skills and experience:
Tamara has
30 years of experience in FMCG.
Prior to joining GSK’s Consumer
Healthcare business in 2019,
Tamara spent nearly 25 years at
Unilever plc, most recently as
Executive Vice President, Personal
Care, North America and prior
to that, SVP Global Deodorants.
Tamara is a Board Member of the
Global Self-Care Federation.
Bjarne Philip Tellmann
General Counsel
Appointed:
16 December 2021
Skills and experience:
Prior to
joining GSK’s Consumer Healthcare
business in 2020, Bjarne was
General Counsel of Pearson plc,
before which he held a range of
legal leadership roles at The
Coca-Cola Company in the US,
Europe and Asia and at Kimberly-
Clark Corporation. Bjarne began his
career in private practice at Sullivan
& Cromwell LLP and White and
Case LLP.
>>
Full biographies can be found on our website at:
www.haleon.com
Haleon
Annual Report and Form 20-F 2022
67
Strategic Report
Corporate Governance
Financial Statements
Other Information
Building the Board and Governance
I joined as designate Chair in January
2022, attracted by Haleon’s purpose, its
business model and position as a leading
global consumer health business, the
quality of its brand portfolio and its
strategy for growth.
My first priority was to establish a Board
with Non-Executive Directors (NEDs) in
readiness for the demerger and for Haleon’s
life as a listed company. This was a unique
opportunity to establish a Board and
governance framework that would reflect
the nature of Haleon’s business and best
support its strategic ambitions and
management. Key amongst the experiences,
skills and attributes required for the
Board was extensive consumer/FMCG,
international, innovation, digital, strategic
and listed company experience. Equally
important was to bring together a truly
diverse group of individuals with different
and new perspectives.
We are pleased to have established such an
experienced and diverse Board for Haleon.
Valuable continuity for the business was
ensured with the appointment of two
experienced Independent NEDs from GSK,
including our Senior Independent NED,
Vindi Banga and our Workforce Engagement
Director, Dame Vivienne Cox. We secured
two experienced Committee Chairs with
the appointments of Tracy Clarke as Chair
of Remuneration and Deirdre Mahlan as
Chair of Audit & Risk and we welcomed
two first-time Independent NEDs to a FTSE
100 Board with the appointments of
Marie-Anne Aymerich and Asmita Dubey.
We also welcomed two NEDs, Bryan
Supran and John Young, as representative
directors of Pfizer Inc. John stepped down
from the Board on 28 February 2023 and
was succeeded by David Denton on
1 March 2023.
Pre demerger
The Directors all undertook an extensive
onboarding programme in the months
leading up to the demerger and listing to
understand the business, its key risks as
well as their responsibilities as Directors
for approving the Prospectus, and for
serving on the Board of a listed company.
Life as a listed company
We also needed to establish our Board
governance framework, Board Committees,
processes and ways of working, both as
a Board and with the wider business.
Since July, the Board has focused on the
Company’s strategy, brand portfolio,
medium-term plan and operating model,
the evolution of its culture and responsible
business agenda as well as approving our
external reporting and governance-related
matters. We also completed an audit tender
process for the external auditor resulting
in the recommendation to appoint KPMG
LLP (UK) as statutory auditor for the financial
year ending 31 December 2023, subject to
shareholder approval at the Annual General
Meeting (AGM). Detail on the wide range of
issues covered is provided on page 70 and
you can read more about our decision-making
on page 71 in our Section 172 Statement.
While the whole Board engaged on
responsible business matters during 2022,
we recently set up an Environmental &
Social Sustainability Committee, chaired
by Marie-Anne Aymerich to focus on this
important area. Further information is
provided on page 81. We agreed a plan
in relation to employee engagement and
detail on the progress achieved to date
is set out on page 72.
Our AGM
We are looking forward to hosting our first
AGM which will provide investors with a
valuable opportunity to communicate with
the Board. This will be digitally enabled
as we believe it provides a more engaging
forum, and enables greater participation
and wider accessibility for Haleon’s global
investor base. Information on how to
participate electronically will be provided
in our Notice of Meeting. I look forward
to hearing from you all then.
The Board is encouraged by the strong
performance delivered to date and is
optimistic for the potential of the business.
Our priorities now are to support the
execution of the growth strategy, the
development of world-leading competitive
capabilities in branding and innovation
and to ensure the evolution of our culture,
values and purpose to set Haleon up for
success over the longer term.
Letter from the Chair
Sir Dave Lewis
Chair
Following the demerger from GSK plc
on 18 July 2022, Haleon listed on
the London and New York stock
exchanges.
The work required by the team to
deliver this was considerable but in
doing so they provided a strong
platform for Haleon’s future.
We have established a capable,
experienced and diverse Board.
Women represent 83% of the
Independent Non-Executive Directors
and 45% of the total Board. Two of
our Directors are ethnically diverse.
Women have been appointed as Chair
to Board Committees and to the role
of Workforce Engagement Director.
This Governance report covers the
19 week period from the Board’s
formal appointment since the listing
of Haleon plc in July 2022 to the end
of the 2022 financial year.
The Board has covered much ground in
the period from its formal appointment
since the listing of Haleon plc in July
2022 to the end of the 2022 financial
year. This includes reviewing and
agreeing as appropriate matters
relating to financial performance,
strategy, the organisational model
and governance as well as completing
a tender process for the external
auditor. Information on the Board and
Committees’ activities is set out on
the following pages.
Haleon
Annual Report and Form 20-F 2022
68
Corporate Governance
The Board
The Board’s main role is
to promote the long-term
sustainable success of the
Company, generating
value for shareholders
and contributing to wider
society. It sets the
Company’s purpose, values,
strategy and long-term
objectives.
>>
Matters reserved for the
Board and the Committees’
terms of reference are
available at
www.haleon.com
>>
The Chair, CEO and SID’s
role descriptions are also
available at
www.haleon.com
Governance structure
Audit & Risk
Committee
>>
See page 74
The role of the Committee is to ensure the integrity of the financial
reporting and audit process and to oversee the maintenance of sound
internal control and risk management systems. The Committee
monitors the effectiveness of internal and external audit and reviews
concerns about financial fraud and whistleblowing.
Nominations &
Governance
Committee
>>
See page 80
The role of the Committee is to lead the process for appointments to
the Board and senior management positions, ensuring plans are in
place for orderly succession and to oversee the development of a
diverse pipeline. The Committee also has a role to ensure that the
Company is managed to high standards of corporate governance.
Remuneration
Committee
>>
See page 81
The role of the Committee is to set the broad structure for the
Company’s remuneration policy and to determine the remuneration of
the Board, Company Secretary and Executive Team. The Committee is
also responsible for reviewing the related policies and the alignment
of incentives and rewards with the Company’s culture.
Chief Executive Officer (CEO) is responsible for:
—
Developing Haleon’s strategic direction for consideration by
the Board.
—
Implementing the strategy and reporting on progress.
—
Day-to-day management of the Company, communicating
expectations in relation to Company culture and ensuring
responsible business conduct across the business.
—
Providing effective leadership, co-ordination and
performance management of the Executive Team.
Executive Team is responsible for:
—
Supporting the CEO on the delivery of Haleon’s strategy.
—
Providing input into strategic and operational decisions aligned
to business priorities, and supporting on the delivery of actions.
—
Supporting the CEO in implementing decisions made by
the Board.
Environmental & Social
Sustainability
Committee
(established March 2023)
The role of the Committee is to provide oversight and effective
governance over progress with the environmental and social
sustainability agenda and the external governance and regulatory
requirements relevant to these areas.
Board and Committee meeting attendance during 2022
Director
Board
Audit &
Risk Committee
Nominations &
Governance Committee
Remuneration
Committee
Chair and Executive Directors
Sir Dave Lewis
4/4
1/1
Brian McNamara
4/4
Tobias Hestler
4/4
Independent Non-Executive Directors
Vindi Banga
4/4
4/4
1/1
4/4
Marie-Anne Aymerich
4/4
Tracy Clarke
4/4
4/4
1/1
4/4
Dame Vivienne Cox
1
3/4
3/4
3/4
Asmita Dubey
4/4
Deirdre Mahlan
4/4
4/4
1/1
4/4
Non-Executive Directors
Bryan Supran
4/4
John Young
2
4/4
1
Received white papers and provided comments in advance of the meetings.
2
Stepped down from the Board on 28 February 2023.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
69
Governance structure
Key areas of Board discussion since July 2022 listing
Group strategy
— Reviewed and approved the 2023-2025 Corporate Plan as a basis for preparing the 2023 budget.
— Discussed the brands, brand strategy and progress made against the strategic priorities.
— Reviewed the strategic and operational performance of the business by brand, categories and regions.
— Deep dives covering supply chain, and R&D and innovation.
— Discussed and approved the sustainability strategy.
Financials and
performance
— Approved and reviewed the 2023-25 Corporate Plan and 2023 budget.
— Monitored Haleon’s financial performance.
— Approved the half-year, third-quarter and full-year results.
— Considered the approach to capital management and returns.
— Reviewed the approach to dividend.
— Received updates on and discussed investor relations matters.
— Discussed peer benchmarking against performance.
— Reviewed outcome of audit tender process and approved appointment of KPMG LLP as statutory auditor.
Risk management
— Reviewed and discussed regular risk reports from the Head of Internal Audit and Risk.
— Undertook in-depth reviews of key areas of risk in relation to operations and litigation.
— Approved the Company’s insurance policies.
People, culture and
values
— Reviewed and discussed plans for employee engagement with the WED.
— Reviewed the Haleon People strategy, the plans to build a team of industry-leading talent, the employee value
proposition, the new performance management approach and the organisation and cultural priorities for Haleon.
— Discussed and reviewed Haleon’s culture and considered aspects of Haleon’s global employee engagement survey.
— Considered Haleon’s DEI strategy and global DEI initiatives and approved the Board Diversity and Inclusion Policy.
— Reviewed the Haleon Gender Pay Gap Report for 2022.
— Approved Haleon’s first Modern Slavery Statement for 2022.
Sustainability
— Reviewed and approved the sustainability strategy and associated targets.
— Discussed progress on the sustainability agenda and agreed to establish the Environmental & Social Sustainability
Committee to focus on the key elements of our responsible business agenda.
Governance
— Received reports at each scheduled meeting from the Committee Chairs on key areas of discussion and focus.
— Discussed feedback from the 2022 Board and Committee effectiveness reviews and agreed the 2023 actions.
Shareholder and
stakeholder
engagement
— Engaged with key investors, held meetings with brokers and discussed the views of institutional shareholders.
— Discussed support provided to customers and employees before and after demerger.
— Received updates from Investor Relations, including share price and valuation analysis, market engagement and
ownership analysis and sell-side sentiment.
— Reviewed the plans for engaging with employees and discussed progress against these.
Board activities
Overview and activities pre-listing
Pre demerger and listing, the priority was
to ensure that all Directors received a
thorough induction and onboarding in
order to carry out their responsibilities as
Directors. Given the scale and complexity
of this transaction, multiple Board sessions
were arranged to cover the business and
its operations, the principal risks,
significant structural agreements and
contracts, key areas of regulation, listing
and governance, and Directors’ duties.
In addition to the onboarding programme,
the Board worked on implementing
governance frameworks in readiness for
our life as a listed company. We
considered the design and membership of
Board Committees and the scope of each.
The designate Remuneration Committee
worked with management to build a
robust, transparent remuneration
structure. We considered employee
engagement and appointed a Workforce
Engagement Director (WED) in line with the
recommendation of the UK Corporate
Governance Code. The Board also
considered oversight of responsible
business matters and agreed that the
whole Board should be engaged on this
important area during 2022 until Haleon’s
approach was more established. Having
discussed a variety of ESG-related topics
and approved our sustainability strategy
and targets during 2022, we have now
established an Environmental & Social
Sustainability Committee.
It was important for us to establish a
robust governance framework for the
wider business to support management’s
interactions with the Board. This involved
reviewing all the critical processes
required to support Board and Committee
activities and ensure that Directors would
have the right information and sufficient
time to fulfil their duties. We agreed our
Board ways of working, terms of reference,
the frequency and operating of meetings,
forward agendas and key matters, internal
controls and Board authorities.
Haleon
Annual Report and Form 20-F 2022
70
Corporate Governance
Section 172 Statement
Sustainability
A
B
C
D
E
— Reviewed and approved the sustainability strategy and the KPIs to be adopted.
— Considered Haleon’s progress in reducing carbon emissions and steps required to deliver Company targets.
— Debated the role of offsetting and provided guidance on the importance of using carbon-only, science-based
targets. Discussed investor expectations in relation to these important targets and provided guidance on this.
— Considered the packaging strategy, the regulatory environment, recycling targets and the challenges to the recycling
of post-consumer recycled product.
— Reviewed the sourcing of our trusted ingredients.
— Discussed the engagement across industry-wide initiatives to support our strategy.
— Discussed suppliers, the Supplier Code of Conduct and the work in progress in relation to Human Rights.
— Considered the actions being taken in relation to health inclusivity to support Haleon’s purpose-led ambitions and
plans for engaging the leadership and Haleon’s employee community.
Investors
A
F
— Received regular updates on and discussed the investor and financial market engagement pre and post listing and
noting the analyst engagement and coverage.
— Reviewed feedback from investor and analysts.
— Reviewed the Haleon share register and discussed its evolution and forward engagement programme.
— Reviewed investor communications and presentations.
— Reviewed communications to retail shareholders ahead of joining Haleon share register following demerger.
— Reviewed details in relation to management of the share register and ADR programme.
Culture
A
B
E
— Reviewed the work undertaken to develop Haleon’s culture and the different cultural traits of pharmaceutical vs
consumer companies.
— Reviewed the People Strategy and Company purpose and discussed the behaviours, ways of working, as well as
organisation and cultural priorities for Haleon.
— Reviewed steps being taken around employee proposition and how the Company assesses and develops talent and
drives a performance-focused culture.
Customers & Health
Professionals
A
C
— Reviewed the customer model and macro and consumer trends.
— Discussed support provided to customers pre and post demerger.
— Discussed the feedback received from customers and Health Professionals on Haleon’s brand and performance as
an independent company.
Supply Chain
C
D
E
— Reviewed the end-to-end supply chain and the technology footprint to deliver the product portfolio.
— Reviewed regulatory considerations, materials, packaging and suppliers, internal manufacturing and key sites,
contract manufacturing operations, warehousing network and freight.
— Reviewed performance and key benchmarks, including employee health and safety, product quality
and sustainability.
The Board considers that, during the year
under review, it has acted to promote the
long-term success of the Company for the
benefit of its members while having due
regard to the factors set out in Section
172(1)(a) to (f) of the Companies Act 2006.
The Board recognises the importance of
understanding and considering the views
and interests of the Company’s key
stakeholders, and this forms an important
element of Directors’ discussions and
decision-making. The Directors are aware
that in making some decisions, stakeholder
interests may be conflicted, however, the
detail provided below and the example on
page 81 illustrate how they understand
and consider the key issues in order to
carry out their s172 duties.
Meeting agendas, agreed in advance by
the Chair, CEO, members of the Executive
Team and Company Secretary, include a
number of regular standing items,
including updates on operations and
financial performance and a number of
detailed topics for discussion or approval.
Deep dives on specific areas of operation
have also been covered in additional
sessions with Board members. All Board
papers include a section outlining the
potential impact of the matter under
discussion on key stakeholders and how
this links to the Company’s business model
and strategic pillars. A CEO Report is
discussed at each meeting. This covers a
wide range of issues and includes insights
into consumer behaviours, the external
environment, customer relationships,
supply chain, employees and investors.
Regular updates have been shared on: the
Company’s responsible business activities,
sustainability, Modern Slavery statement,
DEI strategy; compliance, conduct and
Speak Up, internal controls, risk
management and employee engagement.
The Chair and Committee Chairs meet
regularly with members of the
Executive Team ahead of Board and
Committee meetings.
Most engagement with stakeholders
occurs at senior leader and operational
level, (see page 14), with the Board
receiving updates about stakeholders’
interests and issues in Board reports.
Directors have also directly interacted with
investors and employees. The Chair met
with key investors before and following
the listing of the Company, the
Remuneration Chair met with investors and
shareholder representatives as part of the
consultation on the Remuneration Policy,
and the WED and other Directors met with
employee groups. Detail on the work of
the WED is provided on page 72. The Chair
has also responded to letters from
investors on Haleon’s response to the cost
of living crisis, climate change as well as
changes to investor voting policies on
Governance and capital allocation.
Relevant S172 factors
Long term
B
Employees
A
C
Business relationships
D
Community and environment
E
Business conduct
F
Members of the Company
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
71
Board activities
Approach
The Board values the opportunity to
engage with the Company’s employees.
This has been especially important
following Haleon’s demerger and listing
and the focus on building a Haleon culture.
It is essential to understand the issues that
are important to our employees across
Haleon’s markets and regions, learn about
their experience of working at Haleon and
be aware of any challenges that need to
be addressed.
Ahead of the demerger, the Board
reflected on how it might best engage with
its new stakeholders, especially Haleon’s
employees, and the Board’s
responsibilities under the UK Corporate
Governance Code (Code). For the purposes
of the Code, Haleon considers its
employees to comprise permanent and
fixed-term direct employees.
Having considered the Code and various
options for employee engagement, the
Board agreed to designate a Non-
Executive Director as our Workforce
Engagement Director and appointed
Dame Vivienne Cox to this role given her
experience in this area. As part of her
role, Dame Vivienne is responsible for
gathering and explaining employees’
views to the Board.
Engagement plan
In line with the Code requirement to
establish a mechanism to bring the
employee voice and key insights into the
Boardroom, Dame Vivienne and our Chief
Human Resources Officer, Mairéad
Nayager, hosted a session with a cross-
business group of culturally diverse
employees from across our markets and
functions to understand the meaningful
and innovative ways for the Board to
engage with employees on our purpose,
strategy, performance and culture.
Dame Vivienne then met the same group
again, and another cross regional group of
employees from our customer and
consumer-focused teams, to get their input
and thoughts on relationships, and how
Haleon is building its brand and leveraging
its portfolio. Both meetings were held
without senior leadership present.
The Board considered the feedback and
agreed a number of principles to guide its
approach to employee engagement,
recognising its importance in supporting
the Board’s discussions and decisions,
including those relating to remuneration.
As a result, the Board established a plan
which it considers will:
—
deliver meaningful insights on all
aspects of the business from Haleon’s
diverse group of employees,
—
utilise existing engagement
opportunities, groups and technologies
to our best advantage, and
—
create an environment where
employees feels comfortable being
open and transparent with the Board.
Continued engagement
The Board received regular verbal updates
in 2022, and will continue to receive them
going forward, along with a detailed
summary at the end of each financial year,
and an update on employee survey results.
The employee engagement plan will be
reviewed annually and an employee
engagement dashboard is in progress
for 2023.
>>
see our stakeholder engagement, people,
remuneration,and employee engagement
disclosures on pages 14, 27, 103 and 197.
Workforce engagement
Board activities
continued
Dame Vivienne Cox
Workforce Engagement Director
Since July 2022 I have engaged with
the same group of employees who
helped shape the engagement plan,
and also with a second group of
employees from our customer and
consumer-focused teams.
Discussion has focused on the role
our brands play in building our
reputation and how Haleon’s brand
and purpose resonates with
customers. The group engagement
has also highlighted a number of
areas where we might leverage our
human understanding advantage and
brand heritage. In addition, the group
also discussed Company progress
since demerger.
From our conversations, our
responsible business strategy is seen
as a key area of differentiation and
the group highlighted the support for
the Company’s external position on
sustainability, and the opportunity to
build understanding across the
employee community as to what this
means for them. This feedback was
shared and discussed with the Board
during the year.
Looking ahead, in 2023 I will be
seeking to engage on a wide range of
topics including responsible business,
perfomance and remuneration.
Haleon
Annual Report and Form 20-F 2022
72
Corporate Governance
Board development, effectiveness and performance
Board training and development
The Board participated in a number of
deep dives to enhance its understanding
of key business areas. Since demerger,
sessions have been held on:
—
Research & Development (R&D) and
innovation: covering Haleon’s R&D
capabilities, the R&D external
ecosystem, the external market, R&D
investment, the strategic framework
supporting our innovation strategy, the
innovation operating model and
performance, innovation pipeline and
longer-term ambition.
—
Supply chain: covering an overview of
the end-to-end supply chain, the
technology footprint to deliver the
product portfolio, regulatory
considerations, materials, packaging
and suppliers, internal manufacturing
and key sites, contract manufacturing
operations, warehousing network and
freight, the customer model,
performance and key benchmarks,
including employee health and safety,
product quality and ambitions in
relation to this and sustainability.
The Board also had a detailed strategy
session ahead of its review of the 2023-
2025 corporate plan covering Haleon’s
market perimeter, macro and consumer
trends and the consumer, the Haleon
portfolio and insight into our categories
and ambition.
Further deep dives are planned for the
year ahead. A tailored induction
programme for our newest Non-Executive
Director, David Denton, is underway.
Board effectiveness
Given that the Board of Haleon plc was
only appointed with effect from the date
of listing on 18 July 2022, the Board
agreed to adopt a questionnaire-based
evaluation process conducted by the
Company Secretary. The goal was to
highlight those areas where we might need
to adjust our practices, as well as identify
the areas that are already working well.
The questionnaire for the Board and each
of the Board Committees was circulated to
Board and Committee members and other
attendees as required. Board members
were also able to discuss their responses
via a meeting if preferred. Findings on the
Committees were shared with the Chair of
each Committee. Findings on the Board
and Committees were shared with the
Nominations & Governance Committee
before coming to the Board for discussion.
Actions were agreed for the Board and
each Committee. These will be tracked
during 2023.
Group Chair performance
The Chair review process was led by the
Senior Independent Non-Executive
Director. He sought feedback from the
Non-Executive Directors separately,
without the Chair present. He also took
into account the views of the Executive
Directors. The feedback was collated and
shared with the Chair.
Directors’ performance
Evaluation of individual Director
performance was carried out by the Chair.
These performance reviews are used as
the basis for recommending the re-
election of Directors by shareholders at
the AGM. The Chair had one-to-one
discussions with each NED to discuss,
among other things:
—
their performance and individual
effectiveness,
—
their time commitment to Haleon,
including the potential impact of
outside interests,
—
their ongoing development
—
the Board’s composition, taking into
account Non-Executive Director
succession plans, and
—
current and future Committee
membership and structure.
Each of the Directors is considered to be
an effective member of the Board and all
Directors as at the date of this Report will
seek re-election at the AGM.
Key findings
Recognising that the Board and its
Committees had yet to complete one full
annual cycle, the Directors concluded the
Board and Committees had made a good
start and covered a lot of ground. While
the Board and Committees were
considered to be operating effectively, a
number of actions were agreed and these
are set out in the table below.
Action plan
Board
— Focus on delivery of strategic objectives, driving performance and shareholder returns.
— Build on Talent agenda and continue to support development of the Haleon culture and world-class team.
— Continue to develop director induction and ensure opportunities for market visits and further engagement with
Haleon’s employees, brands and business model.
Audit & Risk
Committee
— Continue oversight and focus on key areas of the Committee’s remit.
— Continue focus on key areas such as IT and cyber security.
— Ensure effective ways of working and assurance with specific focus on the transition to KPMG LLP as auditor, and the
2023 internal audit plan.
Nominations
& Governance
Committee
— Recommend the creation of the Environmental & Social Sustainability Committee, committee membership and
associated terms of reference.
— Ensure ongoing training on key areas of governance.
— Support development and succession of key leadership.
Remuneration
Committee
— Continue oversight and focus on key areas of the Committee’s remit.
— Review executive remuneration structures and targets to ensure balance with Company-wide offering.
— Review the effectiveness and transparency of disclosures and reporting.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
73
Board development, effectiveness and performance
Audit & Risk Committee Report
Key duties and responsibilities
The Committee’s responsibilities include
monitoring and reviewing:
—
The integrity of financial reporting of
the Company’s Financial Statements
including reviewing significant
judgements and the adequacy of
related disclosures.
—
The external and internal audit process
and performance of the internal audit
function and the external auditor.
—
The effectiveness of the Company’s
system of internal control.
—
The process for the management of
related party transactions.
—
The Group’s risk management system,
and the identification and management
of risks.
—
The Company’s process for monitoring
compliance with legal and regulatory
requirements and ethical codes
of practice.
Membership and meetings
The Committee comprises solely
Independent Non-Executive Directors.
Their names are set out on pages 64 and
65, together with details of their
attendance at meetings during the period
on page 69. The experience, skills and
qualifications of Committee members are
on pages 64 and 65.
The Board has confirmed that it is satisfied:
—
that the Committee members
collectively possess an appropriate
breadth of recent and relevant financial
expertise and experience in the
consumer health industry; and
—
that Deirdre Mahlan possesses the
relevant attributes to be the designated
Audit Committee Financial Expert in
accordance with US federal securities
laws and regulations.
The Company Secretary is secretary to the
Committee. The Chief Financial Officer,
General Counsel, Group Financial
Controller, Head of Audit & Risk, and a
representative of the external auditors
attend meetings on a regular basis. The
Chair, Chief Executive Officer and other
members of management attend for all or
part of any meeting, as and when
appropriate. The Committee also met
without management present and met
privately with the audit partners and with
the Head of Audit & Risk.
Committee effectiveness
Details of the Committee effectiveness
review are set out on page 73.
Deirdre Mahlan
Chair
Letter from the Chair
As Chair of the Audit & Risk
Committee, I am pleased to present
the Committee’s Report for the
period ended 31 December 2022 in
accordance with the UK Corporate
Governance Code.
The purpose of this Report is to
describe how the Committee
conducted its responsibilities during
the year. Our core objectives include
ensuring the integrity of the Group’s
financial reporting process, the
effectiveness of the external audit
and ensuring that the Company has
an effective control environment to
manage risks. Since its formation the
Committee has ensured it had
oversight of these areas with
particular focus on the establishment
of an appropriate internal control
framework ahead of and following
the demerger and listing on both the
London and New York exchanges.
At our first meeting, we commenced
a tender process for the audit of the
Company’s financial statements for
the year ending 31 December 2023.
As a result of this process, we are
proposing the appointment of KPMG
LLP as the sole external auditor and
this will be subject to shareholder
approval at the forthcoming AGM.
Further information on this and our
other activities are set out later in
this report.
On behalf of the Committee, I would
like to thank the firms for the quality
and professionalism of their
submissions. We would like to thank
Deloitte LLP for their service as well
as their support during the demerger
last year. Subject to shareholder
approval at the AGM, we look
forward to working with KPMG in
their new capacity in the future.
Haleon
Annual Report and Form 20-F 2022
74
Corporate Governance
Committee activities
External reporting
— Discussed and recommended to the Board for approval the quarterly trading statements and half- and full-year Financial Statements and
the combined 2022 Annual Report and Accounts and Form 20-F.
— Reviewed the Group’s policy on the use of non-IFRS measures and adjusting items including disclosure and presentation.
— Examined and recommended to the Board the submission of Form F1 to the SEC and the proposed external disclosures as required under the
Registration Rights Agreement.
— Reviewed the condensed consolidated interim Financial Statements under IAS 34 and recommended them to the Board.
— Reviewed and challenged the going concern assumptions for 2022 and the principles underpinning the longer-term Viability Statement.
— Reviewed and challenged the treatment of key accounting matters and judgements including the estimation of the recoverable amount
of indefinite life brands, and accounting and disclosures related to litigation disputes and uncertain tax positions.
— Considered tax and treasury matters, including provisioning for uncertain tax positions and compliance with statutory reporting obligations.
— Assessed whether the Annual Report, as a whole, was considered fair, balanced and understandable.
Internal and external audit
— Approved the statutory audit engagement letter for Deloitte LLP in respect of Haleon plc and its UK subsidiaries for the period ended
31 December 2022.
— Affirmed the appointment of KPMG LLP to audit the Company’s financial statements for the period ended 31 December 2022 under the
rules of the SEC and US Public Company Accounting Oversight Board and approved the audit engagement letter for KPMG LLP.
— Held periodic meetings with external auditors without management present.
— Conducted a tender for the external audit for the year ended 31 December 2023.
— Reviewed and agreed policies and processes designed to safeguard auditor independence.
— Approved the internal audit charter and 2023 internal audit plan.
— Received regular internal audit updates from the Head of Audit and Risk, and met regularly with him without management present.
Internal controls
— Received regular updates on internal controls, including the results of testing, and discussed instances where the effectiveness
of internal controls was considered to be insufficient.
— Reviewed the assessment to determine the Company’s status as a Foreign Private Issuer.
— Considered the financial controls assurance plan in readiness for the Group’s first Sarbanes-Oxley 404 evaluation and certification
of internal controls over financial reporting in 2023.
Related-party transactions
— Reviewed and considered related parties for IFRS purposes as part of the year-end process.
Risk management
— On behalf of the Board, reviewed the processes by which the Group’s principal risks are identified and managed and received periodic
reports of the status of principal risks; reported any issues arising from these reports to the Board.
— Undertook detailed reviews of key risk areas and processes including: digital and technical infrastructure; cyber-security
and portfolio ingredients.
— Reviewed tax and treasury policies and considered consistency with the risk appetite of the Company.
— Reviewed the Group’s insurance policy and insurance programmes.
— Reviewed the effectiveness of the risk management and internal control systems.
Compliance
— Had regular discussion of legal issues with the General Counsel.
— Monitored fraud reporting, confidential hotline, and whistleblowing arrangements and discussed trends with management.
— Reviewed reports from the Chief Ethics & Compliance Officer, including updates on the rollout and embedding of the Haleon Code
of Conduct.
Haleon
Annual Report and Form 20-F 2022
75
Audit & Risk Committee Report
Strategic Report
Corporate Governance
Financial Statements
Other Information
communications, investor relations,
legal and corporate secretariat. The ARC
received a near-final draft of the Annual
Report at its final meeting in February,
together with a full description of items
to consider in assessing fair, balanced
and understandable. The external auditors
also supported the Committee’s review
of fair, balanced, and understandable
as part of regular year end reporting.
The Committee reviewed and discussed
key disclosures and reporting
requirements on a regular basis
throughout the period. The structure
and content of the document was
subsequently reviewed to ensure that
the key messages were consistently
communicated. The Committee also
considered the assumptions supporting
impairment testing, deferred tax assets,
going concern and viability assessments
as well as the disclosure of climate-
related matters.
Audit & Risk Committee Report
continued
Significant reporting matters in relation to the financial statements considered by the Committee during 2022
Accounting area
Committee’s conclusion and response
Recoverable amount of
indefinite life brands
As at 31 December 2022, the Group had approximately £19,333m of intangible assets that are indefinite life brands.
The Group tests at least annually whether indefinite life brands have suffered any impairment. Impairment testing
is inherently judgemental and requires management to make multiple estimates, including those related to the
future revenue growth of each brand, terminal growth rates, profit margins, and discount rates. The Committee
reviewed information on the impairment tests performed, focusing on the critical assumptions as well as any
changes from the prior year.
In 2022, the Group recognized non-cash impairment charges totalling £129 million, principally related to the
Preparation H brand, as it was determined the carrying value was less than the estimated recoverable amount.
The Committee noted the decrease in the recoverable amount of the Preparation H brand was mainly driven
by an increase in the discount rate due to changes in macroeconomic factors. The Committee also reviewed
and challenged sensitivity analyses provided by management to understand the impact of changes in key
assumptions. The Committee was satisfied with the assumptions utilised by management and also considered and
reviewed the Group’s relevant impairment disclosures. Refer to Note 14 of the Consolidated Financial Statements.
Legal and other
disputes
The Group may become involved in significant legal proceeding for which it is not possible to determine whether a
potential outflow is probable. Management makes a judgement of whether it is remote, possible or probable that
an outflow of resources will be required to settle legal obligations. Throughout 2022, the Committee reviewed
the status of potential legal and contingent liabilities, including those related to Zantac litigation, Proton
Pump Inhibitor (PPI) litigation, and German Competition litigation. The Committee challenged management
on judgements made in determining the level of provisions recognised and reviewed the Group’s relevant
disclosures. The Committee was satisfied with the level of provisioning and associated disclosure.
Refer to Note 22 of the Consolidated Financial Statements.
Taxation
Where it is considered that a dispute with tax authorities may arise, or where a dispute is already ongoing
management makes a judgement as to whether any provision needs to be made. This assessment considers the
specific circumstances of each dispute and relevant external advice, is inherently judgmental and could change
substantially over time as each dispute progresses and new facts emerge. As at 31 December 2022, the Group had
recognised provisions of £159m related to uncertain tax positions. The Committee debated the key judgements made
with management, including relevant professional advice that may have been received in each case, and considered
the level of tax provisions recognised and the associated disclosures to be appropriate. Refer to Note 9 of the
Consolidated Financial Statements.
Annual accounts and
US Foreign Private
Issuer Reporting
Since the Group was formed via demerger on 18 July 2022, this year represents the Group’s first set of annual
accounts and its initial SEC Form 20-F filing. Significant effort has been deployed on the part of management to
ensure accurate and timely externally reporting. During the year, the Committee dedicated a considerable amount
of time reviewing key reporting and accounting issues related to the demerger, focusing on the integrity of the
financial statements, compliance with UK and US requirements and whether the Annual Report taken as whole
presented a fair, balanced and understandable assessment of the Group’s performance. Refer to Notes 1 and 23
of the Consolidated Financial Statements.
Financial and narrative reporting
The Committee reviewed and
recommended approval of the quarterly
and half- and full-year financial statements
during the year, taking into account
matters including key judgement areas,
going concern and viability statements,
the impact of litigation and impairment
reviews, as appropriate.
At the request of the Board, the Committee
assessed whether the Annual Report and
Form 20-F, taken as a whole, was fair,
balanced and understandable and
contained the necessary information
for shareholders to assess the Group’s
position, performance, business model
and strategy. To support the assessment,
management established a clear process
to ensure consistency of disclosures and
presentation of results was put in place to
address key financial reporting risks and to
manage the coordination of Group-wide
inputs into the documents. A wide range
of functions were included in the process
including members of finance,
In addition to its regular updates on the
control environment and the integrity
of the financial reporting process, the
Committee also received a report from
management on the verification process
for the Annual Report, including
management’s checklist confirming
compliance with the relevant regulatory
requirements. The Committee also
received reports from the external auditors
on the outcome of their audit work,
highlighting the key audit matters as set
out in their reporting (see pages 109
to 121).
The Committee made a recommendation
to the Board which also reviewed the
report as a whole, confirmed the
assessment and approved the Annual
Report for publication.
Haleon
Annual Report and Form 20-F 2022
76
Corporate Governance
Internal audit
The internal audit function provides
independent, objective assurance to
the Board, the Committee and senior
management on the adequacy and
effectiveness of the internal control
framework, which combines risk
management, governance and compliance
systems. The Head of Audit and Risk
reports to the Committee Chair and
provides regular reports to the
Committee on the function’s activities.
The effectiveness of the internal audit
function including its quality, experience
and expertise relative to the size of the
business was continually monitored
through reports received by the Committee
during the period. These provided key
internal audit observations and described
proposed improvement measures and
related timeframes given to management.
The Committee has approved the Internal
Audit Charter and annual work plan which
includes risk-based reviews of financial,
operational, strategic and governance
risks, reviews of emerging risks and
business change activity, together with
work for compliance purposes. The 2023
internal audit plan will be reviewed and
updated as required to reflect evolving
assurance requirements and priorities.
Internal control and risk
management
The Board is responsible for establishing
procedures to manage risk and oversee
the Group’s Internal Control Framework
including setting risk appetite in line with
the Group’s strategic objectives, and
ensuring appropriate oversight through
various mechanisms, including strategy
meetings, management reports and
reviews of selected risk areas.
On behalf of the Board, the Committee
is responsible for reviewing and
assessing the effectiveness of the
Group’s risk management and internal
control systems.
A fundamental part of the work carried out
since demerger included the review of the
Group’s principal risks and its financial
and operational controls and procedures.
The Committee regularly obtains and
discusses information on risk mitigation
plans, internal control maturity and areas
for improvement.
The Group’s approach to risk management
and internal controls as an independent
entity continues to evolve and develop,
and will continue to be refined throughout
2023. The risk management framework
is designed to actively manage, rather
than eliminate, the significant risks and
uncertainties the Group may face.
Consequently, the Group’s internal
control system can only provide
reasonable, but not absolute, assurance
over its principal risks.
In 2022, we undertook a top-down
enterprise risk assessment to review and
prioritise the Group’s principal risks,
assess the magnitude of risk exposure,
and highlight any emerging risks.
In parallel, a bottom-up risk identification
was performed across various business
units, markets, sites and functions.
The Committee reviewed the findings,
agreed on the principal risks and
concluded that management’s approach
to risk and risk appetite was satisfactory.
>>
Further information is set out in the
‘Our Approach to risk section’ from page 56.
The Committee has reviewed and
endorsed a range of policies and
programmes, including:
—
The Company’s Code of Conduct and
its purposeful standard of ‘Always doing
the right thing’, applicable to all our
internal and external stakeholders.
This Code supports and encourages
good judgment while maintaining a
culture of risk accountability.
—
The mandatory Anti-Bribery and
Anti-Corruption training, completed
by all employees.
—
The annual confirmation process from
business units and functions general
managers, attesting their governance
responsibility and the effectiveness of
the Internal Control Framework,
including issue response through
corrective and preventative actions.
—
Internal controls discussing
opportunities to further simplify and
evolve the framework in line with
our strategy and operating model.
—
The grant of authority and charters
for risk governance boards, including
the Enterprise Risk and Compliance
Committee and the Compliance and Risk
Forums meetings.
—
The Security, Crisis and Continuity
Management procedures.
—
Speak-up line reporting and
data analysis measuring traction
and progress.
—
Risk deep-dives over principal risks,
including trusted ingredients, cyber
security (and IT infrastructure), other
enterprise risk areas such as treasury,
tax and trade compliance, and risk
transfer strategy and insurance.
Based on the Committee’s activities
performed throughout the year, and
its annual effectiveness review, the
Committee confirms the effectiveness
of the Group’s system of internal control
and risk management under the
statutory provisions of the UK Corporate
Governance Code for the financial year
covered by this report and up to the date
of approval of the Annual Report
and Accounts.
Sarbanes-Oxley 404 readiness
Since this was the Group’s first year in
existence, the Group was not required
to report on the design and operating
effectiveness of internal control over
financial reporting under Section 404
of the Sarbanes-Oxley Act. However,
management was required to ensure the
proper disclosure and control procedures
under Section 302 of the Sarbanes-Oxley
Act and to maintain internal controls to the
standards required by the UK Corporate
Governance Code.
The Group and the Committee are
committed to having a strong internal
control environment and understand the
benefit that a comprehensive and well-
designed set of controls has on ensuring
the reliability of the Group’s financial
statements. As such, while not explicitly
required under Section 404, during 2022,
the Group maintained a consistent and
continuous approach to internal control
procedures and activities including those
related to IT systems.
Furthermore, internal controls were
continuously monitored throughout the
period and certain technology systems
and the associated infrastructure were
identified for further focus and
consideration by the Committee,
including those related to the cloning of
IT systems and data migration as a result
of the demerger, cyber-security, and
infastructure privilege access
management. Where necessary, the Group
has developed robust action plans and
is in the process of implementing
remediation actions.
Haleon
Annual Report and Form 20-F 2022
77
Strategic Report
Corporate Governance
Financial Statements
Other Information
Audit & Risk Committee Report
External audit tender timeframe
July 2022
Committee review and approval of the
audit tender process.
October 2022
Request for proposal submitted to
audit firms.
October/November 2022
Participating audit firms met with Committee Chair
and key finance management team members.
December 2022
Presentations to Committee Chair, members of the
Committee, other Directors and members of management.
February 2023
Decision made and communicated to participants and via regulatory
information service. A resolution to appoint KPMG will be
recommended to shareholders for approval at the AGM.
Audit & Risk Committee Report
continued
Audit tender process
As indicated in the Prospectus, the
Committee agreed to put the external
audit services to tender for the year
ending 31 December 2023. A range of
firms were approached, including
members of the ‘big four’ firms and
mid-tier firms. Two firms were not
approached due to independence
constraints and one firm declined to
participate due to resourcing issues.
Each firm that participated in the
process was given extensive access to
documentation, met with the Committee
Chair, members of senior management
and the finance team and were
requested to submit a written proposal
to the Committee. The firms then gave
presentations to the Committee and
were judged against a number of
objective criteria determined in advance
of the process.
The Committee concluded that KPMG
LLP (UK) (KPMG) was the preferred firm
to conduct the audit engagement
judged against the selection criteria
including: the firm’s independence to
perform both the statutory audit of
Haleon plc and its UK subsidiaries and
the audit of the Company’s financial
statements under the rules of the SEC
and US Public Company Accounting
Oversight Board; and the quality of
the proposed team and firm
(including industry experience and
experience of UK and US-listed groups)
and the approach to managing the
audit. The Committee recommended
two firms to the Board, with KPMG
identified as the first choice for
appointment as the Company’s auditor,
commencing with the financial year
ending 31 December 2023. The Board
agreed with the recommendation and
the Company will seek shareholder
approval of the appointment of
KPMG at the forthcoming AGM.
>>
See page 211 for further disclosure under
Item 16F of Form 20-F
Committee recommendation submitted to
the Board.
Receipt of written proposals.
External audit
Appointment of external auditors
In light of UK and US rules on audit firm
independence, prior to the demerger, the
Directors appointed two external auditors,
which we subsequently agreed and
confirmed at our first meeting following
listing. Deloitte LLP was engaged in
respect of the statutory audit of Haleon
plc and its subsidiaries; Claire Faulkner
was appointed the audit partner for the
period ended 31 December 2022. KPMG
LLP (US) was appointed to audit the
Group’s Financial Statements for the
period ended 31 December 2022 under
the rules and standards of the SEC and
US Public Company Accounting
Oversight Board.
The appointment of two external auditors
was a short-term solution for the period
and the Committee immediately
commenced a tender process for the audit
of the Company’s Financial Statements for
the year ending 31 December 2023. The
Committee considers that the Company
has complied with the Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014
for the period ended 31 December 2022.
During the period, the Committee
approved the plans for the external
audits, the proposed audit fees and terms
of engagement. It has reviewed the audit
process and quality and experience of the
audit partners engaged in the audit and
has also considered the extent and
nature of the challenge demonstrated by
the external auditors in their work
and interactions with management.
In considering the independence of each
firm, the Committee received a statement
of independence from the auditor,
a report describing the arrangements
to identify, report and manage any
conflicts of interest, and reviewed the
extent of non-audit services provided to
the Group. The Committee confirmed its
satisfaction with the effectiveness and
independence of the audit firms with
respect to their engagements in their
respective jurisdictions.
Haleon
Annual Report and Form 20-F 2022
78
Corporate Governance
Non-audit services
The Committee has adopted a policy
designed to safeguard the independence
and objectivity of the external auditors.
This policy, which complies with the FRC’s
2019 Revised Ethical Standard and the
Sarbanes-Oxley Act of 2002, sets out a
framework for determining whether it is
appropriate to retain the external auditors
for non-audit services and for pre-
approving non-audit fees.
The policy includes a list of permitted
non-audit services in line with the
relevant regulations. Any service not
on this list is prohibited.
The Committee has pre-approved the use
of an external auditor for non-audit
services where:
—
They are included in the policy’s list of
permitted non-audit services; and
—
They are approved by the Group
Financial Controller, or their designate in
certain defined circumstances, when do
not exceed £100,000; or
—
They are approved by the CFO and
the Chair of the ARC when they
exceed £100,000.
The total fee for non-audit services
provided by the external auditors is
reported to the Audit and Risk Committee
on a quarterly basis. Management’s
approval based on monetary limits is not
a delegation of authority for approval by
the Audit & Risk Committee, but rather a
confirmation of adherence to the policy
for permissible non-audit services.
During the period ended 31 December
2022, the external auditors undertook
non-audit work in relation to other
assurance services, tax compliance,
corporate finance and other services and
were paid a total of £9m. Details of the
fees paid to the external auditors are in
Note 6 to the Financial Statements.
Looking ahead
The Committee will focus on its key areas
of responsibility, with a particular
emphasis on the approach to financial
reporting, including the Group’s first
Sarbanes-Oxley 404 evaluation and
certification of internal control over
financial reporting, the transition to
KPMG LLP as the external audit firm, the
further development of the Group’s
enterprise risk management framework
and compliance programmes, and IT
matters, including the regular review of the
maturity of IT processes and controls
following demerger including
cybersecurity and infrastructure
privileged access management.
Haleon
Annual Report and Form 20-F 2022
79
Strategic Report
Corporate Governance
Financial Statements
Other Information
Audit & Risk Committee Report
Nominations & Governance Committee Report
Sir Dave Lewis
Chair
Letter from the Chair
I am pleased to present the
Nominations & Governance
Committee’s Report for the period
ended 31 December 2022. While the
Committee held only one formal
meeting during the period under
review, members were closely
involved ahead of the demerger
providing input on Board and
Committee structure, skills and
membership, and terms of reference.
Prior to admission, we engaged the
external search firm Heidrick &
Struggles to help us build a Board
ready for the demerger and listing
of Haleon. This firm had no
connections with the Company
or individual Directors.
Working with a clear plan of the skills
and experiences needed to support
Haleon as a large independent,
listed consumer health business and
the governance requirements of this,
we established a designate director
group with extensive experience
in consumer, healthcare, international
business, M&A, supply chain
management, regulatory affairs,
responsible business matters,
governance and finance.
We are delighted to have attracted
such a strong and diverse group
of individuals and one where women
represent over 83% of the
Independent Non-Executive
Directors, 45% of the total Board and
the key roles of Chair of Audit & Risk
Committee, Chair of Remuneration
Committee, Chair of the newly-
created Environmental & Social
Sustainability Committee and
Workforce Engagement Director.
Furthermore, two members of the
Board are ethnically diverse.
Key duties and responsibilities
The Committee’s responsibilities include:
—
Leading the process for appointments
to the Board.
—
Ensuring plans are in place for orderly
succession to both the Board and
senior leadership positions.
—
Overseeing the development of
a diverse pipeline for succession.
—
Reviewing and recommending the
Board diversity policy.
—
Monitoring, and where appropriate,
recommending changes to the
Company’s corporate governance
framework.
Membership and meetings
The Committee comprises solely
Independent Non-Executive Directors.
Their names are set out on pages 64
and 65, together with details of their
attendance at the one formal meeting held
during the period under review on page 69.
Committee effectiveness
Details of the Committee effectiveness
review are set out on page 73.
Committee activities
A summary of the Committee’s activities
during the period is set out in the table
opposite.
Establishing and onboarding the Board
The designate Nominations & Governance
Committee discussed and agreed Board
committee composition and associated
terms of reference and the most suitable
approach to workforce engagement,
recognising the recommendations of
the UK Corporate Governance Code.
Ahead of the demerger and listing,
the designate directors undertook a
comprehensive onboarding, covering
an induction on the business model
and operations, director duties in the
UK and US, and the Haleon governance
framework, and provided input ahead
of publication of the prospectus in
June 2022.
Board skills’ matrix and
succession planning
Since Haleon’s listing in July, the
Committee has reviewed the composition
and diversity of the Board. To support our
succession planning, we have developed
a Board skills’ matrix which maps the areas
of experience we believe we need to
support Haleon’s strategy against those
of the Non-Executive Directors.
The matrix also captures data in relation
to diversity and ethnicity as well as tenure.
The Committee discussed succession for
the Non-Executive Directors and,
recognising that the Non-Executive
Directors were all newly appointed,
considered the implications for tenure
and longer-term Board succession.
The Committee also considered the
executive and leadership needs of the
Company reviewing the Executive Team
as well as the people strategy and talent
agenda more broadly. It discussed
potential succession, acknowledging
that given the newness of the Company
this would evolve in the future.
Looking ahead
The Committee will continue to focus
on its key areas of responsibility with
a particular emphasis on the induction
programme for David Denton, who joined
the Board on 1 March 2023, deep dives
into key governance matters and
leadership development and
succession planning.
Haleon
Annual Report and Form 20-F 2022
80
Corporate Governance
Decision to set up the Board
Environmental & Social
Sustainability Committee
In readiness for life as a listed company,
it was agreed that the whole Board
should be engaged on the oversight
of responsible business matters
until Haleon’s approach was more
established. As part of the Board and
Committees effectiveness review, the
Nominations & Governance Committee
discussed the feedback in relation to
the responsible business strategy,
and recommended that it would be
appropriate to set up a dedicated
Board environmental and social
sustainability committee in 2023.
When reaching its decision to
implement this recommendation, the
Board was also mindful of comments
on environmental and sustainability
matters shared by investors and
shareholder representative bodies and
of employees, who, as set out page 72,
view Haleon’s responsible business
strategy as a key area of differentiation.
Committee activities
Non-Executive Directors succession planning
— Reviewed and discussed the Board matrix of Director experiences and skills developed to support Non-Executive
Directors, along with diversity metrics and tenure.
Senior management talent review and succession planning
— Discussed the Haleon people strategy, current targeted talent priorities and the direction being taken to identify,
assess and develop talent.
— Reviewed the composition of the Executive Team and discussed key experiences and strengths, development areas,
performance and succession coverage.
Governance
— Discussed and approved the Board’s Diversity, Equity and Inclusion policy.
— Reviewed the Company’s Code of Conduct.
— Discussed feedback from the 2022 Board effectiveness review and the action plans for the Board and Committees.
— Recommended the creation of an Environmental & Social Sustainability Committee.
Board diversity, equity
and inclusion
At Haleon, we have built a Board with a
diverse mix of gender, social and ethnic
backgrounds, knowledge, personal
attributes, skills and experience.
We strive to reflect Haleon’s aspirations
in relation to its employees and its values
and to position Haleon as a leader in
these areas. This diversity provides a
mix of perspectives which we believe
contributes to effective Board dynamics.
Board objectives
—
Meeting the recommendations of the
FTSE Women Leaders Review on gender
diversity, with an aspiration to keep
gender balance between 40 and 60%.
—
Meeting the Parker Review objective
on ethnic minority representation.
—
Ensuring that the Board is reflective of
Haleon as a truly international company.
—
Ensuring that the Board is comprised
of a good balance of skills, experience,
knowledge, perspective and varied
backgrounds.
—
Only engaging search firms which are
signed up to the Voluntary Code of
Conduct for Executive Search firms.
—
Reporting annually on the diversity
of the executive pipeline as well
as the diversity of the Board,
including progress being made
on reaching the Board’s gender
and ethnicity aspirations.
As part of its considerations, the
Committee discussed the Board’s and
Company’s ambitions in relation to
diversity and ethnicity and recommended
the Board’s Diversity, Equity & Inclusion
Policy (Policy) to the Board for approval.
The Policy sets out the approach to
diversity on the Board. It sits alongside
Haleon’s Code of Conduct which applies
to the Board and all employees. It is
available on the Haleon website in line
with the requirements of the Disclosure
and Transparency Rules.
The Haleon Board ambition on diversity
is clear: we have established a strong
gender balance, and currently have 45%
women representation. We will seek to
maintain this between 40-60%, as well as
strong ethnic diversity. While no woman
occupies any of the roles of Chair, SID,
CEO or CFO, we have women in the roles
of Chair of three of four Board committees,
(Audit & Risk, Remuneration, and the
newly-created Environmental & Social
Sustainability Committees) and
Workforce Engagement Director.
The Board supports the recommendations
of the FTSE Women Leaders Review on
gender diversity and the Parker Review
on ethnic diversity, and meets the Parker
Review objective. The Board recognises,
however, that periods of change in Board
composition may result in temporary
periods when these are not achieved.
All Board appointments are based on
merit with each candidate assessed
against objective criteria, with the prime
objective to maintain and enhance the
Board’s overall effectiveness.
The Committee will monitor progress
against these commitments as part of
its oversight of the balance of skills,
knowledge, experience and diversity
on the board and succession planning
for appointments to the Board and
Executive Team.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
81
Nominations & Governance Committee Report
Tracy Clarke
Chair
Letter from the Chair
I am delighted to present the first
Directors’ Remuneration Report for
Haleon plc, following one of the most
significant demergers in the history
of the FTSE and Haleon’s successful
admission to the London and New
York Stock Exchange on 18 July 2022.
Haleon established its Remuneration
Committee ahead of the demerger to
put in place a remuneration
framework for its Executive Team that
aligned with the Company’s strategic
ambition and compelling purpose –
to deliver better everyday health with
humanity. The Committee disclosed
the key features of the Directors’
Remuneration Policy (Policy) in the
Prospectus published in June 2022.
The full Policy, as set out in this
report, will be submitted to
shareholders for approval at our
2023 AGM.
Haleon’s policies and processes are
compliant with all applicable
regulatory requirements and
consistent with the UK Corporate
Governance Code. We will continue
to take into consideration the
broader environment and context in
making decisions in respect of the
Executive Directors’ pay throughout
the lifetime of this Policy.
Directors’ Remuneration Report
Our Directors’ Remuneration Policy
Haleon’s Remuneration Committee
believes that our Policy will reward
performance that delivers, at a minimum,
Haleon’s investment case and also
critically drive growth in a sector with
great potential. Haleon has a real
opportunity to improve the lives of millions
of people, which cannot happen without a
management team that is committed to
delivering consistently strong performance,
while creating a sustainable, values and
purpose-led company.
Alignment of incentives to strategy
and our responsible business
commitments
With the intent to create a direct and
tangible link between incentive
measures and strategic business priorities,
the Committee identified the following
key measures for use in the 2022
incentives: organic sales growth,
adjusted operating profit and individual
business objectives (IBOs) for the Annual
Incentive Plan (AIP), with a prominent
weighting of the sales measure reflecting
the significance of sales growth to
delivering our investment case, and
cumulative free cash flow and net debt/
adjusted EBITDA for the 2022 Performance
Share Plan (PSP). The Committee regards
these measures as critical to the successful
execution of Haleon’s strategy and
reflecting the priorities of the Company
following demerger.
Delivering on our responsible business
commitments is fundamental to
sustainable strong performance at
Haleon and the Committee has
therefore deliberately designed a more
stringent long-term incentive structure
than prevailing market practice. The PSP
includes an ESG qualifier, whereby the
level of vesting against the financial
targets for the 2022 awards could be
reduced if performance against three key
milestones is not met: 1) carbon reduction,
2) recycle-ready packaging, and
3) gender diversity.
This structure reflects the significance of
responsible business within Haleon’s
strategy whilst ensuring that financial
targets remain paramount.
>>
Further information about the measures and
targets set for the 2022 incentives is
provided on pages 97-100.
Rewarding 2022 performance
In line with the financial performance
outcomes described in the Strategic
report, organic sales growth and adjusted
operating profit were achieved at 82.5%
and 45.0% of maximum, respectively.
Combined with the performance against
the IBOs, this led to an overall AIP
outcome of 72.3% of maximum for Brian
McNamara and 71.8% of maximum for
Tobias Hestler. No discretion has been
exercised in respect of payments to the
Executive Directors for 2022. The full
details of the 2022 remuneration paid to
Directors and the basis for its
determination are set out on pages 95-98.
2023 remuneration arrangements
The current remuneration framework has
been effective since July 2022. For 2023,
remuneration arrangements for Executive
Directors will remain consistent with this
framework since the primary strategic
drivers remain unchanged. Therefore, the
AIP and PSP measures and weightings will
remain unchanged for 2023. It is worth
noting that the 2022 and 2023 PSP awards
do not include a relative measure, given
the inability to provide a full year
reference point for the share price. The
Committee remain open to incorporate a
relative measure in future PSP grants. 2023
salaries for Executive Directors and fees
for Non-Executive Directors and the Chair
will remain unchanged from 2022 levels
which applied on demerger. However, the
Committee reserves the right to award
salary increases in the future to allow for
appropriate pay progression over time.
For reference, an average increase of 6%
will be awarded to UK employees.
Haleon
Annual Report and Form 20-F 2022
82
Corporate Governance
Remuneration decisions related to
the demerger of Haleon
On demerger, the Committee implemented
remuneration arrangements for Executive
Directors in line with Haleon’s Directors’
Remuneration Policy, as per
the Prospectus.
The remuneration levels, benefits and
contractual terms for the Executive
Directors were set in recognition of the
scope of roles in the newly listed company,
the international scale of the business and
the current talent market. The changes
also ensure alignment with UK corporate
governance best practice. Details of
remuneration payable to Executive
Directors are set out on pages 95-98.
Executive Directors were appointed as
Directors of Haleon on 23 May 2022.
However, their Haleon employment and
remuneration terms were effective from
18 July 2022.
In addition, Executive Directors (as well
as former GSK employees) held GSK share
awards prior to demerger. Participants
were treated as good leavers, and their
awards were time pro-rated at the point
of demerger. The Committee agreed that
it should make “Refill” share awards to
the impacted employees, including the
Executive Directors, to replace the
expected value of the awards forfeited
and these will vest no sooner than the
original vesting dates of the original
GSK awards.
>>
Award details for the Executive Directors
are set out on page 89 and 101.
Workforce reward and benefits
post-demerger
The Committee is intent on paying close
attention to the terms and conditions of
the broad employee base at Haleon when
considering pay for Executive Directors,
and especially at a time of economic
turmoil across the many markets in which
Haleon operates. In select countries, the
Company has taken action by offering cash
payments or pay increases to its
employees. Additionally, Consumer Prices
Index (CPI) trends was one of the factors
taken into account when setting pay
budgets for 2023. Furthermore, Haleon
became UK Living Wage accredited in
September 2022.
On 6 October 2022 all permanent Haleon
employees at the date of demerger
(excluding Executive Directors and
members of the Executive Team) were
granted a Haleon “Ownership Award” of
100 ordinary shares or 50 ADSs. These
awards were granted with a desire that
every employee should have the
opportunity to become an owner of
Haleon with shared responsibility for
growing the Company. These awards are
expected to vest on 18 July 2025, subject
to continued employment.
In addition, Haleon announced the launch
of its Global Parental Leave policy to
coincide with its first day as an
independent company, as outlined on
page 27. All employees are entitled to
26-weeks fully paid parental leave
following the arrival of a child. Consistent
with its commitment to drive health
inclusivity, this policy is available to all
employees, regardless of gender or
sexuality and covers biological birth,
surrogacy and adoption.
Shareholder engagement
I have been very pleased with the
feedback and input on the Directors’
Remuneration Policy, with a large majority
of shareholders and advisory bodies being
supportive of our policy and of the
arrangements that we have implemented
for 2022. In particular, investors have
welcomed the alignment of our incentive
measures with Haleon’s strategy and
endorsed the implementation of the ESG
qualifier in the 2022 PSP.
Looking ahead to 2023
On behalf of the Committee, I would
like to thank shareholders and advisory
bodies for their engagement and
valuable feedback, which we have
considered carefully prior to finalising
the proposed policy.
I remain available for any shareholders
who wish to discuss the proposed policy,
or any of the content set out in this report,
ahead of the 2023 AGM.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
83
Directors’ Remuneration Report
Directors’ Remuneration Report
continued
Committee activities
Key decisions taken pre‑demerger by the Remuneration Committee designate
Post-demerger remuneration
arrangements
— Approving remuneration arrangements for the Haleon Executive Directors, Executive Team and the
Company Secretary, including changes to contractual terms.
— Discussing the key elements of the Directors’ Remuneration Policy to be included in the Prospectus.
— Approving performance measures for the 2022 incentive plans.
Key activities of the Remuneration Committee post‑demerger
Directors’ Remuneration Policy
— Discussing the Directors’ Remuneration Policy to be included in this Directors’ Remuneration Report.
Operation of share plans
post-demerger
— Approving the operation of all-employee share plans.
— Approving Haleon Refill awards compensating the value of the lapsed portion of GSK share awards for
Haleon participants.
— Approving the first annual grant of Haleon share awards and associated disclosures.
Shareholder engagement
— Considering and approving shareholder engagement timeline and materials.
— Considering feedback received from shareholders when making decisions on remuneration.
Governance
— Considering and approving relevant documents, policies and delegated authorities to allow the
Committee to effectively discharge its responsibilities.
Key duties and responsibilities
The Remuneration Committee’s principal
responsibilities are:
—
Making recommendations to the Board
on remuneration principles and policy
as applied to Executive Directors.
—
Setting, reviewing and approving
individual remuneration arrangements
for the Chair of the Board, Executive
Directors, senior leadership and the
Company Secretary, and such other
executives as required.
—
Designing remuneration policies and
practices that support the Company’s
strategy and promote its long-term
sustainable success, ensuring that
performance conditions are
transparent, stretching and rigorously
applied and enabling the use of
discretion over outcomes and the
recovery and withholding of awards
where the Committee deems this to
be appropriate.
—
Making recommendations to the
Board concerning the introduction
of any new share incentive plans
which require approval by the Board
or by shareholders.
—
Reviewing employee remuneration and
key related policies and the alignment
of incentives and rewards with the
Company’s culture and taking these into
account when determining the policy for
executive remuneration.
Membership and meetings
The Committee comprises solely
Independent Non-Executive Directors.
Their names are set out on page 69,
together with details of their attendance
at meetings during the period. The
experience, skills and qualifications of
Committee members are on pages 64-65.
The Company Secretary is secretary to the
Committee. The Chair, Chief Executive
Officer, Chief Human Resources Officer
and Global Head of Reward attend
meetings on a regular basis. Other
members of management attend for all
or part of any meeting, as and when
appropriate. The Committee also meets
without management present.
Committee effectiveness
>>
Details of the Committee effectiveness
review are set out on page 73.
Haleon
Annual Report and Form 20-F 2022
84
Corporate Governance
Summary of the Directors’ Remuneration Policy application in 2022 and 2023
Element
2022
2023
2024
2025
2026
2027
Application for 2022
Application for 2023
Base Salary
Base salaries from Admission:
— CEO: £1,250,000
— CFO: £700,000
2023 base salaries:
— CEO: £1,250,000
— CFO: £700,000
Benefits
To facilitate the CEO’s employment
arrangements being moved from an
international assignee package, a
one-off payment of £300,000 was
made to him in 2022.
Benefits will operate
in line with the Policy
Pension arrangements
Employer contributions:
— CEO: 7% of salary
— CFO: 7% of salary
No change from the
Policy which applied
on Admission
Annual Incentive Plan
(AIP)
Deferral period
Maximum AIP opportunities
from Admission:
— CEO: 200% of salary
— CFO: 200% of salary
2022 performance measures:
— 60% Organic sales growth
— 20% Adjusted operating profit
— 20% Individual Business
Objectives (IBOs)
50% of any AIP earned will be
deferred for three years
No change from the
Policy which applied
on Admission
No changes to
performance
measures for 2023
Performance Share Plan
(PSP)
Vesting period
Holding period
2022 PSP award levels:
— CEO: 450% of salary
— CFO: 350% of salary
2022 performance measures:
— 50% Cumulative free cash flow
— 50% Net debt/Adjusted EBITDA
— ESG qualifier
No change from the
Policy which applied
on Admission
No changes to
performance
measures for 2023
Share ownership
requirements
Share ownership requirements:
— CEO: 450% of salary
— CFO: 350% of salary
No change from the
Policy which applied
on Admission
What performance means for Executive Directors’ pay in 2022
At Haleon, remuneration packages are designed to ensure strong alignment between pay and performance. 2022 saw the Company
perform strongly against its financial and strategic objectives which has been appropriately reflected in the incentive outcomes, as set
out in the Annual Report on Remuneration. The total fixed and variable remuneration for the Executive Directors is shown below:
Fixed Pay
£
1,336k
Variable Pay
£1,014k
CEO
Fixed Pay
£
481k
Variable Pay
£518k
CFO
Remuneration at a glance
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
85
Directors’ Remuneration Report
This section sets outs the Directors’ Remuneration Policy (Policy) proposed for shareholders’ approval at the 2023 AGM. The key
elements of the Policy were disclosed in the Company’s Prospectus published on 1 June 2022.
Subject to receiving shareholder approval, the Policy is intended to apply immediately from the 2023 AGM for three years to the end
of the 2026 AGM, although we may seek shareholders’ approval for a new policy during this period, depending on regulatory
developments, changes to our strategy or competitive pressures.
>>
The Policy can be found on the Company’s website:
www.haleon.com
.
Committee process to determine the Policy
The process the Committee went through in determining the Policy included the following steps:
—
reviewed the link between Haleon’s strategic priorities and external commitments and Executive Directors’ remuneration and
sought to align the Policy with the strategy;
—
sought advice from its independent remuneration adviser on the impact of the UK Corporate Governance Code, regulations and
current investor sentiment in formulating the Policy; and
—
consulted with the Chair, CEO and CFO on the proposed Policy.
The Committee was mindful in its deliberations on the new Remuneration Policy on where there were potential conflicts of interest
(for example the need for directors to be excluded from any discussions about their own remuneration) and sought to minimise them
through an open and transparent process internally and externally by seeking independent advice and through the involvement of
the main stakeholders.
The Company’s approach was to establish a Policy that:
—
drives the success of Haleon and the delivery of its business strategy for the benefit of consumers and other key stakeholders;
—
creates shareholder value;
—
provides an appropriately competitive package to attract, retain and motivate executive talent for a standalone consumer staples
business, which will source talent globally; and
—
is aligned with the Company’s business priorities, culture, wider employee pay policies, and best practice.
Principles underlying the Policy
When determining the Policy, the Committee had regard to a number of key principles as outlined below:
Factor
How this has been addressed
Clarity
The Committee has consulted with the Company’s largest shareholders and their advisers on the Policy. Details on
Executive Directors’ pay are clearly set out in the Annual Report on Remuneration on page 95.
Simplicity
The Committee has aimed to incorporate simplicity and transparency into the design of our first Directors’ Remuneration
Policy. The remuneration arrangements for Executive Directors are simple, comprising fixed pay (salary, benefits,
pension/pension allowance), an Annual Incentive Plan (AIP) and a Performance Share Plan (PSP).
Risk
The Policy includes defined maximum limits for both the short- and long-term incentive plans.
The remuneration arrangements include deferral of the AIP and holding periods within the PSP. Malus and clawback
provisions apply to all incentives.
The Committee reserves the right to adjust the formulaic outcomes (either up or down) to ensure that the overall
outcome reflects underlying business performance over the vesting/performance period for both the AIP and PSP.
Predictability
Disclosure in this report should allow shareholders to understand the range of potential values which may be earned
under the remuneration arrangements. The policy clearly sets out relevant limits and potential scope for discretion.
Proportionality
A significant part of Executive Directors’ reward is linked to business performance and delivery of
external commitments.
Additionally, the Committee commits to setting stretching performance targets and will only pay maximum for
outstanding performance.
The pay arrangements for Executive Directors are consistent with those of the senior leadership team.
Alignment to
culture
The purpose, values and strategy of the Company are reflected within the incentive arrangements and
performance measures.
New and existing Executive Directors are offered pension benefits aligned with the core level of employer pension
contribution available to UK employees.
The vesting period attached to the long-term incentives reflects the time horizon of the business plan.
The additional post-vesting holding period and post-employment shareholding requirement strengthens the alignment
of interests between Executive Directors and other stakeholders.
Directors’ Remuneration Report
continued
Directors’ Remuneration Policy
Haleon
Annual Report and Form 20-F 2022
86
Corporate Governance
Directors’ Remuneration Policy table
Fixed pay
Element
Base salary
Purpose and link to strategy
To attract, retain and develop key talent by being market competitive and rewarding ongoing contribution
to role.
Operation
Base salaries for Executive Directors are set at a level appropriate to secure and retain the high calibre
individuals needed to deliver Haleon’s strategic priorities.
The individual’s role, experience and performance, and independently sourced data for relevant
comparator groups, will be considered when determining salary levels.
In line with market practice, the Committee will review Executive Directors’ base salaries annually.
Should a new Executive Director have a base salary set below the previous incumbent’s level or below
market level, the Committee reserves the right to make phased increases, which may be above the wider
employee level, subject to the individual’s development in role.
Opportunity
There is no formal maximum limit and, ordinarily, salary increases will be broadly in line with the average
increases for wider Haleon employees. However, increases may be higher to reflect a change in the scope
of an individual’s role, responsibilities or experience. Salary adjustments may also reflect wider market
conditions in the geography in which an individual operates.
Benefits
Purpose and link to strategy
To provide market-competitive and cost-effective benefits.
Operation
Executive Directors are eligible to receive benefits in line with the policy for other employees which may
vary by location. These may include, but are not limited to:
–
private healthcare (including eligibility for the Executive Director’s spouse or partner and eligible
dependent children);
–
life assurance/death in service benefit;
–
membership of a Group Income Protection plan;
–
personal tax and financial planning;
–
Directors’ and Officers’ liability insurance maintained by the Company; and
–
any contractual post-retirement benefits.
Executive Directors can be entitled to a car travel benefit or car allowance and home security services.
Other benefits include expenses properly incurred in the ordinary course of business, which are deemed
to be taxable benefits on the individual. They also benefit from the indemnity provided by the Company
in the form provided to all Directors. Executive Directors in the UK are also eligible to participate in any
all-employee share schemes established by the Group, on the same terms as other employees.
In line with the policy for other employees, Executive Directors may be eligible to receive overseas
relocation allowances and international transfer-related benefits when appropriate.
The Company covers any associated tax and social security contributions due on selected benefits.
Opportunity
There is no formal maximum. Benefit provision is tailored to reflect market practice in the geography in
which the Executive Director is based, and different policies may apply if current or future Executive
Directors are based in a different country.
Pension
Purpose and link to strategy
To provide cost-effective, market-competitive post-retirement benefits.
Operation
The approach to pension arrangements for Executive Directors is in line with the broader workforce.
Executive Directors are eligible to participate in the Group’s defined contribution pension plan or receive
a cash allowance in lieu of employer’s pension contribution.
Opportunity
In the UK, employees contribute a core amount equal to 2% of their base salary. The Company contributes
a core amount equal to 7% of their base salary and matches additional employee contributions up to
3% of their base salary.
To the extent that any relevant cap on tax-advantaged contributions applies, or where the Executive
Director does not participate in the Haleon pension plan, the proportion of the Company’s contribution of
7% of base salary not paid into that pension plan is paid to that Executive Director as a cash allowance.
The maximum opportunity may change over time if the rate provided to the majority of the wider UK
employee population changes.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
87
Directors’ Remuneration Report
Variable pay
Element
Annual Incentive Plan (AIP)
Purpose and link to strategy
To incentivise and recognise execution of the business strategy on an annual basis.
Operation
Performance measures, weightings and targets are set annually by the Remuneration Committee.
Appropriately stretching targets are set by reference to the business plan and historical and projected
performance for the Company. The level of award is determined with reference to Haleon’s overall
financial and strategic performance and individual performance.
Executive Directors are required to defer 50% of any bonus earned into an award over Haleon Shares or
Haleon ADSs under the Haleon plc Deferred Annual Bonus Plan (DABP), which will normally vest on the
third anniversary of grant, subject to continued employment.
DABP awards are eligible for dividend equivalent payments in respect of dividends that would have
been paid on the shares or ADSs up to the date the awards vest.
The Remuneration Committee may apply judgement in making appropriate adjustments to bonus
outcomes (either up or down) to ensure they reflect underlying business performance.
The proportion of any bonus satisfied in cash will be subject to the malus and clawback provisions.
The period during which any cash award may be recovered will be two years from the date the relevant
bonus is paid. The proportion of any bonus deferred into a DABP award will be subject to the leaver and
malus and clawback provisions (see ‘Payment for loss of office’ and ‘Malus and clawback’ sections).
Normally, 25% of the maximum bonus will be payable for threshold performance and 50% of the
maximum bonus will be payable for on-target performance.
Opportunity
The maximum bonus opportunities for outstanding performance are 200% of salary.
Performance measures
Performance measures are based on a combination of financial targets (at least 50% of the AIP) and
individual business objectives, with the weighting of measures determined by the Remuneration
Committee each year according to business priorities. Performance is measured over one year.
Element
Performance Share Plan (PSP)
Purpose and link to strategy
To incentivise and recognise delivery of longer-term business priorities, financial growth and increases
in shareholder value.
Operation
Under the PSP, awards may be granted in the form of conditional share awards or nil-cost options.
These awards to Executive Directors are subject to performance conditions set by the Remuneration
Committee. Awards are granted annually to Executive Directors under the PSP and normally have a
three-year performance period and a further post-vesting two-year holding period.
The Remuneration Committee may adjust the formulaic vesting outcome (either up or down) to ensure
that the overall outcome reflects underlying business performance over the vesting period.
Awards are eligible for dividend equivalent payments in respect of dividends that would have been paid
on the shares or ADSs that vest under the PSP awards up to the date the awards vest.
Awards will be subject to the leaver and malus and clawback provisions (see ‘Payment for loss of office’
and ‘Malus and clawback’ sections below).
Normally, 25% of the award will vest if threshold level of performance is achieved. Straight-line
interpolation is applied for performance between threshold and maximum.
Opportunity
The normal maximum awards that may be granted under the PSP in respect of any financial year are
450% of salary for the CEO and 350% of salary for the CFO (these amounts are exclusive of any ‘Refill
awards’ described below).
Performance measures
Performance may be assessed against a combination of financial (at least 50%) and non-financial
(including strategic and/or ESG-related) measures which are aligned to the Company’s strategic plan.
The Remuneration Committee has discretion to amend the performance measures in exceptional
circumstances if it considers it appropriate to do so, e.g. in cases of accounting policy changes, merger
and acquisition activities or disposals. Any such amendments would be fully disclosed and explained
in the following year’s Annual Report on Remuneration.
Directors’ Remuneration Report
continued
Directors’ Remuneration Policy
continued
Haleon
Annual Report and Form 20-F 2022
88
Corporate Governance
Element
PSP Refill awards
(to be granted in 2023 only)
Purpose and link to strategy
To provide a fair replacement for the portion of awards lapsed due to time pro-ration on demerger.
Operation
In addition to any ordinary course annual awards made under Haleon’s discretionary share plans
following the demerger, Haleon employees who held awards under the GSK plans are eligible to receive
an award (referred to as a ‘Refill award’) under Haleon’s equivalent plans, over Haleon shares on
substantially equivalent terms and with a value equivalent to the value of GSK shares subject to the
relevant GSK award that vested early and was time pro-rated.
Refill awards to the Executive Directors will be made once, in H1 2023, under the rules of the PSP. These
awards will be subject to performance conditions set by the Remuneration Committee and disclosed on
page 101. Awards will generally vest on the normal vesting dates of the original GSK awards. Detailed
description of the awards is presented on page 101.
Awards are eligible for dividend equivalent payments in respect of dividends that would have been
paid on the shares or ADSs that vest under the PSP Refill awards up to the date the awards vest.
Awards will be subject to the leaver and malus and clawback provisions (see ‘Payment for loss of office’
and ‘Malus and clawback’ sections below).
25% of the award will vest if threshold level of performance is achieved. Straight-line interpolation is
applied for performance between threshold and maximum.
Opportunity
The PSP Refill awards will be made at the level of 434,906 ADSs for the CEO and 60,878 ordinary shares
for the CFO.
Performance measures
Performance will be assessed against a combination of financial and non-financial (including strategic
and/or ESG-related) measures which are aligned to the Company’s strategic plan, as set out on page 101.
The Remuneration Committee has discretion to amend the performance measures in exceptional
circumstances if it considers it appropriate to do so, e.g. in cases of accounting policy changes, merger
and acquisition activities or disposals. Any such amendments would be fully disclosed and explained in
the following year’s Annual Report on Remuneration.
Share ownership requirements
Element
Purpose and link to strategy
To align Executive Directors’ interests with those of shareholders.
Operation
Executive Directors are required, subject to personal circumstances, to build and maintain significant
holdings of shares in the Company over time. The requirements for the CEO and CFO are 450% and
350% of salary respectively.
Until the relevant share ownership requirements have been met, Executive Directors are required
to hold all Haleon shares acquired under the PSP and/or DABP (net of income tax and National
Insurance contributions).
Executive Directors are required to comply with shareholding requirements for two years after departure,
at a level equal to the lower of their shareholding requirement immediately prior to departure or their
actual shareholding on departure. During this period, former Directors will be required to seek
permission to deal from the Company Secretary, to ensure they comply with the requirement.
Malus and clawback
Element
Purpose and link to strategy
To align Executive Directors’ interests with those of shareholders and prevent payment for failure.
Operation
The Committee may apply malus and clawback at any time prior to the second anniversary of the date
the cash element of an annual bonus is paid, or a share award vests.
The Committee may only invoke these malus and clawback provisions in accordance with the Haleon
malus and clawback policy from time to time, in circumstances such as a material misstatement of
results; a failure of risk management resulting in material financial loss; an error or material misstatement
which results in an overpayment (such as in the assessment of performance); a corporate failure of the
Company; employee misconduct; or material reputational damage to the Company.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
89
Directors’ Remuneration Report
Notes to the policy table
Approach to selecting performance measures
Performance targets are set to be stretching, yet achievable, and take into account the Company’s strategic priorities and business
environment. The Committee sets targets based on a range of reference points including the business plan, analysts’ consensus and
historical and projected performance for the Company. A combination of financial and non-financial measures has been chosen to
ensure that executive remuneration is aligned with the key performance indicators we use as a business to monitor performance
against our strategic priorities. The table below sets out incentive measures and weightings used in 2022 and 2023:
Strategic priorities
AIP measures
PSP measures
Growth
Annual organic revenue growth of 4-6%
Organic sales growth
(60% weighting)
Continued investment for growth in
the business
Financial
discipline
Sustainable moderate margin expansion
Adjusted operating profit
(20% weighting)
Net debt to Adjusted EBITDA ratio < 3x
Net debt/Adjusted EBITDA
(50% weighting)
Strong cash generation
Cumulative free cash flow
(50% weighting)
Responsible
business
ESG commitments
ESG qualifier
The weighting of the organic sales growth measure reflects the strategic importance of driving sales growth in line with the external
guidance issued by the Company. This weighting is balanced by the adjusted operating profit measure in the AIP and the strong cash
focus in the PSP. Further details of the performance measures under the 2022 AIP and the 2022 PSP awards, and how they are aligned
with Company strategy and the creation of shareholder value, are set out on pages 97-100 of this Directors’ Remuneration Report.
Differences in policy from the wider employee population
The structure of the reward package for the wider employee population is based on the principle that it should be sufficient to attract
and retain the best talent and be competitive within our broader industry, remunerating employees for their contribution linked to our
holistic performance. It is driven by local market practice as well as level of seniority and accountability, reflecting the global nature of
Haleon’s business.
There is clear alignment in the pay structures for Executives and the wider employee population, in the way that remuneration
principles are followed as well as the mechanics of the salary review process and incentive plan design, which are broadly consistent
throughout the organisation. Most of the performance measures under the AIP and the PSP are the same for Executives and other
eligible employees. Under Haleon’s policies, there is a strong focus on performance-based incentives, with appropriate levels of
differentiation to ensure that reward is invested in the talent that will make the biggest contribution to the execution of Haleon’s
strategy. Where possible, the Company also encourages employee share ownership through a number of share plans that allow
employees to benefit from the Company’s success.
The remuneration approach for Executive Directors is consistent with the reward package for members of the Executive Team and the
senior management population. Generally speaking, a much higher proportion of total remuneration for Executive Directors is linked
to business performance, compared to the rest of the employee population, so that remuneration will increase or decrease in line with
business performance and to align the interests of Executive Directors and shareholders.
Consideration of employment conditions elsewhere in the Company
The Committee, along with setting the remuneration packages of Executive Directors, also has purview over the reward arrangements
of the wider employee population. Although the Committee did not specifically consult employees when setting policy, employment
conditions and remuneration arrangements applicable for the wider employee population are taken into account by the Committee
when making decisions on executive remuneration (including workforce salary increases and bonus outcome). The Committee will
also consider the CEO pay ratio and the wider Board will consider the gender pay gap.
Directors’ Remuneration Report
continued
Directors’ Remuneration Policy
continued
Haleon
Annual Report and Form 20-F 2022
90
Corporate Governance
Projected total remuneration scenarios
The charts below illustrate scenarios for the projected total remuneration of Executive Directors at four different levels of
performance: minimum, target, maximum, and maximum including assumed share price appreciation of 50%. The impact of
potential share price movements is excluded from the other three scenarios. These charts reflect projected remuneration for
the 2023 financial year.
Minimum
£1,868,000
100%
28%
19%
15%
19%
25%
19%
53%
56%
44%
22%
£6,633,000
£9,993,000
£12,805,000
Target
Maximum
Maximum including
share price growth
CEO
Minimum
£784,000
100%
26%
17%
13%
23%
30%
24%
51%
53%
42%
21%
£3,015,000
£4,634,000
£5,859,000
Target
Maximum
Maximum including
share price growth
CFO
Fixed pay
AIP
PSP
Share price growth
Basis of calculation and assumptions:
—
the ‘Minimum’ scenario shows fixed remuneration only, i.e. base salary applicable from 1 April 2023, total value of taxable benefits
for 2022, and the pension benefits to be accrued over the year ending 31 December 2023. These are the only elements of the
Executive Directors’ remuneration packages that are not subject to performance conditions.
—
the ‘Target’ scenario shows fixed remuneration as above, plus a target payout under the AIP (50% of the maximum annual bonus)
and mid-point performance vesting for long-term incentive awards at 62.5% of the maximum award.
—
the ‘Maximum’ scenario reflects fixed remuneration, plus full payout of annual and long-term incentives.
—
the ‘Maximum including share price growth’ scenario reflects fixed remuneration, plus full payout of annual and long-term
incentives, including for the latter an assumed 50% share price appreciation over the performance period.
Payments under the policy in force prior to demerger
The Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they
are not in line with the Policy, where the terms of the payment were agreed (i) under a previous policy which was in force prior to the
demerger, in which case the provision of that policy shall continue to apply until such payments have been made; (ii) before the policy
or the relevant legislation came into effect; or (iii) at a time when the relevant individual was not a Director of the Company and, in the
opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company.
Consideration of shareholder views
The Committee greatly values the continued dialogue with Haleon’s shareholders and regularly engages with shareholders and
representative bodies to take their views into account when setting and implementing the Company’s remuneration policies.
In 2022, the Committee considered shareholders’ feedback received following the publication of the Prospectus ahead of the
Company’s admission to the London and New York Stock Exchanges which contained details on the structure and quantum of
remuneration. The Committee Chair led discussions with the Company’s largest shareholders on the Directors’ Remuneration Policy
and 2022 incentive measures.
Feedback provided by shareholders was considered by the Committee at its regular meetings and was taken into account in
discussions on the 2022 and 2023 remuneration arrangements. The majority of our shareholders were supportive of the Company’s
proposed approach to pay, and the Committee will continue to review this Policy to ensure it is fit for purpose. The Committee will
consult major shareholders before making significant changes to the Policy.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
91
Directors’ Remuneration Report
Recruitment policy
The remuneration package of new Executive Directors (both external hires and internal promotions) will be determined on a case-by-
case basis, in line with the provisions of this Directors’ Remuneration Policy.
Element
Approach
Fixed pay
Base salaries of new Executive Directors will be determined by the individuals’ role, experience, their existing
remuneration package and independently sourced data for relevant comparator groups.
Pension and benefits will be set in line with the policy in force for other Executive Directors.
The Company may provide relocation support where appropriate.
AIP
The structure described in the Policy for other Executive Directors will apply to new appointees with the relevant
maximum opportunity.
PSP
New appointees will be granted awards under the PSP on the same terms as other Executive Directors, as described
in the Policy. The maximum level of award that may be offered for the year of recruitment is in line with the maximum
award under the Policy.
Buyout
The Committee is mindful of the sensitivity relating to recruitment packages and, in particular, the ‘buying out’ of
rights relating to previous employment.
The intent is to seek to minimise such arrangements. However, in certain circumstances, the Committee may
determine that such arrangements are in the best interests of the Company and its shareholders, and such
arrangements will, where possible, be on a like-for-like basis with the forfeited remuneration terms.
In doing so, the Committee will consider relevant factors including any performance conditions attached to these
awards and the likelihood of those conditions being met. The aim of any such award would be to ensure that as far
as possible, the expected value and the structure of the award will be no more generous than the amount forfeited.
The Committee retains the discretion to rely on the exemption under the FCA Listing Rule 9.4.2 to make such an
award, or to utilise any other incentive plan operated by the Group.
For the avoidance of doubt, buyout awards will be excluded from the maximum incentive opportunities
stated above.
Other elements
The Committee reserves the right to make any remuneration payments notwithstanding that they are not in line with
the policy set out above, where the terms of the payment were agreed at a time when the relevant individual was not
a Director of the Company, or under a prior approved policy and, in the opinion of the Committee, the payment was
not in consideration of the individual becoming a Director of the Company.
For an overseas appointment, the Committee will have discretion to offer cost-effective benefits and pension
provisions which reflect local market practice and relevant legislation.
Payment for loss of office
Element
Approach
Fixed pay
The Company’s policy is that Executive Directors’ service contracts will not require the Company to give an executive
more than 12 months’ notice without prior shareholder approval. In the event of termination, the Executive Directors’
service agreements provide for payments of base salary, pensions and benefits over the notice period or for
immediate termination on making a payment (or phased payments) in lieu of notice equivalent to base salary only for
the notice period (or the remainder of such period). The Company will have regard to the need to mitigate the costs
for the Company, such that payments would be reduced or cease if departing Executive Directors secure alternative
paid employment during the notice period.
Notice (or payment in lieu) will not be payable in certain circumstances, including where an Executive Director is
guilty of (i) wilfully neglecting their duties, or (ii) committing any serious or persistent breach of their service
agreement or (iii) gross misconduct.
AIP
There is no contractual right to any bonus in the event of a notice of termination being given or received on or before
the date on which the bonus would otherwise have been paid, although the Remuneration Committee may exercise
its discretion to pay such a bonus, taking into account the time worked in the performance year and based on the
individual’s contribution.
PSP
There is no contractual right to any long-term incentive award in the event of a notice of termination being given
or received on or before the date on which the long-term incentive award would have been made, although the
Remuneration Committee may exercise its discretion to make such an award, taking into account the time worked
in the performance period and based on the individual’s contribution.
Directors’ Remuneration Report
continued
Directors’ Remuneration Policy
continued
Haleon
Annual Report and Form 20-F 2022
92
Corporate Governance
Element
Approach
Unvested DABP
awards
A DABP award will vest in full on the normal vesting date as if the participant had not ceased to be an employee
or Director unless the Committee determines that the DABP award will vest in its entirety on a different date.
If a participant leaves for gross misconduct or is summarily dismissed, any DABP awards they hold will
immediately lapse.
Unvested PSP
awards
PSP awards are governed by the plan rules.
An unvested PSP award will usually lapse when a participant ceases to be an employee or Director.
If, however, a participant ceases to be an employee or Director because of their death, ill-health, injury, disability,
redundancy, retirement, the sale of the participant’s employing company or business out of the Company or in
other circumstances at the discretion of the Committee (i.e. they leave as a “good leaver”), their PSP award will
normally continue to vest (and be released) on the date when it would have vested (and been released) if they had
not ceased to be an employee or Director subject to pro-rating for time, unless the Committee determines otherwise.
The extent to which PSP awards vest in these circumstances will be determined by the Committee, taking into
account the satisfaction of any performance conditions applicable to PSP awards measured over the original
performance period.
The Committee retains discretion, however, to allow the PSP award to vest (and be released) on the individual’s
cessation of office or employment or such other date as it decides, taking into account any applicable performance
conditions measured up to such point as it decides. Unless the Committee decides otherwise, the extent to which a
PSP award vests will also take into account the proportion of the performance period (or, in the case of a PSP award
not subject to performance conditions, the vesting period) which has elapsed on the cessation.
If a participant ceases to be an employee or Director during a holding period in respect of a PSP award their PSP
award will normally be released at the end of the holding period.
Post-departure
benefits
Executive Directors can be provided certain benefits after departure for those who depart under good leaver
provisions, in accordance with the terms of the policy.
Benefits may include, but are not limited to, medical coverage, home security, tax return preparation assistance and
legal expenses.
Other
Awards under the all-employee share plans will be treated in line with the plan rules.
Where an Executive Director has been relocated as part of their employment, the Committee retains the discretion
to pay the repatriation costs. This may include, but is not restricted to, airfare, accommodation, shipment, storage,
utilities, and any tax and social security that may be due in respect of such benefits.
Except in the case of gross misconduct or resignation, an Executive Director may also receive reasonable
retirement gifts.
The Committee retains the discretion to make payments (including professional and outplacement fees) in
connection with an Executive Director’s cessation of office or employment. This may include payments that are
made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an
obligation) or by way of settlement of any claim arising in connection with the cessation of that Executive
Director’s office or employment.
Change of control
In the event of a change of control, outstanding awards will be treated in line with the provisions set out in the
respective plan rules.
Service contracts
The table below sets out the dates of Executive Directors’ service contracts, which are available for inspection at the Company’s
registered office and included as exhibits to this Annual Report and Form 20-F.
Name
Position
Contract date
Notice period
Brian McNamara
Chief Executive Officer
9 May 2022
12 months
Tobias Hestler
Chief Financial Officer
10 May 2022
12 months
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Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
93
Directors’ Remuneration Report
Non-Executive Directors’ unexpired terms of appointment
The Non-Executive Directors and the Chair were each appointed by a letter of appointment. In each case, either party may terminate
the appointment on three months’ written notice, or, if earlier, with the consent of the Board.
Name
Position
Date of appointment
to the Board
Current letter of
appointment expires
Sir Dave Lewis
Haleon Director / Haleon Chair
23 May 2022 / 18 July 2022
2025 AGM
Manvinder Singh (Vindi) Banga
Senior Independent Non-Executive
Director
18 July 2022
2025 AGM
Marie-Anne Aymerich
Independent Non-Executive Director
18 July 2022
2025 AGM
Tracy Clarke
Independent Non-Executive Director
18 July 2022
2025 AGM
Dame Vivienne Cox
Independent Non-Executive Director
18 July 2022
2025 AGM
Asmita Dubey
Independent Non-Executive Director
18 July 2022
2025 AGM
Deirdre Mahlan
Independent Non-Executive Director
18 July 2022
2025 AGM
Bryan Supran
Non-Executive Director
18 July 2022
2025 AGM
John Young
1
Non-Executive Director
18 July 2022
2025 AGM
Note
1
John Young stepped down from the Board with effect from 28 February 2023. John is succeeded as Non-Executive Director and representative of Pfizer by David Denton with effect
from 1 March 2023.
Fees for Chair of the Board and Non-Executive Directors
Element
Details
Purpose and link to strategy
To provide fees at an appropriate level to attract individuals of the highest calibre with relevant
experience to develop, monitor and oversee the Company’s strategy.
Operation
The fees for each Non-Executive Director and the Chair are reviewed annually (but with no obligation to
increase them). Non-Executive Directors are not eligible to participate in any pension or share scheme
operated by the Company or to receive any bonus. Additional fees may be payable to reflect additional
Board responsibilities, such as committee chairship and membership, or the role of Senior Independent
Director or Workforce Engagement Director.
Each Non-Executive Director including the Chair is entitled to be reimbursed for reasonable and properly
documented expenses necessarily incurred in the proper performance of their duties.
Each Non-Executive Director and the Chair has the benefit of:
–
a personal accident insurance policy maintained by the Company;
–
Directors’ and Officers’ liability insurance maintained by the Company; and
–
the indemnity provided by the Company in the form provided to all Directors.
The Company covers associated tax and social security contributions due on reimbursed expenses that
are deemed taxable.
Each Non-Executive Director and the Chair is subject to confidentiality undertakings and a non-compete
restrictive covenant.
Non-Executive Directors and the Chair are encouraged to build up a personal holding in the shares of the
Company equal to the value of one year of their annual base fee.
Opportunity
When reviewing the level of fees, the assessment will normally consider whether, individually and in
aggregate, they remain competitive and appropriate in light of changes in roles, responsibilities and/or
time commitment of the Non-Executive Directors, and to ensure that individuals of the appropriate
calibre are retained or appointed.
Directors’ Remuneration Report
continued
Directors’ Remuneration Policy
continued
Haleon
Annual Report and Form 20-F 2022
94
Corporate Governance
Annual Report on Remuneration
Planned implementation for 2023
Content within a box indicates that all the information in the panel is planned for implementation in 2023.
‘Single figure’ of remuneration – Executive Directors (audited)
The following table shows a single total figure of remuneration for each Executive Director in respect of qualifying services for the
2022 financial year. This covers the period between their appointment (23 May 2022) and the end of the financial year (31 December
2022). Given that the Haleon demerger took place on 18 July 2022, no comparable prior year data could be provided. The table below
includes fixed remuneration paid to Brian McNamara and Tobias Hestler before the demerger (23 May-17 July 2022) when their
remuneration arrangements were aligned with the GSK policies.
£000
Brian McNamara
1
Tobias Hestler
Salary
719
410
Benefits
530
35
Pension
87
36
Total fixed remuneration
1,336
481
AIP
2
1,014
518
PSP
3
–
–
Total variable remuneration
1,014
518
Total remuneration
2,350
999
Notes
1
Pre-demerger remuneration for Brian McNamara was set in US Dollars and has been converted to GBP in the table above, using the average 2022 exchange rate of 1.24.
2
2022 AIP value shown above has been pro-rated for the period between Directors’ appointment (23 May 2022) and the end of the financial year (31 December 2022).
3
There were no Haleon PSP awards vesting in 2022. The first PSP awards were made on 6 October 2022 and are expected to vest in Q1 2025.
Salary (audited)
2022 annual salary levels for the Executive Directors applied from the date of demerger. Salary levels applicable for the period prior
to the demerger were set under the GSK policies and reflected the seniority and the scope of the role of each individual.
The CEO’s post-demerger salary level takes into account the fact that he was localised on a UK contract and that his prior
remuneration package included international assignment benefits and a US pension, both of which ended under the new arrangement.
The CFO’s post-demerger salary has been set to reflect the significant additional responsibilities that he took on post-separation.
Executive Director
Annual base salary
as of 23 May 2022
1
Annual base salary
as of 18 July 2022
Total base salary
paid in 2022
Brian McNamara
£1,008,065
£1,250,000
£719,307
Tobias Hestler
£592,250
£700,000
£410,464
Notes
1
Pre-demerger salary for Brian McNamara was set in US Dollars at $1,250,000 per annum and has been converted to GBP in the table above, using the average 2022 exchange rate of 1.24.
2023 salaries
The Committee carefully considered whether any increases should be awarded to Executive Directors’ salaries in 2023. Factors that
have been taken into account when considering pay review for Directors included investors’ expectations and external environment,
company performance, planned salary increases for the wider employee population, personal performance of the executives and
competitive market positioning of the current salaries and total remuneration packages against the main peer groups. In 2022 these
included constituents of the FTSE 30 excluding financial services and a bespoke group of large international FMCG companies.
The Committee noted that Executive Directors’ salaries were reviewed on demerger to recognise the scope and scale of their roles
as Directors of a large, listed company. On this basis, it resolved that 2023 salaries would remain unchanged from 2022 levels which
applied on demerger. However, the Committee reserves the right to award salary increases to the Executive Directors in the future to
allow for appropriate pay progression over time. For reference, an average increase of 6% will be awarded to the wider workforce in
the UK.
Executive Director
Annual base salary from 1
April 2023
% increase
Brian McNamara
£1,250,000
Nil
Tobias Hestler
£700,000
Nil
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Corporate Governance
Financial Statements
Other Information
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Annual Report and Form 20-F 2022
95
Directors’ Remuneration Report
Benefits (audited)
2022 benefits for Executive Directors included private healthcare (including spouse or partner and eligible dependent children), life
assurance/death in service benefit, membership of a Group Income Protection plan, personal tax and financial planning, car travel,
reimbursement of expenses properly incurred in the ordinary course of business, which are deemed to be taxable benefits, and (for
CEO only) home security services.
In addition, to facilitate Brian McNamara’s employment arrangements being moved from an international assignment package to a
standard, local market, basis, a one-off payment of £300,000 (subject to deductions for tax and National Insurance contributions)
was made to him in 2022.
The 2022 single figure for the CEO shows the value of benefits including those provided to him as an international assignee under the
GSK policies, which account for c. £85,000 of the total value of benefits. In addition, in line with the remuneration arrangements which
applied at GSK pre-demerger, the CEO was entitled to his tax liability being equalised to his US tax position in line with the GSK policy
for the wider workforce. This policy applied to his 2022 remuneration received until 18 July 2022 and the proportion of his 2022 AIP
earned pre-demerger. The total benefit to the individual attributable to the period between 23 May and 18 July 2022 has been
estimated at c. £85,000. This value will be restated in the next Directors’ Remuneration Report, when the actual cost to the Company
will be confirmed. This arrangement is not part of Haleon’s Directors’ Remuneration Policy.
Executive Directors are eligible to participate in the HM Revenue and Customs (HMRC) approved Haleon Share Save Plan and Share
Reward Plan. Details of Executive Directors’ rights under the Share Save Plan are set out in the ‘Outstanding share options’ table.
2023 benefits
Benefits for 2023 remain in line with the Policy.
Pension
From the date of Admission both Executive Directors received pension contributions at the rate of 7% of annual base salary which
included contributions to the pension plans as well as cash allowances.
Prior to Admission, pension arrangements aligned with the GSK policies were as follows:
—
Tobias Hestler was eligible for a core pension contribution of 15% of his annual base salary;
—
Brian McNamara was employed by a US entity whilst on assignment in the UK and received contributions into the Executive
Supplemental Savings Plan (ESSP) and Executive Pension Credits (fixed discretionary credit paid by the Company).
All these arrangements are based on defined contributions. Executive Directors do not participate in defined benefit pension plans.
Executive Director
US pension
contributions
1
UK pension
contributions
Total 2022 pension
contributions
2
Brian McNamara
£47,101
£39,824
£86,925
Tobias Hestler
–
£36,227
£36,227
Note
1
US pension contributions for Brian McNamara were made in US Dollars. This value has been converted to GBP in the table above, using the average 2022 exchange rate of 1.24.
2
Pension contributions for Brian McNamara include ESSP (£10,291 ), Executive Pension Credits (£36,810) and a cash allowance (£39,824). Pension contributions for Tobias Hestler
include the UK pension plan contributions (£1,731) and a cash allowance (£34,496).
Pension for 2023
Pension for 2023 remains in line with the Policy.
Directors’ Remuneration Report
continued
Annual Report on Remuneration
continued
Haleon
Annual Report and Form 20-F 2022
96
Corporate Governance
2022 Annual Incentive Plan (AIP) awards (audited)
The 2022 AIP awards were based on performance for the year ended 31 December 2022. 80% of the bonus opportunity is determined
by financial performance and 20% is based upon the achievement of Individual Business Objectives (IBOs). AIP awards were based on
Haleon’s performance for the full 2022 financial year.
As part of the wider remuneration structure review for the Executive Directors, the maximum AIP opportunity increased on demerger
from 170% of salary to 200% of salary for the CEO and from 90% of salary to 200% of salary for the CFO. The increased opportunities
only applied to the period after the demerger.
The figures below represent the total 2022 AIP awards to be paid, including the portion payable in cash in 2023, and the portion
deferred into shares for a further three years to be released in 2026, subject to continued employment and malus and clawback
provisions. Deferral provisions apply to 50% of the 2022 AIP value earned between 18 July and 31 December 2022 when the new
remuneration arrangements were put in place for the Executive Directors.
2022 AIP targets
2022 AIP outcome
AIP outcome
(% of max per element)
Performance measures
Weighting
Threshold
(25% of max)
Target
(50% of max)
Maximum
(100% of max)
Actual
Outcome
(% of max)
Brian
McNamara
Tobias
Hestler
Organic sales growth
60%
-0.4%
5.1%
10.5%
9.0%
82.5%
49.5%
49.5%
Adjusted operating profit
1
20%
£2,207m
£2,335m
£2,461m
£2,310m
45.0%
9.0%
9.0%
IBOs – Brian McNamara
20%
See table below
13.8%
–
IBOs – Tobias Hestler
20%
–
13.3%
Note
1
Adjusted operating profit is measured at budget rate which differs from the reporting rate.
Allocation of AIP Award
The table below shows the allocation of the 2022 AIP award for Executive Directors in relation to the period pre- and post-demerger.
AIP award
Performance measures
Brian McNamara
Tobias Hestler
Total (% of max)
72.3%
71.8%
2022 AIP award pre-demerger (23 May-17 July 2022)
£190,485
£58,906
2022 AIP award post-demerger (18 July-31 December 2022)
£823,729
£458,628
Total 2022 AIP award (23 May-31 December 2022)
£1,014,215
£517,534
2022 was a year of strong financial and strategic performance. Organic sales growth was achieved at 9.0% relative to the target of
5.1%, and Adjusted operating profit was achieved at £2,310m at budget rate, which is broadly in line with the target level. On this
basis, the Committee was comfortable that the 2022 AIP outcomes reflect the underlying business performance and as such, no
discretion was exercised to adjust the formulaic outcome.
Achievement of 2022 Individual Business Objectives (IBOs) (audited)
20% of the Executive Directors’ 2022 AIP is linked to the achievement of IBOs. The IBOs were set ahead of admission and were
focused on key strategic objectives for 2022. Apart from the deliverables outlined in the bonus, it is an expectation that the Executive
Directors will each demonstrate the required high leadership standards and behaviours of the Company and that there will be no
Code of Conduct issues.
At the end of the year, the Committee considered the performance of each Executive Director against pre-set objectives. At its meeting
in February 2023, it concluded that 2022 had seen progress in the execution of strategic objectives, as described in the Strategic
Report. This included successful stand up of the Haleon business, no business interruption and developing strategy to deliver on
Capital Markets Day commitments. These achievements reflect Executive Directors’ high level of performance against their 2022 IBOs
showing a significant contribution to the achievement of Group strategy and external commitments during 2022.
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Corporate Governance
Financial Statements
Other Information
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Annual Report and Form 20-F 2022
97
Directors’ Remuneration Report
The table below summarises performance against the key 2022 IBOs for the current Executive Directors:
Brian McNamara
Objective
Description of performance
Level of performance achieved
On track for medium-term
Capital Markets Day
strategic commitments
–
Expect to deliver on all Capital Markets Day commitments: organic
annual sales growth of 4 to 6% p.a., moderate operating margin
expansion at constant currency, high and stable cash flow conversion
and net debt de-leverage.
–
Responsible business plans in place to deliver on ESG commitments
across environmental (plastics, renewable energy, zero Scope 1 and 2
carbon) and social goals (Diversity and Inclusion, Health Inclusivity).
Achieved
No business interruption post
separation and employee
engagement maintained in the
upper quartile
–
Despite an extremely complex system cutover, there was no business
interruption, enabling strong financial delivery in 2022.
–
There was significant focus on driving engagement through leadership
sessions, townhalls, with engagement measured at a Business Unit
and functional level in the scorecards, which resulted in an 80%
engagement score.
Exceeds target
Recognising Mr McNamara’s very strong performance against his IBOs during 2022, the Committee judged that 13.8% of a maximum of 20%
attributable to IBOs was appropriate.
Tobias Hestler
Objective
Description of performance
Level of performance achieved
Successful stand up of Haleon
business to create Haleon plc,
achieving performance on track
for medium-term Capital
Markets Day financial
commitments
–
Strong sales growth exceeding expectations, with organic growth of 9%.
–
Profit broadly in line with business plan, with pricing and efficiency
initiatives fully offsetting inflationary pressures.
–
Strong cash generation, with repayment of £1.5bn term loan.
–
Strategic plan established and reviewed by the Board demonstrating
confidence to deliver steady organic sales growth annually over
medium-term with sustainable moderate margin expansion at constant
exchange rates, strong cash conversion and de-leveraging, fully
delivering on Capital Markets Day commitments.
Exceeds target
Establishment of fully
operational central Finance
functions and reporting
processes
–
All new functions set up successfully in advance of the demerger with
stable operating on Haleon’s fully separated infrastructure (systems,
people and processes).
–
New leaders integrated and operating effectively.
Achieved
Successful closing of H1 and Q3
reporting for Haleon
–
Completed successfully, including establishment of new governance
processes, with ongoing streamlining and efficiency improvements.
–
Positive feedback from engagement with auditors, analysts and
investors.
Over-achieved
Recognising Mr Hestler’s very strong performance against his IBOs during 2022, the Committee judged that 13.3% of a maximum of 20%
attributable to IBOs was appropriate.
Deferral policy
In line with the policy, 50% of the 2022 AIP awards earned after the demerger have been deferred for three years into conditional
awards over Haleon shares, subject to continued employment and malus and clawback provisions.
Directors’ Remuneration Report
continued
Annual Report on Remuneration
continued
Haleon
Annual Report and Form 20-F 2022
98
Corporate Governance
2023 AIP awards
In line with the Policy, for 2023 the target and maximum AIP opportunities for our Executive Directors will be:
Executive Director
Target opportunity
(% of salary)
Maximum opportunity
(% of salary)
Brian McNamara
100%
200%
Tobias Hestler
100%
200%
Performance will be based on Group financial performance targets aligned to the Group’s KPIs, as well as IBOs. The measures and
percentage weightings will remain unchanged from 2022:
—
Organic sales growth (60%);
—
Adjusted operating profit (20%); and
—
Individual Business Objectives (20%).
2023 AIP targets are considered commercially sensitive and will be disclosed in the 2023 Annual Report.
In line with the Policy, 50% of all 2023 AIP awards will be deferred for three years into conditional awards over Haleon shares, subject
to continued employment, malus and clawback provisions.
Performance Share Plan awards vesting
No Haleon long-term incentive awards vested in 2022. The first grant of awards under the Haleon Performance Share Plan took place
in October 2022, as set out in the section below.
Performance Share Plan awards made in 2022 (audited)
Brian McNamara and Tobias Hestler were granted an award with a face value of 450% of salary and 350% of salary respectively.
The following table sets out details of awards made on 6 October 2022:
Executive Director
End of the performance
period
Type of
award
Nature of
award
Number of
shares subject
to award
Grant price
1
Face value
at grant
Brian McNamara
31 December 2024
PSP
Conditional shares
2,049,305
£2.74
£5,625,000
Tobias Hestler
31 December 2024
PSP
Conditional shares
892,587
£2.74
£2,450,000
Note
1
Grant price is calculated as the average closing share price over the three business days immediately preceding the grant date.
Performance measures for the PSP awards granted in 2022
The 2022 PSP performance measures are:
Target ranges
Measure
Weighting
Minimum
(25% vesting)
1
Maximum
(100% vesting)
1
Cumulative free cash flow
(Measured on a cumulative basis over the
performance period FY 22-24)
50%
£4.557bn
£5.557bn
Net debt/Adjusted EBITDA
(Measured as a ratio at year end 2024)
50%
3.0x
2.4x
Note
1
Straight-line interpolation is applied for performance between minimum and maximum.
Responsible business is a strategic priority for Haleon and is core to our purpose. The Company has made commitments on carbon
reduction, recycle-ready packaging and diversity. These commitments have been incorporated in our incentive structure, such that
the Remuneration Committee will apply an ESG qualifier at vesting of the 2022 PSP award.
In designing the ESG qualifier, the Remuneration Committee has set thresholds for each of the three measures and, at the end of the
performance period, if any of the thresholds are missed, a reduction in the level of vesting of 10% could be applied for each missed
threshold. In addition, if the metrics are static or go backwards compared to the 2021 baseline, a 25% reduction in the level of vesting
could be applied for each measure (i.e., a potential overall reduction of up to 75%).
Strategic Report
Corporate Governance
Financial Statements
Other Information
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Annual Report and Form 20-F 2022
99
Directors’ Remuneration Report
The ESG qualifier thresholds for the 2022 PSP are as follows:
Measure
Threshold
Carbon reduction
(Measured for 12 months to Nov 2024)
at least 30% reduction in Scope 1 and 2 carbon emissions from the 2020 level
Recycle-ready packaging
(Measured for 12 month to June 2024)
at least 68% of packaging should be recycle-ready
Diversity
(Quarterly average in 2024)
at least 44.5% of Leadership roles should be female
In determining the vesting levels and any adjustment which should apply, the Committee will also consider wider factors, including
whether broader plans to meet Haleon’s responsible business commitments are on track.
Details of performance against each of the thresholds and level of reduction applied by the Committee, if applicable, will be fully
disclosed in the 2024 Directors’ Remuneration Report.
The awards are in respect of the 1 January 2022-31 December 2024 performance period and will vest following the announcement
of the FY 2024 results. A two-year post-vesting holding period will apply to these awards.
2023 PSP awards
Brian McNamara and Tobias Hestler will each be granted an award with a face value of 450% of salary and 350% of salary
respectively.
For the 2023 award, the following performance measures will be used:
Target ranges
Measure
Weighting
Minimum
(25% vesting)
1
Maximum
(100% vesting)
1
Cumulative free cash flow
(Measured on a cumulative basis over the performance period FY 23-25)
50%
£4.520bn
£5.520bn
Net debt/Adjusted EBITDA
(Measured as a ratio at year end 2025)
50%
2.7x
2.3x
Note
1
Straight-line interpolation is applied for performance between minimum and maximum.
An ESG qualifier is also included within the 2023 PSP design, to reflect commitments that the company has made on carbon reduction,
recycle-ready packaging and diversity.
In designing the ESG qualifier, the Committee has set thresholds for each of the three measures and, at the end of the performance
period, if any of the thresholds are missed, a reduction in the level of vesting of 10% could be applied for each missed threshold. In
addition, if the metrics are static or go backwards compared to the 2022 baseline, a 25% reduction in the level of vesting could be
applied for each measure (i.e., a potential overall reduction of up to 75%).
The ESG qualifier thresholds for the 2023 PSP are as follows:
Measure
Threshold
Carbon reduction
(Measured for 12 months to Nov 2025)
at least 48% reduction in Scope 1 and 2 carbon emissions from the 2020 level
Recycle-ready packaging
(
Measured for 12 months to June 2025)
at least 80% of packaging should be recycle-ready
Diversity
(Quarterly average in 2025)
at least 45% of Leadership roles should be female
In determining the vesting levels and any adjustment which should apply, the Committee will also consider wider factors, including
whether broader plans to meet Haleon’s responsible business commitments are on track.
Directors’ Remuneration Report
continued
Annual Report on Remuneration
continued
Haleon
Annual Report and Form 20-F 2022
100
Corporate Governance
PSP Refill awards
As described in the Prospectus published on 1 June 2022, in-flight GSK Performance Share Plan (PSP) and Share Value Plan (SVP)
awards received “accelerated vesting” following the demerger, on a time pro-rated basis. The portion of PSP and SVP awards that
lapsed due to the application of time pro-rating will be replaced by Haleon Refill PSP and SVP awards which vest on the original
vesting dates. Refill PSP awards will be granted in H1 2023 after performance testing and accelerated vesting of the GSK PSP awards.
PSP Refill awards will be converted using the “Refill conversion factor” which is based on the average share prices for GSK and Haleon
in the first five days after the demerger.
Executive Director
GSK award
Treatment applied
Brian McNamara
2020 GSK PSP award
(lapsed portion)
Refill awards for Mr McNamara’s 2020 and 2021 GSK PSP awards were grouped
to allow a consistent performance period for all awards. Both awards will vest
in H1 2024 and will be linked to performance ending on 31 December 2023.
To ensure consistency, awards will be made in the same form (ADSs) as the
original GSK awards held by Mr McNamara.
2021 GSK PSP award
(lapsed portion)
Tobias Hestler
2021 GSK PSP award
(lapsed portion)
A Haleon PSP Refill award will be made in H1 2023 with the performance period
ending on 31 December 2023 and which will vest in H1 2024.
2021 GSK SVP award
(lapsed portion)
In line with the Haleon SVP rules, Executive Directors are not eligible to
participate in the SVP. Therefore, Mr Hestler will receive a Haleon PSP Refill
award to compensate the value of the lapsed portion of his GSK SVP award
which had no performance conditions attached to it. As such, the SVP award
will be converted into a PSP award on an expected value basis, taking into
account performance conditions which apply to the PSP award.
The following table sets out details of awards to be made in H1 2023:
Haleon Refill awards
Name
Number of shares / ADSs
Award type
Share type
Vesting date
Brian McNamara
91,030
2023 PSP Refill
ADS
10 Feb 2024
343,876
2023 PSP Refill
ADS
10 Feb 2024
Tobias Hestler
23,614
2023 PSP Refill
ORD
10 Feb 2024
37,264
2023 PSP Refill
ORD
10 Feb 2024
Performance measures for the PSP Refill awards will be aligned with the measures for the annual 2022 PSP awards, being cumulative
free cash flow (50%) and net debt/adjusted EBITDA (50%). Performance targets will be aligned with the 2022-2023 targets within the
2022-2024 performance period for the 2022 PSP awards made on 6 October 2022. Despite the timing of grant coinciding with the
2023 PSP awards, Refill awards refer back to the previous performance cycle which ends in 2023, so the Committee concluded that it
would be more appropriate to use targets aligned with the 2022-2024 business plan. When determining the vesting level of the Refill
awards, the Remuneration Committee will also consider progress made during 2023 on carbon reduction, recycle-ready packaging
and diversity.
Due to the short-term nature of the targets they are deemed commercially sensitive. The targets and the level of performance
achieved against those targets will be disclosed in the 2023 Directors’ Remuneration Report.
Payments for loss of office and to past Directors (audited)
There were no payments to Directors for loss of office and no payments to past Directors during 2022.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
101
Directors’ Remuneration Report
Total shareholder return (TSR)
The chart shows the monthly value, from the time of demerger to 31 December 2022, of £100 invested in Haleon shares on 18 July
2022, compared to £100 invested in the FTSE 100 on the same date. The FTSE 100 Index was chosen as the comparator because the
Company is a constituent of this index.
Jul 2022
Aug 2022
Sep 2022
Oct 2022
Nov 2022
Dec 2022
85
90
95
100
105
110
Haleon
FTSE 100
Total shareholder return
Chief Executive Officer – historical remuneration information
The table below shows the remuneration of the Chief Executive Officer in place at the time over the same period. As this is the
Company’s first remuneration report, there is no prior years’ data.
Year
2022
Chief Executive Officer
Brian McNamara
Single figure of total remuneration (£’000)
1
2,350
AIP outcome (% of maximum)
2
72%
PSP vesting (% of maximum)
3
N/A
Notes
1
Pre-demerger remuneration for Brian McNamara was set in US Dollars and has been converted to GBP in the table above, using the average 2022 exchange rate of 1.24.
2
2022 AIP value has been pro-rated for the period between Directors’ appointment (23 May 2022) and the end of the financial year (31 December 2022).
3
There were no PSP awards vesting in 2022. The first PSP awards were made on 6 October 2022 and will vest in Q1 2025.
Relative importance of spend on pay
As this is the Company’s first remuneration report, there is no year-on-year comparison. A comparison of spend on pay in 2022 and
2023 will be made in the 2023 Directors’ Remuneration Report.
Year
2022
Total staff costs
1
£1,835m
Dividends
2
£11,930m
Notes
1
Total staff costs are presented in line with the note 7 to the financial statements.
2
Dividends are presented in line with the note 10 to the financial statements.
Chief Executive Officer’s pay compared with employee pay
The table below compares the CEO’s ‘single figure’ of total remuneration to that received by three representative UK employees
during the same period in 2022. The total remuneration for each quartile employee, and the salary component within this, is also
outlined below.
Year
Method
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
2022
1,2
Option B
65:1
33:1
24:1
Notes
1
2022 CEO single figure does not include any long-term incentive component as the first Haleon PSP award was made to the CEO in 2022 and will be disclosed as part of the 2024
single figure of remuneration. An indicative estimate of Haleon’s 2024 CEO pay ratio is 64:1, based on the current salary and benefits, target bonus outcome (100% of salary) and mid-
point vesting of the PSP award at the current level (450% of salary).
2
The total remuneration for employees is based on earnings between 23 May 2022 and 31 December 2022 and the 2022 bonus pro-rated for that period.
Year
25th percentile
£000
Median
£000
75th percentile
£000
2022 salary
1
£28,586
£38,754
£53,467
2022 total remuneration
1
£36,107
£71,266
£97,211
Note
1
Remuneration shown in the table above is based on earnings between 23 May 2022 and 31 December 2022 and the 2022 bonus pro-rated for that period.
Directors’ Remuneration Report
continued
Annual Report on Remuneration
continued
Haleon
Annual Report and Form 20-F 2022
102
Corporate Governance
Methodology
We have chosen to use Option B as our preferred methodology to calculate the CEO pay ratio. Given the complexity of the pay
arrangements for different categories of UK employees at Haleon, this approach allows us to leverage the existing gender pay gap
calculations and thus presents a practical and efficient approach, using robust and meaningful data that is representative of the
remuneration levels for UK employees.
The Company used data from the 2022 gender pay gap calculation to determine employees positioned at each pay quartile and
excluded those employees who left the Company before 31 December 2022. Remuneration was calculated in line with the
methodology used to determine the single total figure of remuneration for the CEO, as presented in this report. Remuneration figures
are determined with reference to the financial year ending on 31 December 2022. The remuneration covers salary, benefits and
pension contributions from 23 May to 31 December, pro-rated bonus in respect of 2022 which will be paid in March 2023, and share
awards without performance conditions granted in 2022. No components were omitted from the calculation and no adjustments were
made to any of the pay elements. Where required, actual remuneration was converted into a full-time equivalent by pro-rating
earnings to reflect full-time contractual working hours.
The Committee determined that the identified employees are reasonably representative, since the structure of their remuneration
arrangements is in line with that of the majority of employees in the UK. The Committee believes that the median pay ratio for the 2022
financial year is consistent with the pay, reward and progression policies for the Company’s UK employees as a whole. It should be
noted, however, that the CEO’s 2022 remuneration does not include any long-term incentives vesting and as such, the pay ratio may
change in future years. Given that the Haleon demerger took place on 18 July 2022, no comparable prior year data could be provided.
Percentage change in remuneration
As this is the Company’s first Remuneration Report, there is no year-on-year comparison. A comparison of remuneration in 2022 and
2023 will be made in the 2023 Directors’ Remuneration Report.
Consideration of workforce pay and approach to engagement
The Board receives verbal updates on employee engagement quarterly, with a detailed update, including employee survey results,
presented annually. In addition, employee engagement is covered on page 72, which includes commentary on how the views of
employees were considered by the Board. Dame Vivienne Cox, a member of the Remuneration Committee, has been appointed as the
Company’s designated Non-Executive Workforce Engagement Director and in 2022 she and Mairéad Nayager (Chief Human Resources
Officer) hosted a session with a dynamic group of culturally diverse employees from across markets and functions to hear ideas on
the most meaningful and innovative ways for the Board to engage and hear employees’ thinking on purpose, strategy, performance
and culture.
>>
More detail on employee engagement is disclosed on page 72.
To ensure that the remuneration-related decisions are fair and appropriate, the Committee considered employees’ pay increases when
determining the appropriate salary levels for the Executive Directors and fees for the Chair. In addition, the Committee was provided
with an update on bonus outcomes for the wider employee population, which were taken into account to ensure that the bonus
outcomes are appropriately reflecting business performance at all levels in the organisation. Furthermore, the Committee approved
the implementation of Haleon’s all-employee share plans and agreed the terms and details of the 2022 share awards made to the
executives and the wider workforce population.
The Company regularly engages with employees on reward. A number of sessions with different groups of employees have taken
place to date to explain the operation of reward at Haleon. The Company’s intention is to continue this engagement, including, in
future, remuneration arrangements applicable to Executive Directors.
Remuneration Committee advisers
During 2022, PwC was the independent remuneration adviser to the Committee. PwC was appointed by the Committee in August 2022.
As part of this process, the Committee considered the services that PwC provided to other FTSE 100 companies and Haleon’s
competitors, as well as other potential conflicts of interest. PwC is a member of the Remuneration Consultants’ Group and voluntarily
operates under their code of conduct when providing advice on executive remuneration in the UK. PwC regularly meets with the Chair
of the Committee without management present. The Committee is comfortable that the PwC engagement partner and team providing
remuneration advice to the Committee do not have connections with Haleon or its individual Directors that may impair their
independence and objectivity. The total fees paid to PwC for the provision of independent advice to the Committee in 2022 were
£89,200 charged on a fixed fee as well as time and materials basis. During 2022, PwC also provided other services to Haleon entities,
including tax advice, internal audit and assurance, controls (e.g. SOX and cyber security assessments), general management
consultancy, advice relating to group-wide projects, such as the separation of Haleon from GSK, short and medium secondees, deals
and transactions work. Remuneration advice is provided by an entirely separate team within PwC.
Statement of voting at the Annual General Meeting (AGM)
The statement of voting at Haleon’s first AGM will be disclosed in the 2023 Directors’ Remuneration Report.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
103
Directors’ Remuneration Report
2022 Non-Executive Directors’ remuneration
The Chair is entitled to receive a fee of £700,000 per annum. The base fee for each other Non-Executive Director is £95,000 per
annum. Bryan Supran is a Pfizer employee and does not receive any fees as a Non-executive Director of Haleon plc. Additional fees are
payable as follows:
—
£50,000 per annum for the Senior Independent Director;
—
£30,000 per annum for the Workforce Engagement Director;
—
£40,000 per annum for chairing the Audit & Risk Committee; and
—
£40,000 per annum for chairing the Remuneration Committee.
The Board established the Environmental and Social Sustainability Committee with effect from 9 March 2023. The fee for chairing the
Committee has been set at £30,000 per annum.
‘Single figure’ of remuneration – Non-Executive Directors (audited)
The table below shows the actual fees paid to our Non-Executive Directors in 2022. Given that the Haleon demerger took place on
18 July 2022, no comparable prior year data could be provided.
Non-Executive Director
2
2022 fees
(£000)
1
2022 benefits
(£000)
2022 total
remuneration
(£000)
Sir Dave Lewis
426
2.9
429
Manvinder Singh (Vindi) Banga
66
0.6
67
Marie-Anne Aymerich
43
0.5
44
Tracy Clarke
61
0.6
62
Dame Vivienne Cox
57
1.3
58
Asmita Dubey
43
1.3
45
Deirdre Mahlan
61
2.6
64
Bryan Supran
–
4.9
5
John Young
3
43
0.5
44
Notes
1
Remuneration shown in the table above includes fees and benefits for the period between 23 May-31 December 2022 for Sir Dave Lewis and 18 July-31 December 2022 for all other
Directors, in line with their appointment dates.
2
In addition to the Directors listed in the table above, prior to separation and demerger, Victoria Whyte and David Redfern were appointed as administrative directors on 20 October
2021 and resigned on 23 May 2022. They were not remunerated for these duties.
3
John Young stepped down from the Board with effect from 28 February 2023. John is succeeded as Non-Executive Director and representative of Pfizer by David Denton with effect
from 1 March 2023.
Statement of Directors’ shareholding and share interests (audited)
Total shareholding of Directors on 31 December 2022 is shown below.
Director
Shares
beneficially
owned
1
Shares
not subject to
performance
Options not subject
to performance
Shares
subject to
performance
Total interest
Share
ownership
as % of 2022
salary/fee
2
Share
ownership
requirement
met
Chair
Sir Dave Lewis
63,151
–
–
–
63,151
26%
n/a
Executive
Directors
Brian McNamara
244,330
–
–
2,049,305
2,293,635
56%
No
Tobias Hestler
11,497
–
7,919
892,587
912,003
5%
No
Non-Executive
Directors
Manvinder Singh
(Vindi) Banga
169,800
–
–
–
169,800
508%
n/a
Marie-Anne Aymerich
8,334
–
–
–
8,334
25%
n/a
Tracy Clarke
12,504
–
–
–
12,504
37%
n/a
Dame Vivienne Cox
–
–
–
–
–
–
n/a
Asmita Dubey
–
–
–
–
–
–
n/a
Deirdre Mahlan
80,000
–
–
–
80,000
239%
n/a
Bryan Supran
50,000
–
–
–
50,000
n/a
n/a
John Young
80,541
–
–
–
80,541
241%
n/a
Notes
1
Beneficial interest also includes shares held indirectly through Haleon ADSs and shares/ADSs held by connected persons.
2
Share ownership as % of 2022 salary/fee is based on the average share price between 18 July and 31 December 2022 of £2.84.
With the exception of 31,476 shares purchased by Sir Dave Lewis and 19,550 shares purchased by Marie-Anne Aymerich on
3 March 2023, there were no changes to Directors’ interests in ordinary shares or ADSs between 31 December 2022 and 10 March 2023
(being the latest practicable date).
Directors’ Remuneration Report
continued
Annual Report on Remuneration
continued
Haleon
Annual Report and Form 20-F 2022
104
Corporate Governance
Non-Executive Directors including the Chair are encouraged to build up a personal holding in the shares of the Company equal to the
value of one year of their annual base fee. Executive Directors are required to build and maintain significant holdings of shares in Haleon
over time (450% of salary for the CEO and 350% of salary for the CFO). Until these requirements have been met, Executive Directors
are required to hold all Haleon shares acquired under the PSP and/or DABP (net of income tax and National Insurance contributions).
Executive Directors are required to comply with shareholding requirements for two years after leaving the Company, at a level equal
to the lower of their shareholding requirement immediately prior to departure or their actual shareholding on departure. During this
period, former Executive Directors will be required to seek permission to deal from the Company Secretary.
Outstanding share options
The following table sets out the share options held by Executive Directors in the Haleon Share Save Plan as at the end of the period.
No other Directors participated in any option scheme.
Date of grant
Exercise
price
Market
price at
31 Dec
2022
Exercise period
Number of options
Beginning
End
Beginning
of period
Granted
Exercised
Cancelled
Forfeited
Lapsed
End of
period
Tobias
Hestler
1,2
22 Dec 22
£2.2728
£3.2735
1 Feb 26
31 Jul 26
Nil
7,919
3
Nil
Nil
Nil
Nil
7,919
Notes
1
No gain was made by Directors in 2022 on the exercise of these options.
2
No price was paid for the award of any option.
3
The total number of shares under option is calculated based on a three-year savings period with contributions of £500 per month. The exercise price represents a 20% discount from
the share price at the time the invitations were sent to UK employees. The total face value of the award based on the share price on 31 December 2022 of £3.2735 is £7,925.
Additional disclosures
Further information is provided on compensation and interests of Directors and senior management. For the purpose of this disclosure
this group includes the Executive and Non-Executive Directors and the Haleon Executive Team.
The following table sets out aggregate remuneration for this group for 2022.
2022 remuneration
£000
Total compensation paid
29,292
Aggregate increase in accrued pension benefits (net of inflation)
–
Aggregate payments to defined contribution schemes
1,316
During 2022, members of this group were awarded shares and ADSs under the Company’s share plans, as set out in the table below.
To align the interests of senior management with those of shareholders, Executive Directors and Executive Team members are required
to build and maintain significant holdings of shares in Haleon over time. Selected Executive Team members are required to hold shares
to an equivalent multiple of three times their base salary.
Awards
Dividend equivalents
Shares
ADSs
Shares
ADSs
Performance Share Plan
7,245,326
906,942
–
–
Share Value Plan
1
169,252
106,845
–
–
Deferred Investment Awards
1,2
618,528
–
–
–
Notes
1
Executive Directors are not eligible to receive Deferred Investment Awards or participate in the Share Value Plan.
2
Deferred Investment Award made in 2022 represents a conversion of the legacy GSK Deferred Investment Award into Haleon shares.
At 10 March 2023 (being the latest practicable date), this group and persons closely associated with them had the following interests
in shares and ADSs of the Company. Interests awarded under the various share plans are described in Note 26 to the Financial
Statements, ‘Employee share schemes’ on page 176.
Interests as at 10 March 2023
Shares
ADSs
Owned
522,896
219,021
Unexercised options
23,757
–
Deferred Annual Bonus Plan
–
–
Performance Share Plan
7,245,326
906,942
Share Value Plan
1
169,252
106,845
Deferred Investment Awards
1,2
618,528
–
Notes
1
Executive Directors are not eligible to receive Deferred Investment Awards or participate in the Share Value Plan.
2
Deferred Investment Award made in 2022 represents a conversion of the legacy GSK Deferred Investment Award into Haleon shares.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
105
Directors’ Remuneration Report
Compliance with the UK Corporate
Governance Code
Code principle
Page(s)
Board leadership and company purpose
A
Following an internal effectiveness review, the Board was determined to have operated effectively, leveraging the
diverse range of skills and experience of all Directors. Long-term sustainable success of the Company influences
decision-making. The Board is mindful of the need to manage conflicts, particularly those that may arise from
having Directors representing the controlling shareholder. Directors have recused themselves from certain
Board discussions where appropriate during the period.
64, 65, 73,
196
B
The Board has agreed the strategic direction of the Group and monitored the strategy, medium plans and
evolution of the culture and values at its meetings since July 2022.
70
C
The Board monitors performance and KPIs through regular updates, presentations and deep dives into key areas.
The Company’s controls and risk management processes are overseen by the Audit & Risk Committee.
70, 77
D
Stakeholder engagement activities during the period include meetings with major institutional shareholders,
shareholder representative bodies and employees (through the Workforce Engagement Director).
71, 72
E
The Board received updates on policies and practices throughout the period. Any employee can raise matters
of concern confidentially through the Speak Up programme which is overseen by the Audit & Risk Committee.
70, 75
Division of responsibilities
F
The Chair, who was independent on appointment, has led the Board effectively during 2022 and ensured that
appropriate onboarding programmes, governance frameworks and working practices were put in place and evolved.
64
G
There is an appropriate balance of Executive, Independent Non-Executive and Non-Executive Directors.
There is a clear division of responsibilities between the Chair and the Chief Executive.
64, 65, 68,
80
H
The Non-Executive Directors have diverse backgrounds and skillsets. The Board effectiveness review concluded
that all Non-Executive Directors are effective and devote appropriate time to their duties. The Chair meets
regularly with Non-Executive Directors without Executive Directors present.
64, 65, 73, 80
I
The Chair and Company Secretary ensure the Board and its Committees receive timely, accurate and clear information.
68
Composition, success and evaluation
J
Appointments to the Board are led by the Nominations & Governance Committee save where Pfizer nominates
non-executive directors under the relationship agreement. Directors are subject to annual re-election.
80
K
A Board skills matrix has been set up and is maintained by the Nominations & Governance Committee.
The Committee reviews membership of Board Committees on a regular basis.
80
L
The Board effectiveness review concluded that the Board operates effectively. The Senior Independent Director
led the review of the Chair’s performance.
73
Audit, risk and internal control
M
The Audit & Risk Committee is responsible for assessing the independence and effectiveness of the external auditors
and the internal audit function. It has reviewed all of the Group’s published financial statements.
78
N
The Board is satisfied that the Annual Report, taken as a whole is fair, balanced and understandable. The viability and
going concern statements specifically cover the Board’s assessment of the current and future prospects of the Group.
61, 76, 108,
200
O
The Board and, as appropriate, the Audit & Risk Committee (in line with its terms of reference) has reviewed
the principal risks, monitors risk appetite and oversees the internal control framework.
70, 77
Remuneration
P
The Remuneration Committee has developed a policy on Executive Director remuneration which will be
submitted to shareholders for approval at the AGM.
86
Q
No Directors are involved in deciding their own remuneration outcomes. The Remuneration Committee followed
a clear process while developing the Directors’ remuneration policy.
86
R
The Remuneration Committee exercises independent judgement and considers the application of discretion
permitted when determining the outcome of performance-related Executive remuneration.
88, 97
The Board considers that the Company
has complied fully with the provisions
set out in the 2018 UK Corporate
Governance Code (Code) for the period
from 18 July 2022 to 31 December 2022.
The table below summarises how the
principles of the Code have been applied
throughout this period. It should be read
in conjunction with the Strategic Report
and Governance section, including the
Directors’ Remuneration Report.
>>
See also our summary statement outlining
differences between the Group’s UK
corporate governance practices from
those of US companies on page 221.
>>
The Code is published on the FRC website:
www.frc.org.uk
Haleon
Annual Report and Form 20-F 2022
106
Corporate Governance
Consolidated
Financial Statements
Contents
Statement of Directors’ responsibilities
108
Independent Auditor’s UK Report
109
Independent Registered Public
Accounting Firms’ Auditor Reports
120
Consolidated income statement
122
Consolidated statement of
comprehensive income
123
Consolidated balance sheet
124
Consolidated statement of changes
in equity
125
Consolidated cash flow statement
126
Notes to the Consolidated
Financial Statements
127
Edoardo
Quality Control Analyst
As a Quality Control Analyst, Edoardo
ensures our Centrum multivitamin
products meet Haleon’s quality
standards at our Aprilia site, Italy.
Centrum was originally developed
in the 1950s to provide therapeutic
levels of essential micronutrients for
cancer patients. The first Centrum
multivitamin was launched in 1978.
Backed by over 40 years of nutritional
science, Centrum is now the world’s
no.1 multivitamin brand.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
107
Financial Statements
Statement of Directors’ responsibilities
Financial Statements and accounting records
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. The Directors have prepared
the Consolidated Financial Statements in accordance with United
Kingdom (UK) adopted international accounting standards in
conformity with the requirements of the Companies Act 2006,
and the Parent Company Financial Statements in accordance with
UK accounting standards. The Consolidated Financial Statements,
also comply with International Financial Reporting Standards
(IFRSs), as issued by the International Accounting Standards
Board (IASB), including interpretations issued by the IFRS
Interpretations Committee (IFRIC), and International Financial
Reporting Standards. Under company law directors must not
approve the Financial Statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Parent
Company and the Group, and the profit or loss for that period.
In preparing these Financial Statements, the Directors are
required to:
—
Select suitable accounting policies and apply them consistently.
—
Make judgements and accounting estimates that are
reasonable.
—
Provide additional disclosures when compliance with the
specific requirements of the financial reporting framework
are insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the
entity’s financial position and financial performance.
—
State whether the Consolidated Financial Statements have
been prepared in accordance with UK-adopted international
accounting standards.
—
State for the Parent Company Financial Statements whether
applicable UK accounting standards, comprising FRS 102,
have been followed.
—
Prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Parent Company
and the Group will continue in business.
The Directors are responsible for ensuring that the Parent
Company and the Group keep adequate accounting records that
are sufficient to show and explain the Parent Company’s and the
Group’s transactions and disclose with reasonable accuracy the
financial position of the Parent Company and the Group to enable
them to ensure that the Financial Statements comply with the
Companies Act 2006. The Directors also have responsibility for
the system of internal control, safeguarding the assets of the
Parent Company and the Group, and taking reasonable steps to
prevent and detect fraud and other irregularities. Under applicable
law and regulations, they also have responsibility for preparing
a Directors’ Report, Strategic Report, Directors’ Remuneration
Report, and Corporate Governance Statement. The Directors are
responsible for the maintenance and integrity of the Annual
Report including on Haleon’s website. Legislation in the UK
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Disclosure Guidance and Transparency Rules
The Directors confirm to the best of their knowledge:
—
The Consolidated Financial Statements, prepared in
accordance with a relevant financial reporting framework, give
a true and fair view of the assets, liabilities, financial position
and profit or loss of the Parent Company and the undertakings
included in the consolidation taken as a whole.
—
The Annual Report, including the Strategic Report, includes a
fair review of the development and performance of the business
and the position of the Parent Company and the Group taken
as a whole, together with a description of the principal risks
and uncertainties that it faces.
UK Corporate Governance Code
The Directors consider that this Annual Report and Form 20-F,
taken as a whole, is fair, balanced and understandable and that it
provides the information necessary for shareholders to assess the
Parent Company’s and the Group’s position and performance,
business model and strategy.
Disclosure of information to auditors
Each of the Directors who held office as at the date of approval
of this Report confirm that:
—
They have taken steps to make themselves aware of relevant
audit information (as defined by Section 418(3) of the
Companies Act 2006).
—
None of the Directors are aware of any relevant audit
information which has not been disclosed to the Company’s
and Group’s auditors.
For and on behalf of the Board
Brian McNamara
Tobias Hestler
Chief Executive Officer
Chief Financial Officer
20 March 2023
20 March 2023
108
Financial Statements
Haleon
Annual Report and Form 20-F 2022
Independent auditor’s report
to the members of Haleon plc
1. Opinion
We have audited the financial statements which comprise the:
—
Consolidated income statement;
—
Consolidated statement of comprehensive income;
—
Consolidated and Parent Company balance sheets;
—
Consolidated and Parent Company statements of changes in equity;
—
Consolidated cash flow statement; and
—
related notes 1 to 30 of the Consolidated Financial Statements and notes 1 to 11 of the Parent Company Financial Statements.
The financial reporting framework that has been applied in the preparation of the Consolidated Financial Statements is applicable law,
United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting framework that
has been applied in the preparation of the Parent Company Financial Statements is applicable law and United Kingdom Accounting
Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom
Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that
we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In our opinion:
—
the financial statements of Haleon plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the
state of the Group’s and of the Parent Company’s affairs as at 31 December 2022 and of the Group’s profit for the year then ended;
—
the Consolidated Financial Statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards
Board (IASB);
—
the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland”; and
—
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Report on the audit of the financial statements
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
109
Independent auditor’s report to the members of Haleon plc
Independent auditor’s report to the
members of Haleon plc
continued
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
—
Valuation of intangible assets related to indefinite life brands
—
IT infrastructure and systems
—
Demerger accounting
Details on key audit matters are discussed further in this report.
Materiality
The materiality that we used for the Consolidated Financial Statements was £97m which was
determined on the basis of 4.8% of profit before tax adjusted for separation and admission
costs. This equates to 6% of profit before tax.
Scoping
We performed a combination full scope audit procedures, audit of specified account balances
and specific audit procedures on in scope components; together these procedures address:
—
66% of revenue;
—
69% of profit before tax; and
—
99% of total assets.
The Group operates a finance hub and shared service centre model globally and
we structured and deployed our audit teams in the same way in order to maximise audit
quality and efficiency. The components not covered by our audit scope were subject to
analytical procedures.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and the Parent Company’s ability to continue to adopt the going concern
basis of accounting included:
—
obtaining an understanding of the Directors’ process for determining the appropriateness of the use of the going concern basis;
—
evaluating the Group’s existing access to sources of financing, including undrawn committed bank facilities;
—
comparing forecast sales to recent historical financial information;
—
testing the underlying data generated to prepare the forecast scenarios and to determine whether there was adequate support for
the assumptions underlying the forecast, including consideration of uncertainty driven by ongoing global macroeconomic volatility;
and
—
evaluating the Group’s disclosures on going concern in accordance with the requirements of IAS 1
Presentation of
Financial Statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern for
a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
Report on the audit of the financial statements
Haleon
Annual Report and Form 20-F 2022
110
Financial Statements
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion on the
financial statements as a whole, we do not provide a separate opinion on these matters.
Valuation of intangible assets related to indefinite life brands
Key audit matter
description
At 31 December 2022, the Group held £19,333m of intangible assets that are indefinite life
brands. An impairment charge of £129m was recognised during the year, largely in relation
to Preparation H.
We identified the valuation of indefinite life brands as a key audit matter due to the
inherent judgements involved in estimating the future cash flows. During the year, there
was increased risk due to the impact of uncertainty driven by ongoing global
macroeconomic volatility. Auditing such estimates required extensive audit effort to
challenge and evaluate the reasonableness of forecasts.
The indefinite life brands most at risk of material impairment were identified using
sensitivity analysis on key assumptions and a review of potential triggering events that
could be indicative of an impairment in the carrying value of associated indefinite life
intangible brands. We identified that the fair values of two indefinite life intangible
brands, Preparation H and Robitussin, were most sensitive to the possible change in key
assumptions used in the valuation models.
Key assumptions applied in determining these recoverable amounts relate to the
determination of discount rates and future revenue growth of each brand, including long
term growth rates. Changes in these assumptions could lead to an impairment of the
carrying value of these indefinite life intangible brands.
Further details in relation to indefinite life intangible brands, are included in note 14 to
the Financial Statements and in the Audit & Risk Committee report on page 74.
How the scope of our audit
responded to the key audit
matter
We performed the following procedures in respect of this key audit matter:
—
met with key individuals from the senior leadership team, product category leads, and
key personnel involved in the forecasting process to discuss and evaluate evidence to
support future sales growth rates and profitability assumptions;
—
obtained an understanding of the relevant controls in place over the key inputs and
assumptions used in the valuation of indefinite life intangible brands;
—
evaluated assumptions applied in estimating sales forecasts, including the impact
resulting from ongoing global macroeconomic volatility. In addition, we benchmarked
sales growth rate forecasts to external data for specific market segments;
—
compared forecast sales to the plan data approved by senior management and the
Board of Directors;
—
assessed the historical accuracy of management’s forecasts;
—
incorporated our valuation specialists in assessment of the reasonableness of discount
rates and valuation methodology applied; and
—
evaluated the reasonableness of the impairment charge recognised during the year.
Key observations
We concluded that the assumptions underpinning the impairment review of indefinite
life brands were reasonable and that the impairment charge recognised during the year
was appropriate.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
111
Independent auditor’s report to the members of Haleon plc
Independent auditor’s report to the
members of Haleon plc
continued
IT infrastructure and systems
Key audit matter
description
The Group demerged from GSK plc (“GSK”) during the year, with IT systems created during
the audit period following significant data migration activities. The IT systems across the
Group are complex and are a critical part of the Group’s financial reporting activities and
control environment impacting all account balances in the financial statements.
We identified the IT infrastructure and systems that impact financial reporting as a key
audit matter because of the:
—
significance of cloning, data migration and system implementation activities
undertaken across the IT environment as part of the Haleon separation programme;
—
ongoing activities to embed sustainable IT processes and controls within the newly
created IT environment;
—
pervasive reliance on complex technology for the effective operation of key business
processes and financial reporting; and
—
interdependency between the ability to rely on IT controls and the ability to rely on
financial data, system configured automated controls and system reports.
Further detail in relation to the IT control environment is included within the Audit & Risk
Committee Report on page 74.
How the scope of our audit
responded to the key audit
matter
Our IT audit scope is based on the level of reliance placed on technology to obtain
sufficient appropriate audit evidence in respect of a business process. We determine
technology relevant to our audit based on the financial data, system configured
automated controls and/or key financial reports that reside within it. We used IT
specialists to support our risk assessment in relation to IT environment, including
infrastructure, and with testing of the design and operation of IT controls, including
controls in relation to the creation of the IT systems as part of the separation programme.
Testing of the technology deemed relevant to the audit included the following areas:
—
general IT controls at both the application and infrastructure layers, including
privileged access and change management controls;
—
key financial reports;
—
system configured automated controls; and
—
controls that provide assurance over the completeness and accuracy of relevant data
migrations, including Haleon separation activities.
Our risk assessment procedures included an assessment of the impact of all
unremediated IT control deficiencies to determine the impact on our audit plan. Where
relevant, the audit plan was adjusted to include the testing of additional manual business
process controls and to increase the extent of our substantive audit procedures to
mitigate the risks of material misstatement identified.
Key observations
IT control deficiencies were identified, predominantly in relation infrastructure privileged
access management, which were not fully remediated as at the financial year end.
Based on the additional testing outlined above, we concluded that the risk of material
misstatement was sufficiently addressed.
Report on the audit of the financial statements
Haleon
Annual Report and Form 20-F 2022
112
Financial Statements
Demerger Accounting
Key audit matter
description
The demerger of the Group from GSK was completed on 18 July 2022 after a series
of share for share exchanges with its previous shareholders.
The share exchanges did not constitute business combinations and fell outside the
scope of IFRS 3,
Business Combinations
and as such, Haleon accounted for the corporate
restructuring following “predecessor accounting”. Accordingly, the Group continued
to present its assets and liabilities at existing carrying values, and the prior year
comparatives presented are those of the previous Consumer Healthcare Group.
Further detail is set out in the basis of preparation disclosure within Note 1 to the
Consolidated Financial Statements. As a result of the complex series of restructuring
steps required, management engaged legal, accounting and tax experts. In addition,
earnings per share in the comparative period was required to be restated on the basis
of the demerged group share structure.
We identified demerger accounting as a key audit matter due to the significance and
pervasiveness of the transaction to the financial statements of the Group in its first-year
post demerger. Accordingly, whilst we did not identify particular areas of judgement, we
did allocate a significant portion of audit resources, including our accounting experts,
to assess this key audit matter.
How the scope of our audit
responded to the key audit
matter
We assessed appropriateness of the demerger accounting as part of our audit
procedures, which included involvement of our accounting experts in the following
key areas:
—
adoption of “predecessor accounting” for Haleon plc as there has been no acquisition
of a business;
—
presentation of the non-voting preference shares issued as part of the demerger
as a liability;
—
accounting for acquisitions of other businesses within the GSK group to reposition
businesses in certain countries ahead of the demerger; and
—
equity transactions with GSK and Pfizer to support the restructuring.
We tested the restated earnings per share to reflect the revised equity of Haleon plc,
as a result of the predecessor accounting and the change in equity without an
increase in resources.
Key observations
We concluded that the demerger accounting has been appropriately applied,
including adoption of “predecessor accounting” for Haleon plc.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
113
Independent auditor’s report to the members of Haleon plc
Independent auditor’s report to the
members of Haleon plc
continued
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Consolidated Financial Statements
Parent Company Financial Statements
Materiality
£97 million
£96 million
Basis for determining
materiality
In determining our benchmark for materiality,
we considered the metrics used by investors
and other readers of the financial statements.
In particular, we considered: Profit before tax
adjusted for separation and admission costs
and Profit before tax.
Using professional judgement, we have
determined materiality to be £97 million.
We removed the impact of separation and
admission costs of £411m as this is a
non-recurring item which is not reflective of the
underlying business and because its size would
distort materiality.
The below benchmarks were considered most
relevant to the users of the financial statements:
Metric
%
Profit before tax adjusted for
separation and admission costs
4.8%
Profit before tax
6.0%
Materiality was determined using net assets as a
benchmark capped at 99% of Group materiality.
Our materiality represents 0.4% of net assets.
Rationale for the
benchmark applied
Profit before tax is the base from which key
performance measures are calculated as well
as key metrics used in providing trading
updates. We have adjusted profit before tax for
separation and admission costs of £411m as
summarised above.
In determining our materiality, based on professional
judgement, we have considered net assets as the
appropriate benchmark given the Parent Company is
primarily a holding company for the Group.
Statutory profit before tax
adjusted for separation
and admission costs
£2,029m
Group materiality
£97m
Component materiality range
excluding Parent Company
materiality
£9.7m-£58.2m
Audit & Risk Commitee
reporting threshold
£5m
Report on the audit of the financial statements
Haleon
Annual Report and Form 20-F 2022
114
Financial Statements
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Consolidated Financial Statements
Parent Company Financial Statements
Performance
Materiality
65% of Group materiality
65% of Parent Company materiality
Basis and rationale
for determining
performance
materiality
In determining performance materiality, we considered the following factors:
—
this is the first reporting period and audit of the group after demerger;
—
our risk assessment, including our assessment of the Group’s overall control environment and that
we considered it appropriate to rely on controls over a number of business processes; and
—
our past experience of the audit, which has indicated a low number of corrected and uncorrected
misstatements identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of £5 million as well
as any differences below this threshold, which in our view, warranted reporting on qualitative grounds. We also report to the Audit &
Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
We determined the scope of our audit to reflect how the Group is structured, while ensuring our audit was risk focused and able to
detect a material misstatement, whether due to fraud or error. Our audit approach is summarised below:
Risk assessment and audit
planning at the Group level
The Group operates a finance hub and shared service centre model globally, and we structured
and deployed our audit teams in the same way. We used data analytic tools to obtain an
understanding of the underlying business processes, account balances and classes of
transactions, enabling us to perform fact-based risk assessment and tailor the nature, timing,
and extent of our audit testing procedures. Our risk assessment procedures considered,
amongst other factors, the impact of ongoing global economic uncertainty, pandemic and
climate change on the account balances and disclosures. The Group audit team provided
oversight over component and legal entity audits in each country. The Group audit team met
with management regularly to understand the strategy, performance and other matters which
arose throughout the year that could have impacted financial reporting. Our risk assessment
and audit planning included consideration of the demerger of the Group from GSK on 18 July
2022. In addition, we held regular meetings with members of the Group’s Internal Audit
function, the Group’s Legal Counsel and the Global Ethics & Compliance teams to understand
their work and to review their reports to enhance our risk assessment.
Audit procedures at a Group
level and for the Parent
Company
We centrally determined the scope of the audit procedures executed by component audit
teams and at global shared service centres. We developed our audit scope with consideration
of the contribution of components or legal entities to the Group overall, whether through
revenue, total assets or profit before tax. We performed analytical procedures over
components or legal entities not covered by our audit scope to confirm that there were no
significant risks of material misstatement.
We performed audit work centrally on the Consolidated and the Parent Company Financial
Statements, including but not limited to the consolidation of the Group’s results, the
preparation of the financial statements, certain disclosures within the Directors’ Remuneration
report, litigation provisions, review of impairment of intangibles, taxation and exposures in
addition to entity level and oversight controls relevant to financial reporting.
Approach for global shared
service centres
The Group carries out a significant number of operational processes impacting financial
reporting from its shared service centres. Members of our global audit team led the work for
each of the global business processes and coordinated our audit work at the shared service
centres within the scope of the Group audit. This ensured our planned audit procedures
would reflect the understanding we obtained of the end-to-end processes that supported
material account balances, classes of transactions and disclosures within the Consolidated
Financial Statements.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
115
Independent auditor’s report to the members of Haleon plc
Independent auditor’s report to the
members of Haleon plc
continued
Audit work at component level
and individual legal entities
Components were subject to audit procedures in relation to Australia; Canada; China; France;
Germany; Italy; Japan; Russia; Switzerland; United Kingdom; and the United States.
The Group audit team provided direction to and supervised the work of the component audit
teams by:
—
engaging throughout the audit with the component audit teams responsible for the
audit work;
—
ensuring the work in the scope of component audit teams was planned and
performed in accordance with the overall Group audit strategy and the requirements
of our Group audit instructions; and
—
performed site visits of components in line with our risk assessment.
We also performed reviews of component audit teams’ working papers to ensure that our
group oversight and supervision was appropriate. We increased the frequency and length of
those reviews depending on the significance and risk of the component and attended the audit
planning and close meetings of components.
Internal controls testing
approach
We tested entity level controls at the Group level and obtained an understanding of the
relevant internal controls over financial reporting for our audit risk assessment. We tested the
operational effectiveness of internal controls in order to rely on controls to reduce the extent
of our substantive procedures, where deemed appropriate, efficient and effective for our audit
strategy. Our audit approach and the scope of our IT testing also reflected the Haleon
demerger and its impact on relevant IT systems. Common systems allowed relevant IT controls
to be tested centrally across all components. See Section 5 – Key Audit Matters in relation to IT
infrastructure and systems.
The impact of climate change on our audit
In the planning of our audit, we have considered the potential impact of climate change on the Group’s business and its financial
statements. Climate change has the potential to impact the Group in a number of ways as set out in the Strategic Report on pages 28-35.
We have understood the Group’s identification and assessment of the potential impacts of climate change, how these risks influence
the Group’s strategy and their implications on the financial statements.
The Group’s assessment focused on the impacts of more frequent extreme weather conditions, water scarcity and changes in the
political landscape which has the propensity to cause changes in consumer and market behaviour; volatility in the costs and
availability of materials and resources that could impact future financial performance and asset valuations. Whilst management has
acknowledged the risks posed by climate change, they have assessed that there is no material impact on the judgements and
estimates made in the financial statements as at 31 December 2022 as explained in Note 1 to the Financial Statements.
In consultation with our climate change specialists, we:
—
evaluated the Group’s assessment of the potential impact of climate change and the impact on the financial statements; and
—
performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and
classes of transactions and did not identify any additional risks of material misstatement. Our procedures include reading
disclosures included in the Strategic Report to consider whether they are materially consistent with the financial statements and our
knowledge obtained in the audit.
8. Other information
The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other information contained within the Annual Report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Report on the audit of the financial statements
Haleon
Annual Report and Form 20-F 2022
116
Financial Statements
9. Responsibilities of directors
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and Parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Parent Company to cease operations, or have no realistic alternative but to
do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
—
the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
—
results of our enquiries of directors, management, internal audit and the Audit & Risk Committee about their own identification and
assessment of the risks of irregularities;
—
any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
•
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
•
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
•
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
—
The matters discussed among the audit engagement team including significant component audit teams and involving relevant
internal specialists, including tax, valuations, pensions, IT and industry specialists regarding how and where fraud might occur in
the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud as is common with all audits under ISAs (UK) is the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the provisions of the UK Companies Act, Listing
Rules, pensions legislation and tax legislation.
We have also considered other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the FDA regulations,
General Data Protection Requirements, Anti-bribery and corruption policy and the Foreign Corrupt Practices Act.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
117
Independent auditor’s report to the members of Haleon plc
Independent auditor’s report to the
members of Haleon plc
continued
11.2 Audit response to risks identified
As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-compliance
with laws and regulations. Our procedures to respond to the risks identified included the following:
—
reviewing financial statement disclosures by testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
—
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
—
enquiring of management, internal audit and in-house legal counsel concerning actual and potential litigation and claims, and
instances of non-compliance with laws and regulations;
—
reading minutes of meetings of those charged with governance, reviewing internal audit reports, and reviewing correspondence
with regulators; and
—
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
13. Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
In our opinion, the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
—
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
—
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
—
the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 108;
—
the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate is set out on page 61;
—
the Directors’ statement on fair, balanced and understandable Annual Report set out on page 76;
—
the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 56-60;
—
the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out
on page 77; and
—
the section describing the work of the Audit & Risk Committee set out on pages 74-79.
Report on the audit of the financial statements
Haleon
Annual Report and Form 20-F 2022
118
Financial Statements
14. Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
—
we have not received all the information and explanations we require for our audit; or
—
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
—
the Parent Company Financial Statements are not in agreement with the accounting records and returns
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not
been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
15. Other matters which we are required to address
15.1 Auditor tenure
We were appointed by the Audit & Risk Committee in July 2022 to audit the financial statements for the year ended 31 December 2022
following the incorporation of the Parent Company on 20 October 2021, established to effect the demerger from GSK. Prior to that we
were auditor to GSK for 4 years.
15.2 Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit & Risk Committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
In due course, as required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these
financial statements will form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the
National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (ESEF RTS). This auditor’s
report provides no assurance over whether the Annual Financial Report has been prepared using the single electronic format specified
in the ESEF RTS.
Claire Faulkner, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
20 March 2023
We have nothing to report in respect of these matters.
We have nothing to report in respect of these matters.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
119
Independent auditor’s report to the members of Haleon plc
Report of Independent Registered
Public Accounting Firm
To the shareholders and the Board of Directors
Haleon plc:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Haleon plc and subsidiaries (the Company) as of December 31,
2022 and the related consolidated income statement, statement of comprehensive income, statement of changes in equity, and cash
flow statement for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2022 and its financial performance and its cash flows for the year ended December 31, 2022, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due
to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Impairment testing of Indefinite Life Brands
As disclosed in Notes 3 and 14 to the consolidated financial statements, at December 31, 2022, the Company’s balance sheet
includes £19,333 million of indefinite useful life intangible assets related to its brands (Indefinite Life Brands). The Company
performs impairment testing on an annual basis and whenever events or changes in circumstances indicate that a brand’s carrying
value may exceeds its recoverable amounts. The recoverable amounts utilized in the impairment tests are estimated using a fair
value less costs to sell model, which relies on certain assumptions and estimates. Key assumptions and estimates used by
management in determining the recoverable amounts include revenue growth rates and discount rates.
We identified the impairment testing of Indefinite Life Brands as a critical audit matter. A high degree of challenging auditor judgment
was required to evaluate the projected revenue growth rates and discount rates used to estimate the recoverable amounts of the
brands. The revenue growth rates and discount rates included subjective determinations of future market and economic conditions
that were sensitive to variation. Minor changes to assumptions used could have had a significant effect on the Company’s
determination of the recoverable amounts. Additionally, specialized skills and knowledge were needed to evaluate the discount rates.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain
internal controls related to the Indefinite Life Brands impairment process. This included controls over the development of the
revenue growth rates and discount rates. We evaluated the revenue growth rates used in the Indefinite Life Brands impairment by:
—
comparing the Company’s historical forecasts to actual results to evaluate the Company’s historical ability to accurately forecast
—
comparing the Company’s historical results to the forecasts to evaluate the Company’s ability to accurately forecast
—
comparing the cash flow projections used in the impairment tests with available external industry data to assess the
reasonableness of the assumptions used.
We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the discount rates used in the
impairment tests by comparing them to discount rates that were developed using publicly available market data, including that of
comparable companies.
/s/KPMG LLP
We have served as the Company’s auditor since 2022.
New York, New York
March 20, 2023
Haleon
Annual Report and Form 20-F 2022
120
Financial Statements
To the shareholders and the Board of Directors of GlaxoSmithKline Consumer Healthcare Holdings (No.2) Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of GlaxoSmithKline Consumer Healthcare Holdings (No.2) Limited and
its subsidiaries (the “Company”) (predecessor to Haleon plc) as at December 31, 2021 the related consolidated income statements, the
consolidated statements of comprehensive income, the consolidated statements of changes in equity, and the consolidated cash flow
statements, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as at December 31, 2021 and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2021, in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”).
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by the management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte LLP
London, United Kingdom
11 March 2022 (20 March 2023 as to Note 11)
We began serving as the Company’s auditor in 2019. In 2022 we became the predecessor auditor.
Report of Independent Registered
Public Accounting Firm
Strategic Report
Corporate Governance
Financial Statements
Other Information
Haleon
Annual Report and Form 20-F 2022
121
Report of Independent Registered Public Accounting Firm
Statement of Directors’ responsibilities
Financial Statements and accounting records
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. The Directors have prepared
the Consolidated Financial Statements in accordance with United
Kingdom (UK) adopted international accounting standards in
conformity with the requirements of the Companies Act 2006,
and the Parent Company Financial Statements in accordance with
UK accounting standards. The Consolidated Financial Statements,
also comply with International Financial Reporting Standards
(IFRSs), as issued by the International Accounting Standards
Board (IASB), including interpretations issued by the IFRS
Interpretations Committee (IFRIC), and International Financial
Reporting Standards. Under company law directors must not
approve the Financial Statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Parent
Company and the Group, and the profit or loss for that period.
In preparing these Financial Statements, the Directors are
required to:
—
Select suitable accounting policies and apply them consistently.
—
Make judgements and accounting estimates that are
reasonable.
—
Provide additional disclosures when compliance with the
specific requirements of the financial reporting framework
are insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the
entity’s financial position and financial performance.
—
State whether the Consolidated Financial Statements have
been prepared in accordance with UK-adopted international
accounting standards.
—
State for the Parent Company Financial Statements whether
applicable UK accounting standards, comprising FRS 102,
have been followed.
—
Prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Parent Company
and the Group will continue in business.
The Directors are responsible for ensuring that the Parent
Company and the Group keep adequate accounting records that
are sufficient to show and explain the Parent Company’s and the
Group’s transactions and disclose with reasonable accuracy the
financial position of the Parent Company and the Group to enable
them to ensure that the Financial Statements comply with the
Companies Act 2006. The Directors also have responsibility for
the system of internal control, safeguarding the assets of the
Parent Company and the Group, and taking reasonable steps to
prevent and detect fraud and other irregularities. Under applicable
law and regulations, they also have responsibility for preparing
a Directors’ Report, Strategic Report, Directors’ Remuneration
Report, and Corporate Governance Statement. The Directors are
responsible for the maintenance and integrity of the Annual
Report including on Haleon’s website. Legislation in the UK
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Disclosure Guidance and Transparency Rules
The Directors confirm to the best of their knowledge:
—
The Consolidated Financial Statements, prepared in
accordance with a relevant financial reporting framework, give
a true and fair view of the assets, liabilities, financial position
and profit or loss of the Parent Company and the undertakings
included in the consolidation taken as a whole.
—
The Annual Report, including the Strategic Report, includes a
fair review of the development and performance of the business
and the position of the Parent Company and the Group taken
as a whole, together with a description of the principal risks
and uncertainties that it faces.
UK Corporate Governance Code
The Directors consider that this Annual Report and Form 20-F,
taken as a whole, is fair, balanced and understandable and that it
provides the information necessary for shareholders to assess the
Parent Company’s and the Group’s position and performance,
business model and strategy.
Disclosure of information to auditors
Each of the Directors who held office as at the date of approval
of this Report confirm that:
—
They have taken steps to make themselves aware of relevant
audit information (as defined by Section 418(3) of the
Companies Act 2006).
—
None of the Directors are aware of any relevant audit
information which has not been disclosed to the Company’s
and Group’s auditors.
For and on behalf of the Board
Brian McNamara
Tobias Hestler
Chief Executive Officer
Chief Financial Officer
20 March 2023
20 March 2023
Independent auditor’s report
to the members of Haleon plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
—
the financial statements of Haleon plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the
state of the Group’s and of the Parent Company’s affairs as at 31 December 2022 and of the Group’s profit for the year then ended;
—
the Consolidated Financial Statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards
Board (IASB);
—
the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland”; and
—
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise the:
—
Consolidated income statement;
—
Consolidated statement of comprehensive income;
—
Consolidated and Parent Company balance sheets;
—
Consolidated and Parent Company statements of changes in equity;
—
Consolidated cash flow statement; and
—
related notes 1 to 30 of the Consolidated Financial Statements and notes 1 to 11 of the Parent Company Financial Statements.
The financial reporting framework that has been applied in the preparation of the Consolidated Financial Statements is applicable law,
United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting framework that
has been applied in the preparation of the Parent Company Financial Statements is applicable law and United Kingdom Accounting
Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom
Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that
we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independent auditor’s report to the
members of Haleon plc
continued
Report on the audit of the financial statements
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
—
Valuation of intangible assets related to indefinite life brands
—
IT infrastructure and systems
—
Demerger accounting
Details on key audit matters are discussed further in this report.
Materiality
The materiality that we used for the Consolidated Financial Statements was £97m which was
determined on the basis of 4.8% of profit before tax adjusted for separation and admission
costs. This equates to 6% of profit before tax.
Scoping
We performed a combination full scope audit procedures, audit of specified account balances
and specific audit procedures on in scope components; together these procedures address:
—
66% of revenue;
—
69% of profit before tax; and
—
99% of total assets.
The Group operates a finance hub and shared service centre model globally and
we structured and deployed our audit teams in the same way in order to maximise audit
quality and efficiency. The components not covered by our audit scope were subject to
analytical procedures.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and the Parent Company’s ability to continue to adopt the going concern
basis of accounting included:
—
obtaining an understanding of the Directors’ process for determining the appropriateness of the use of the going concern basis;
—
evaluating the Group’s existing access to sources of financing, including undrawn committed bank facilities;
—
comparing forecast sales to recent historical financial information;
—
testing the underlying data generated to prepare the forecast scenarios and to determine whether there was adequate support for
the assumptions underlying the forecast, including consideration of uncertainty driven by ongoing global macroeconomic volatility;
and
—
evaluating the Group’s disclosures on going concern in accordance with the requirements of IAS 1
Presentation of
Financial Statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern for
a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion on the
financial statements as a whole, we do not provide a separate opinion on these matters.
Valuation of intangible assets related to indefinite life brands
Key audit matter
description
At 31 December 2022, the Group held £19,333m of intangible assets that are indefinite life
brands. An impairment charge of £129m was recognised during the year, largely in relation
to Preparation H.
We identified the valuation of indefinite life brands as a key audit matter due to the
inherent judgements involved in estimating the future cash flows. During the year, there
was increased risk due to the impact of uncertainty driven by ongoing global
macroeconomic volatility. Auditing such estimates required extensive audit effort to
challenge and evaluate the reasonableness of forecasts.
The indefinite life brands most at risk of material impairment were identified using
sensitivity analysis on key assumptions and a review of potential triggering events that
could be indicative of an impairment in the carrying value of associated indefinite life
intangible brands. We identified that the fair values of two indefinite life intangible
brands, Preparation H and Robitussin, were most sensitive to the possible change in key
assumptions used in the valuation models.
Key assumptions applied in determining these recoverable amounts relate to the
determination of discount rates and future revenue growth of each brand, including long
term growth rates. Changes in these assumptions could lead to an impairment of the
carrying value of these indefinite life intangible brands.
Further details in relation to indefinite life intangible brands, are included in note 14 to
the Financial Statements and in the Audit & Risk Committee report on page 74.
How the scope of our audit
responded to the key audit
matter
We performed the following procedures in respect of this key audit matter:
—
met with key individuals from the senior leadership team, product category leads, and
key personnel involved in the forecasting process to discuss and evaluate evidence to
support future sales growth rates and profitability assumptions;
—
obtained an understanding of the relevant controls in place over the key inputs and
assumptions used in the valuation of indefinite life intangible brands;
—
evaluated assumptions applied in estimating sales forecasts, including the impact
resulting from ongoing global macroeconomic volatility. In addition, we benchmarked
sales growth rate forecasts to external data for specific market segments;
—
compared forecast sales to the plan data approved by senior management and the
Board of Directors;
—
assessed the historical accuracy of management’s forecasts;
—
incorporated our valuation specialists in assessment of the reasonableness of discount
rates and valuation methodology applied; and
—
evaluated the reasonableness of the impairment charge recognised during the year.
Key observations
We concluded that the assumptions underpinning the impairment review of indefinite
life brands were reasonable and that the impairment charge recognised during the year
was appropriate.
Independent auditor’s report to the
members of Haleon plc
continued
Report on the audit of the financial statements
IT infrastructure and systems
Key audit matter
description
The Group demerged from GSK plc (“GSK”) during the year, with IT systems created during
the audit period following significant data migration activities. The IT systems across the
Group are complex and are a critical part of the Group’s financial reporting activities and
control environment impacting all account balances in the financial statements.
We identified the IT infrastructure and systems that impact financial reporting as a key
audit matter because of the:
—
significance of cloning, data migration and system implementation activities
undertaken across the IT environment as part of the Haleon separation programme;
—
ongoing activities to embed sustainable IT processes and controls within the newly
created IT environment;
—
pervasive reliance on complex technology for the effective operation of key business
processes and financial reporting; and
—
interdependency between the ability to rely on IT controls and the ability to rely on
financial data, system configured automated controls and system reports.
Further detail in relation to the IT control environment is included within the Audit & Risk
Committee Report on page 74.
How the scope of our audit
responded to the key audit
matter
Our IT audit scope is based on the level of reliance placed on technology to obtain
sufficient appropriate audit evidence in respect of a business process. We determine
technology relevant to our audit based on the financial data, system configured
automated controls and/or key financial reports that reside within it. We used IT
specialists to support our risk assessment in relation to IT environment, including
infrastructure, and with testing of the design and operation of IT controls, including
controls in relation to the creation of the IT systems as part of the separation programme.
Testing of the technology deemed relevant to the audit included the following areas:
—
general IT controls at both the application and infrastructure layers, including
privileged access and change management controls;
—
key financial reports;
—
system configured automated controls; and
—
controls that provide assurance over the completeness and accuracy of relevant data
migrations, including Haleon separation activities.
Our risk assessment procedures included an assessment of the impact of all
unremediated IT control deficiencies to determine the impact on our audit plan. Where
relevant, the audit plan was adjusted to include the testing of additional manual business
process controls and to increase the extent of our substantive audit procedures to
mitigate the risks of material misstatement identified.
Key observations
IT control deficiencies were identified, predominantly in relation infrastructure privileged
access management, which were not fully remediated as at the financial year end.
Based on the additional testing outlined above, we concluded that the risk of material
misstatement was sufficiently addressed.
Demerger Accounting
Key audit matter
description
The demerger of the Group from GSK was completed on 18 July 2022 after a series
of share for share exchanges with its previous shareholders.
The share exchanges did not constitute business combinations and fell outside the
scope of IFRS 3,
Business Combinations
and as such, Haleon accounted for the corporate
restructuring following “predecessor accounting”. Accordingly, the Group continued
to present its assets and liabilities at existing carrying values, and the prior year
comparatives presented are those of the previous Consumer Healthcare Group.
Further detail is set out in the basis of preparation disclosure within Note 1 to the
Consolidated Financial Statements. As a result of the complex series of restructuring
steps required, management engaged legal, accounting and tax experts. In addition,
earnings per share in the comparative period was required to be restated on the basis
of the demerged group share structure.
We identified demerger accounting as a key audit matter due to the significance and
pervasiveness of the transaction to the financial statements of the Group in its first-year
post demerger. Accordingly, whilst we did not identify particular areas of judgement, we
did allocate a significant portion of audit resources, including our accounting experts,
to assess this key audit matter.
How the scope of our audit
responded to the key audit
matter
We assessed appropriateness of the demerger accounting as part of our audit
procedures, which included involvement of our accounting experts in the following
key areas:
—
adoption of “predecessor accounting” for Haleon plc as there has been no acquisition
of a business;
—
presentation of the non-voting preference shares issued as part of the demerger
as a liability;
—
accounting for acquisitions of other businesses within the GSK group to reposition
businesses in certain countries ahead of the demerger; and
—
equity transactions with GSK and Pfizer to support the restructuring.
We tested the restated earnings per share to reflect the revised equity of Haleon plc,
as a result of the predecessor accounting and the change in equity without an
increase in resources.
Key observations
We concluded that the demerger accounting has been appropriately applied,
including adoption of “predecessor accounting” for Haleon plc.
Independent auditor’s report to the
members of Haleon plc
continued
Report on the audit of the financial statements
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Consolidated Financial Statements
Parent Company Financial Statements
Materiality
£97 million
£96 million
Basis for determining
materiality
In determining our benchmark for materiality,
we considered the metrics used by investors
and other readers of the financial statements.
In particular, we considered: Profit before tax
adjusted for separation and admission costs
and Profit before tax.
Using professional judgement, we have
determined materiality to be £97 million.
We removed the impact of separation and
admission costs of £411m as this is a
non-recurring item which is not reflective of the
underlying business and because its size would
distort materiality.
The below benchmarks were considered most
relevant to the users of the financial statements:
Metric
%
Profit before tax adjusted for
separation and admission costs
4.8%
Profit before tax
6.0%
Materiality was determined using net assets as a
benchmark capped at 99% of Group materiality.
Our materiality represents 0.4% of net assets.
Rationale for the
benchmark applied
Profit before tax is the base from which key
performance measures are calculated as well
as key metrics used in providing trading
updates. We have adjusted profit before tax for
separation and admission costs of £411m as
summarised above.
In determining our materiality, based on professional
judgement, we have considered net assets as the
appropriate benchmark given the Parent Company is
primarily a holding company for the Group.
Statutory profit before tax
adjusted for separation
and admission costs
£2,029m
Group materiality
£97m
Component materiality range
excluding Parent Company
materiality
£9.7m-£58.2m
Audit & Risk Commitee
reporting threshold
£5m
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Consolidated Financial Statements
Parent Company Financial Statements
Performance
Materiality
65% of Group materiality
65% of Parent Company materiality
Basis and rationale
for determining
performance
materiality
In determining performance materiality, we considered the following factors:
—
this is the first reporting period and audit of the group after demerger;
—
our risk assessment, including our assessment of the Group’s overall control environment and that
we considered it appropriate to rely on controls over a number of business processes; and
—
our past experience of the audit, which has indicated a low number of corrected and uncorrected
misstatements identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of £5 million as well
as any differences below this threshold, which in our view, warranted reporting on qualitative grounds. We also report to the Audit &
Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
We determined the scope of our audit to reflect how the Group is structured, while ensuring our audit was risk focused and able to
detect a material misstatement, whether due to fraud or error. Our audit approach is summarised below:
Risk assessment and audit
planning at the Group level
The Group operates a finance hub and shared service centre model globally, and we structured
and deployed our audit teams in the same way. We used data analytic tools to obtain an
understanding of the underlying business processes, account balances and classes of
transactions, enabling us to perform fact-based risk assessment and tailor the nature, timing,
and extent of our audit testing procedures. Our risk assessment procedures considered,
amongst other factors, the impact of ongoing global economic uncertainty, pandemic and
climate change on the account balances and disclosures. The Group audit team provided
oversight over component and legal entity audits in each country. The Group audit team met
with management regularly to understand the strategy, performance and other matters which
arose throughout the year that could have impacted financial reporting. Our risk assessment
and audit planning included consideration of the demerger of the Group from GSK on 18 July
2022. In addition, we held regular meetings with members of the Group’s Internal Audit
function, the Group’s Legal Counsel and the Global Ethics & Compliance teams to understand
their work and to review their reports to enhance our risk assessment.
Audit procedures at a Group
level and for the Parent
Company
We centrally determined the scope of the audit procedures executed by component audit
teams and at global shared service centres. We developed our audit scope with consideration
of the contribution of components or legal entities to the Group overall, whether through
revenue, total assets or profit before tax. We performed analytical procedures over
components or legal entities not covered by our audit scope to confirm that there were no
significant risks of material misstatement.
We performed audit work centrally on the Consolidated and the Parent Company Financial
Statements, including but not limited to the consolidation of the Group’s results, the
preparation of the financial statements, certain disclosures within the Directors’ Remuneration
report, litigation provisions, review of impairment of intangibles, taxation and exposures in
addition to entity level and oversight controls relevant to financial reporting.
Approach for global shared
service centres
The Group carries out a significant number of operational processes impacting financial
reporting from its shared service centres. Members of our global audit team led the work for
each of the global business processes and coordinated our audit work at the shared service
centres within the scope of the Group audit. This ensured our planned audit procedures
would reflect the understanding we obtained of the end-to-end processes that supported
material account balances, classes of transactions and disclosures within the Consolidated
Financial Statements.
Independent auditor’s report to the
members of Haleon plc
continued
Report on the audit of the financial statements
Audit work at component level
and individual legal entities
Components were subject to audit procedures in relation to Australia; Canada; China; France;
Germany; Italy; Japan; Russia; Switzerland; United Kingdom; and the United States.
The Group audit team provided direction to and supervised the work of the component audit
teams by:
—
engaging throughout the audit with the component audit teams responsible for the
audit work;
—
ensuring the work in the scope of component audit teams was planned and
performed in accordance with the overall Group audit strategy and the requirements
of our Group audit instructions; and
—
performed site visits of components in line with our risk assessment.
We also performed reviews of component audit teams’ working papers to ensure that our
group oversight and supervision was appropriate. We increased the frequency and length of
those reviews depending on the significance and risk of the component and attended the audit
planning and close meetings of components.
Internal controls testing
approach
We tested entity level controls at the Group level and obtained an understanding of the
relevant internal controls over financial reporting for our audit risk assessment. We tested the
operational effectiveness of internal controls in order to rely on controls to reduce the extent
of our substantive procedures, where deemed appropriate, efficient and effective for our audit
strategy. Our audit approach and the scope of our IT testing also reflected the Haleon
demerger and its impact on relevant IT systems. Common systems allowed relevant IT controls
to be tested centrally across all components. See Section 5 – Key Audit Matters in relation to IT
infrastructure and systems.
The impact of climate change on our audit
In the planning of our audit, we have considered the potential impact of climate change on the Group’s business and its financial
statements. Climate change has the potential to impact the Group in a number of ways as set out in the Strategic Report on pages 28-35.
We have understood the Group’s identification and assessment of the potential impacts of climate change, how these risks influence
the Group’s strategy and their implications on the financial statements.
The Group’s assessment focused on the impacts of more frequent extreme weather conditions, water scarcity and changes in the
political landscape which has the propensity to cause changes in consumer and market behaviour; volatility in the costs and
availability of materials and resources that could impact future financial performance and asset valuations. Whilst management has
acknowledged the risks posed by climate change, they have assessed that there is no material impact on the judgements and
estimates made in the financial statements as at 31 December 2022 as explained in Note 1 to the Financial Statements.
In consultation with our climate change specialists, we:
—
evaluated the Group’s assessment of the potential impact of climate change and the impact on the financial statements; and
—
performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and
classes of transactions and did not identify any additional risks of material misstatement. Our procedures include reading
disclosures included in the Strategic Report to consider whether they are materially consistent with the financial statements and our
knowledge obtained in the audit.
8. Other information
The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other information contained within the Annual Report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and Parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Parent Company to cease operations, or have no realistic alternative but to
do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
—
the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
—
results of our enquiries of directors, management, internal audit and the Audit & Risk Committee about their own identification and
assessment of the risks of irregularities;
—
any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
•
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
•
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
•
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
—
The matters discussed among the audit engagement team including significant component audit teams and involving relevant
internal specialists, including tax, valuations, pensions, IT and industry specialists regarding how and where fraud might occur in
the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud as is common with all audits under ISAs (UK) is the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the provisions of the UK Companies Act, Listing
Rules, pensions legislation and tax legislation.
We have also considered other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the FDA regulations,
General Data Protection Requirements, Anti-bribery and corruption policy and the Foreign Corrupt Practices Act.
Independent auditor’s report to the
members of Haleon plc
continued
Report on the audit of the financial statements
11.2 Audit response to risks identified
As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-compliance
with laws and regulations. Our procedures to respond to the risks identified included the following:
—
reviewing financial statement disclosures by testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
—
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
—
enquiring of management, internal audit and in-house legal counsel concerning actual and potential litigation and claims, and
instances of non-compliance with laws and regulations;
—
reading minutes of meetings of those charged with governance, reviewing internal audit reports, and reviewing correspondence
with regulators; and
—
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
—
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
—
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
—
the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 108;
—
the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate is set out on page 61;
—
the Directors’ statement on fair, balanced and understandable Annual Report set out on page 76;
—
the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 56-60;
—
the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out
on page 77; and
—
the section describing the work of the Audit & Risk Committee set out on pages 74-79.
14. Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
—
we have not received all the information and explanations we require for our audit; or
—
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
—
the Parent Company Financial Statements are not in agreement with the accounting records and returns
We have nothing to report in respect of these matters.
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not
been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1 Auditor tenure
We were appointed by the Audit & Risk Committee in July 2022 to audit the financial statements for the year ended 31 December 2022
following the incorporation of the Parent Company on 20 October 2021, established to effect the demerger from GSK. Prior to that we
were auditor to GSK for 4 years.
15.2 Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit & Risk Committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
In due course, as required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these
financial statements will form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the
National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (ESEF RTS). This auditor’s
report provides no assurance over whether the Annual Financial Report has been prepared using the single electronic format specified
in the ESEF RTS.
Claire Faulkner, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
20 March 2023
Report of Independent Registered
Public Accounting Firm
To the shareholders and the Board of Directors
Haleon plc:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Haleon plc and subsidiaries (the Company) as of December 31,
2022 and the related consolidated income statement, statement of comprehensive income, statement of changes in equity, and cash
flow statement for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2022 and its financial performance and its cash flows for the year ended December 31, 2022, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due
to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Impairment testing of Indefinite Life Brands
As disclosed in Notes 3 and 14 to the consolidated financial statements, at December 31, 2022, the Company’s balance sheet
includes £19,333 million of indefinite useful life intangible assets related to its brands (Indefinite Life Brands). The Company
performs impairment testing on an annual basis and whenever events or changes in circumstances indicate that a brand’s carrying
value may exceeds its recoverable amounts. The recoverable amounts utilized in the impairment tests are estimated using a fair
value less costs to sell model, which relies on certain assumptions and estimates. Key assumptions and estimates used by
management in determining the recoverable amounts include revenue growth rates and discount rates.
We identified the impairment testing of Indefinite Life Brands as a critical audit matter. A high degree of challenging auditor judgment
was required to evaluate the projected revenue growth rates and discount rates used to estimate the recoverable amounts of the
brands. The revenue growth rates and discount rates included subjective determinations of future market and economic conditions
that were sensitive to variation. Minor changes to assumptions used could have had a significant effect on the Company’s
determination of the recoverable amounts. Additionally, specialized skills and knowledge were needed to evaluate the discount rates.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain
internal controls related to the Indefinite Life Brands impairment process. This included controls over the development of the
revenue growth rates and discount rates. We evaluated the revenue growth rates used in the Indefinite Life Brands impairment by:
—
comparing the Company’s historical forecasts to actual results to evaluate the Company’s historical ability to accurately forecast
—
comparing the Company’s historical results to the forecasts to evaluate the Company’s ability to accurately forecast
—
comparing the cash flow projections used in the impairment tests with available external industry data to assess the
reasonableness of the assumptions used.
We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the discount rates used in the
impairment tests by comparing them to discount rates that were developed using publicly available market data, including that of
comparable companies.
/s/KPMG LLP
We have served as the Company’s auditor since 2022.
New York, New York
March 20, 2023
Report of Independent Registered
Public Accounting Firm
To the shareholders and the Board of Directors of GlaxoSmithKline Consumer Healthcare Holdings (No.2) Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of GlaxoSmithKline Consumer Healthcare Holdings (No.2) Limited and
its subsidiaries (the “Company”) (predecessor to Haleon plc) as at December 31, 2021 the related consolidated income statements, the
consolidated statements of comprehensive income, the consolidated statements of changes in equity, and the consolidated cash flow
statements, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as at December 31, 2021 and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2021, in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”).
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by the management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte LLP
London, United Kingdom
11 March 2022 (20 March 2023 as to Note 11)
We began serving as the Company’s auditor in 2019. In 2022 we became the predecessor auditor.
Consolidated income statement
for the year ended 31 December
Note
2022
£m
2021
£m
2020
£m
Revenue
4
Cost of sales
(4,281 )
(3,595 )
(3,982 )
Gross profit
Selling, general and administration
(4,483 )
(4,086 )
(4,220 )
Research and development
(300 )
(257 )
(304 )
Other operating income
5
Operating profit
6
Finance income
8
Finance expense
8
(258 )
(19 )
(27 )
Net finance costs
(207 )
(2 )
(7 )
Profit before tax
Income tax
9
(499 )
(197 )
(410 )
Profit after tax for the year
Profit attributable to shareholders of the Group
Profit attributable to non-controlling interests
Basic earnings per share (pence)
1
11
Diluted earnings per share (pence)
1
11
1
Earnings per share calculation for the years ended 31 December 2021 and 31 December 2020 have been adjusted retrospectively as required by IAS 33 ‘Earnings per share’ due to the
increase in the number of ordinary shares outstanding as a result of the demerger activities that took place in July 2022. Diluted earnings per share for the year ended 31 December 2022
has been calculated after adjusting the weighted average number of shares used in the basic calculation to assume the conversion of all potential dilutive shares. There were no
dilutive equity instruments for the years ended 31 December 2021 and 31 December 2020.
Consolidated statement of comprehensive income
for the year ended 31 December
2022
£m
2021
£m
2020
£m
Profit after tax for the year
Other comprehensive income/(expenses) for the year
Items that may be subsequently reclassified to income statement:
Exchange movements on overseas net assets
(34 )
(170 )
Exchange movements on overseas net assets of non-controlling interests
(10 )
Fair value movements on cash flow hedges
Reclassification of cash flow hedges to the income statement
(18 )
Related tax on items that may be subsequently reclassified to the income statement
1
(44 )
(2 )
Total
(25 )
(169 )
Items that will not be reclassified to income statement:
Remeasurement gains/(losses) on defined benefit plan
(13 )
Related tax on items that will not be reclassified to the income statement
(29 )
(12 )
Total
Other comprehensive income/(expenses), net of tax for the year
(10 )
(169 )
Total comprehensive income, net of tax for the year
Total comprehensive income for the year attributable to:
Shareholders of the Group
Non-controlling interests
Total comprehensive income, net of tax for the year
1
Includes tax on fair value movements on cash flow hedges of £(48 )m, netted off by tax on reclassification of cash flow hedges to the income statement of £4 m.
Consolidated balance sheet
as at 31 December
Note
2022
£m
2021
£m
Non-current assets
Property, plant and equipment
12
Right of use assets
13
Intangible assets
14
Deferred tax assets
9
Post-employment benefit assets
20
Derivative financial instruments
25
Other non-current assets
16
Total non-current assets
Current assets
Inventories
15
Trade and other receivables
16
Loan amounts owing from related parties
24
Cash and cash equivalents
17
Derivative financial instruments
25
Current tax receivables
Total current assets
Total assets
Current liabilities
Short-term borrowings
19
(437 )
(79 )
Trade and other payables
18
(3,621 )
(3,002 )
Loan amounts owing to related parties
24
(825 )
Derivative financial instruments
25
(31 )
(18 )
Current tax payables
(210 )
(202 )
Short-term provisions
21
(71 )
(112 )
Total current liabilities
(4,370 )
(4,238 )
Non-current liabilities
Long-term borrowings
19
(10,003 )
(87 )
Deferred tax liabilities
9
(3,601 )
(3,357 )
Post-employment benefit obligations
20
(161 )
(253 )
Derivative financial instruments
25
(175 )
(1 )
Long-term provisions
21
(26 )
(27 )
Other non-current liabilities
(22 )
(8 )
Total non-current liabilities
(13,988 )
(3,733 )
Total liabilities
(18,358 )
(7,971 )
Net assets
Equity
Share capital
23
Share premium
23
Other reserves
23
(11,537 )
(11,632 )
Translation reserve
23
Retained earnings
Shareholders’ equity
Non-controlling interests
Total equity
The financial statements on pages 122 to 186 were approved by the Board of Directors and signed on its behalf by:
Tobias Hestler,
Chief Financial Officer
20 March 2023
Consolidated statement of changes in equity
for the year ended 31 December
Note
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Translation
reserve
£m
Retained
earnings
£m
Shareholders’
equity
£m
Non-
controlling
interests
£m
Total
equity
£m
At 1 January 2022
(11,632 )
Profit after tax
Other comprehensive income/(expenses)
(10 )
Total comprehensive income
Issue of share capital of the former
ultimate holding company
23
Capital reduction of the former ultimate
holding company
23
(21,758 )
(21,758 )
(21,758 )
Transactions between the former
ultimate holding company and
equity shareholder
1
23
Effect of change of ultimate holding
company
23
(1 )
(70 )
(47 )
(118 )
(118 )
Transactions with equity shareholders
1
23
(47 )
(47 )
(47 )
Distributions to non-controlling interests
(48 )
(48 )
Dividends to equity shareholders
1
10
(11,930 )
(11,930 )
(11,930 )
Issue of share capital
23
Capital reduction
23
(11,451 )
(10,607 )
(22,058 )
(22,058 )
Share-based incentive plans
26
At 31 December 2022
(11,537 )
Note
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Translation
reserve
£m
Retained
earnings
£m
Shareholders’
equity
£m
Non-
controlling
interests
£m
Total
equity
£m
At 1 January 2021
(11,652 )
Profit after tax
Other comprehensive income/(expenses)
(34 )
(10 )
(10 )
Total comprehensive income/(expenses)
(34 )
Contribution from parent
23
Distributions to non-controlling interests
(35 )
(35 )
Dividends to equity shareholders
1
10
(1,148 )
(1,148 )
(1,148 )
At 31 December 2021
(11,632 )
Note
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Translation
reserve
£m
Retained
earnings
£m
Shareholders’
equity
£m
Non-
controlling
interests
£m
Total
equity
£m
At 1 January 2020
Profit after tax
Other comprehensive (expenses)/income
(170 )
(170 )
(169 )
Total comprehensive (expenses)/income
(170 )
Issue of share capital
23
(13,166 )
Capital reduction
23
(13,166 )
(20,842 )
(45 )
Contribution (non-cash) from parent
23
Acquisition of non-controlling interests
27
Distributions to non-controlling interests
(31 )
(31 )
Dividends to equity shareholders
1
10
(2,371 )
(2,371 )
(2,371 )
At 31 December 2020
(11,652 )
1
Equity shareholders refer to GSK and Pfizer, which held equity interests of 68 % and 32 % in the Group respectively prior to the demerger as described in Note 1.
Consolidated cash flow statement
for the year ended 31 December
Note
2022
£m
2021
£m
2020
£m
Cash flows from operating activities
Profit after tax
Taxation charge
Net finance costs
Depreciation of property, plant and equipment and right of use assets
Amortisation of intangible assets
Impairment and assets written off, net of reversals
Gain on sale of intangible assets, property, plant and equipment and businesses
(30 )
(31 )
(209 )
Fair value adjustment from Pfizer Transaction
Other non-cash movements
(22 )
Decrease in pension and other provisions
(43 )
(36 )
(27 )
Changes in working capital:
(Increase)/decrease in inventories
(292 )
(17 )
(Increase)/decrease in trade receivables
(85 )
Increase in trade payables
Net change in other receivables and payables
(190 )
(273 )
Taxation paid
(324 )
(310 )
(554 )
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
(304 )
(228 )
(222 )
Proceeds from sale of property, plant, and equipment
Purchase of intangible assets
(24 )
(70 )
(96 )
Proceeds from sale of intangible assets
Purchase of business, net of cash acquired
27
Proceeds from sale of businesses
27
Loans to related parties
24
(9,211 )
Proceeds from settlement of amounts invested with GSK finance companies
24
Interest received
Net cash (outflow)/inflow from investing activities
(8,784 )
(33 )
Cash flows from financing activities
Payment of lease liabilities
(45 )
(38 )
(44 )
Interest paid
(163 )
(15 )
(19 )
Dividends paid to shareholders
(2,682 )
(1,148 )
(2,371 )
Distributions to non-controlling interests
(48 )
(35 )
(31 )
Contribution from parent
Repayment of borrowings
19
(1,518 )
(10 )
Proceeds from borrowings
19
Other financing cash flows
(12 )
Net cash inflow/(outflow) from financing activities
(1,236 )
(2,437 )
Increase in cash and cash equivalents and bank overdrafts
Cash and cash equivalents and bank overdrafts at the beginning of the year
Exchange adjustments
(4 )
(6 )
Increase in cash and cash equivalents and bank overdrafts
Cash and cash equivalents and bank overdrafts at the end of the year
Cash and cash equivalents and bank overdrafts at the end of the year comprise:
Cash and cash equivalents
17
Overdrafts
(73 )
(8 )
(10 )
Cash and cash equivalents and bank overdrafts at the end of the year
Notes to the Consolidated Financial Statements
trusted by millions of consumers globally. Haleon’s product portfolio spans five major categories – Oral Health, Vitamins, Minerals and
Supplements (VMS), Pain Relief, Respiratory Health, Digestive Health and Other. Its long-standing brands – such as Advil, Sensodyne,
Panadol, Voltaren, Theraflu, Otrivin, Polident, parodontax and Centrum – are built on trusted science, innovation and deep human
Haleon is a public company limited by shares, incorporated under the laws of England and Wales
The Company has ordinary shares with a nominal value of £0.01 per share. The Group’s shares are listed and traded on the London
Stock Exchange (LSE) with American Depositary Shares (ADSs) listed on the New York Stock Exchange (NYSE) (LSE/NYSE: HLN). The
registered address of the Company is Building 5, First Floor, The Heights, Weybridge, Surrey, KT13 0NY, United Kingdom .
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board (IASB IFRS), including interpretations issued by the IFRS Interpretations Committee
(IFRIC) and International Financial Reporting Standards as adopted by the United Kingdom (UK IFRS) (together IFRS) and the
Companies Act 2006. IFRS as adopted by the UK differs in certain respects from IFRS as issued by the IASB. The differences have
no impact on the Group’s Consolidated Financial Statements for the years presented.
Until July 2022, GlaxoSmithKline Consumer Healthcare Holdings (No.2) Limited (CHHL2), the former ultimate holding company of
the Group and the accounting predecessor was jointly owned by GSK plc and its subsidiaries which held the majority controlling
equity interest of 68%, and Pfizer Inc. and its subsidiaries which held a non-controlling equity interest of 32%. In July 2022, following
the execution of a series of legal acts and contractual arrangements, including the spin-off to the shareholder of GSK, the Company
was established to succeed CHHL2 as the new ultimate holding company of the Group, with 55% of its equity interest held by the
shareholders of GSK, 32% of its equity interest held by Pfizer and 13% of its equity interest held by GSK. This corporate restructuring
was contemplated and executed as one single economic event yet sequenced via multiple legal proceedings and activities.
Management concluded that the predecessor (carryover) basis of accounting is appropriate because the corporate restructuring
was instigated by GSK and its shareholders without the involvement of outside third parties or new investors.
The initial set of Consolidated Financial Statements have been prepared as if the Group had been in existence throughout all the
periods presented by applying the principles of predecessor accounting in accordance with SEC Regulation C Rule 405 and IFRS
although the actual legal transaction and corporate reorganisation occurred in July 2022. There was no economic change or event
impacting the reporting entity because the business activities of the predecessor and successor remained identical and only the
legal form and ownership allocation has changed. Refer to Note 23 ‘Share capital, share premium and other reserves’ for further
Accounting convention
The Consolidated Financial Statements are prepared on a historical cost basis unless otherwise indicated. The Consolidated Financial
Statements are presented in Pound Sterling (GBP, £), the functional currency of the Company and presentation currency of the Group,
and all values are denominated in millions of GBP (£m or £ million) unless stated otherwise.
Financial period
These Consolidated Financial Statements cover the financial year from 1 January 2022 to 31 December 2022, with comparative figures
for the financial years from 1 January 2021 to 31 December 2021 and from 1 January 2020 to 31 December 2020.
The Directors have reviewed the Group’s cash flow forecasts, financial position and exposure to principal risks and have formed the
view that the Group will generate sufficient cash to meet its ongoing requirements for at least 12 months from the date the financial
statements have been authorised. At 31 December 2022, the Group had cash and cash equivalents, net of bank overdrafts, of £611m
and undrawn credit facilities of $1.4bn and £1bn with initial maturity dates of September 2023 and September 2025, respectively.
As a result, the Directors believe that it is appropriate to adopt the going concern basis of accounting in preparing the Group’s
Entities over which the Group has the power to direct the relevant activities so as to affect the returns to the Group, generally through
control over the financial and operating policies from either voting or contractual rights, are accounted for as subsidiaries. Interests
acquired in entities are consolidated from the date the Group acquires control and interests sold are deconsolidated from the date
control ceases.
Where, as part of a business combination, the Group is not able to exercise control over a particular operation due to the existence of
legal or other restrictions, the associated assets and liabilities are not consolidated, and a financial asset or liability is recognised for
the economic benefit or obligation to be received under the contribution agreement. The assets and liabilities are consolidated, and the
associated financial asset or liability derecognised, on the date at which the Group is able to exercise control over these operations.
Notes to the Consolidated Financial Statements
continued
Transactions and balances between subsidiaries are eliminated and no profit before tax is recognised on sales between subsidiaries
until the products are sold to customers outside the Group. Transactions with non-controlling interests are recorded directly in equity.
Deferred tax relief on unrealised intra-group profit is accounted for only to the extent that it is considered recoverable. Refer to Note
The Consolidated Financial Statements are presented in GBP, which is also the Company’s functional currency. Each entity in the Group
determines its own functional currency and items included in the financial statements of each entity are measured using that
functional currency.
Foreign currency transactions in individual Group companies are translated into functional currency using exchange rates at the date
of the transaction. Foreign exchange gains and losses from settlement of these transactions, and from translation of monetary assets
and liabilities at the rates prevailing on the reporting period date, are recognised in the income statement except when deferred in
equity as qualifying hedges. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at
the rates prevailing at the date when the fair value was measured. Non-monetary items measured in terms of historical cost in a
foreign currency are not retranslated.
In preparing the Consolidated Financial Statements, the balances in individual Group companies are translated from their functional
currency into GBP. The income statement, the cash flow statement and all other movements in assets and liabilities are translated at
average rates of exchange as a proxy for the transaction rate, or at the transaction rate itself if more appropriate. Assets and liabilities
are translated at the rates prevailing on the reporting period date.
The effect of exchange rate differences during the year on net assets of foreign operations is recorded in equity.
The Group applies hedge accounting to certain exchange differences arising between the functional currencies of a foreign operation
and the functional currency of the parent entity, regardless of whether the net investment is held directly or through an intermediate
parent. Differences arising on retranslation of a financial liability designated as a foreign currency net investment hedge are recorded
in other comprehensive income/(expenses) and accumulated in equity to the extent that the hedge is effective, which may be
subsequently reclassified to the consolidated income statement. These differences are reported within profit or loss to the extent
that the hedge is ineffective. Gains and losses on the hedging instrument accumulated in equity are reclassified to profit or loss on
the disposal or partial disposal of the foreign operation.
The currencies which most influenced these translations and the relevant exchange rates were:
Average rates
Year end rates
2022
2021
2020
2022
2021
2020
USD/£
1.24
1.38
1.29
1.20
1.35
1.36
Euro/£
1.17
1.16
1.13
1.13
1.19
1.11
Swiss Franc/£
1.18
1.25
1.21
1.11
1.23
1.20
CNY/£
8.31
8.86
8.91
8.31
8.56
Climate change
In preparing these Consolidated Financial Statements we have considered the impact of climate change on the current valuation of
our assets and liabilities. The Group does not believe that there is a material impact on the financial reporting judgements and
estimates arising from climate change and as a result the valuation of our assets and liabilities has not been significantly impacted by
these risks as at 31 December 2022. In concluding, we specifically considered the impact of climate change on the growth rates and
projected cash flows as part of our goodwill and brand impairment testing (refer to Note 14 ‘Intangible assets’) and the Group’s going
2. Accounting policies
The accounting policies adopted are the same as those which were applied for the previous financial year except as set out below
under the heading ‘Recent accounting developments’.
Where an accounting policy is generally applicable to a specific note to the Consolidated Financial Statements, the policy is described
within that note.
The accounting policies below have been applied throughout the Consolidated Financial Statements and apply to the financial
statements as a whole.
Revenue
Group enters into relate to sales orders containing single performance obligations for the delivery of consumer health products.
Product revenue is recognised when control of the goods is passed to the customer. The point at which control passes is determined
by each customer arrangement, but generally occurs on delivery to the customer.
Revenue represents net invoice value (i.e., list price after the deduction of discounts, pricing allowances, customer incentives,
promotional rebates and coupons). Revenue includes fixed and variable consideration.
Variable consideration arises on the sale of goods as a result of discounts and allowances given and accruals for estimated future returns
and rebates. Discounts can either be on-invoice or off-invoice whilst allowances and rebates are generally off-invoice. The discounts,
allowances and promotional rebates are recognised as a deduction from revenue at the time that the related revenue is recognised or
when the Group has committed to pay the consideration, whichever is later. Variable consideration is not included in the transaction
price until it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur.
The methodology and assumptions used to estimate returns and rebates are monitored and adjusted regularly in light of contractual
and legal obligations, historical trends, past experience and projected market conditions. Once the uncertainty associated with the
returns and rebates is resolved, revenue is adjusted accordingly. The differences between actual amounts settled and the estimated
accrued amounts are recognised as a change in management estimate in the subsequent reporting period. The assumptions used in
estimation are based on known facts with a high level of accuracy. In addition, the Group’s promotional programmes are typically
short-term in nature resulting in lower inherent estimation uncertainty.
Some contracts for the sale of consumer health products provide customers with a right to return the goods within a specified period.
A refund liability is recognised for the goods that are expected to be returned (i.e., the amount not included in the transaction price).
A right of return asset (and the corresponding adjustment to cost of sales) is also recognised for the right to recover the goods from
the customer. The Group uses the most likely amount method to estimate the variable consideration in contracts with a right to return.
The Group also provides retrospective volume rebates to certain customers once the products purchased during the period exceed
the threshold specified in the contract. A refund liability is recognised for the expected future rebates (i.e., the amount not included in
the transaction price). The Group applies the most likely amount method to estimate the variable consideration in the contract related
to rebates. Volume rebates and refund liabilities are recognised in trade and other payables.
The Group has elected to apply the practical expedient not to disclose the aggregate amount of transaction price allocated to
Research and development (R&D) expenditure is charged to the income statement in the period in which it is incurred. R&D expenditure
comprises expenditure that is directly attributable to the research and development of new products or variants, including the costs
attributable to the generation or improvement of intellectual property and product registrations, depreciation and amortisation of
Recent accounting developments
All new standards or amendments to standards that have been issued by the IASB and were effective from 1 January 2022 were not
material to the Group.
All new accounting standards, amendments to accounting standards and interpretations that have been published by the IASB and
are not effective for 31 December 2022 reporting period, have not been early adopted by the Group. These standards, amendments
or interpretations are not expected to have a material impact on the Group in the current or future reporting periods.
IFRS 17 ‘Insurance Contracts’ has been released but is not yet adopted by the Group. The standard is effective for the year ended
31 December 2023 and introduces a new model for accounting for insurance contracts. We have reviewed existing arrangements and
concluded that IFRS 17 is not expected to be material for the Group.
Notes to the Consolidated Financial Statements
continued
In preparing the Consolidated Financial Statements, management is required to make judgements about when or how items should
be recognised in the Consolidated Financial Statements and estimates and assumptions that affect the amounts of assets, liabilities,
income and expenses reported in the Consolidated Financial Statements. Actual amounts and results could differ from those
estimates.
There are no critical accounting judgements. The following are the key sources of estimation uncertainty.
Key sources of estimation uncertainty
Indefinite life brands
Estimation of the recoverable amount of indefinite life brands requires significant estimates of the value of each brand. The Group
tests at least annually whether indefinite life brands have suffered an impairment. The recoverable amounts of indefinite life brands
are estimated using the fair value less costs to sell methodology. These calculations use management’s estimates consistent with
current budgets and plans that have been formally approved, assumptions of market participants and are based on discounted cash
flow forecasts using estimated long-term growth rates. Refer to Note 14 ‘Intangible assets’ for further details about the Group’s
indefinite life brands and sensitivity analysis of Preparation H.
Legal and other disputes
Management makes a judgement of whether it is remote, possible or probable that an outflow will be required to settle legal
obligations. To the extent that the potential outflow is assessed as possible but not probable or insufficient information is available
to make a judgement on whether a potential outflow is probable, no provision is made and disclosure related to the claim is provided.
For legal obligations that are assessed as leading to a probable outflow and sufficient information is available, the estimated
provisions take into account the specific circumstances of each dispute and relevant external advice, are inherently judgemental and
could change substantially over time as each dispute progresses and new facts emerge. Management, having taken legal advice, has
established provisions after taking into account the relevant facts and circumstances of each matter and in accordance with
accounting requirements.
The Group may become involved in legal proceedings, in respect of which it is not possible to make a reliable estimate of the expected
financial effect, or practicable to give a meaningful range of outcomes that could result from ultimate resolution of the proceedings.
In these cases, appropriate disclosure about such cases would be provided, but no provision would be made and no contingent liability
can be quantified. The ultimate liability for legal claims may vary from the amounts provided and is dependent upon the outcome of
litigation proceedings, investigations, and possible settlement negotiations. The position could change over time and, therefore, there
can be no assurance that any losses that result from the outcome of any legal proceedings will not exceed the amount of the provisions
reported in the Group’s financial statements by a material amount. Refer to Note 22 ‘Contingent liabilities and commitments’ for
further details about the Group’s legal matters.
Taxation
Where it is considered that a dispute with tax authorities may arise, or where a dispute is already ongoing management makes a
judgement of whether there is sufficient information to be able to make a reliable estimate of the outcome of the dispute. The Group
is subject to taxation in the many countries in which it operates. The tax legislation of these countries differs, is often complex and is
subject to interpretation by management and the government authorities. These matters of judgement give rise to the need to create
provisions for tax payments that may arise in future years. Provisions are made against exposures and take into account the specific
circumstances of each case, including the strength of technical arguments, recent case law decisions or rulings on similar issues and
relevant external advice.
If sufficient information is available, in estimating a potential tax liability, the Group applies a risk-based approach to determine the
transactions most likely to be subject to challenge. This assumes that the relevant tax authority will review and have full knowledge
of all the relevant information, and the probability that the Group would be able to obtain compensatory adjustments under
international tax treaties. These estimates consider the specific circumstances of each dispute and relevant external advice, are
inherently judgemental and could change substantially over time as each dispute progresses and new facts emerge. Refer to Note 9
The Group is organised into business units based on geographical areas and has three reportable segments:
—
North America
—
Europe, Middle East, Africa and Latin America (EMEA and LatAm)
—
Asia Pacific (APAC)
No operating segments have been aggregated to form the above reportable operating segments.
The Group’s Commercial Operations Board, which consists of the Group’s CEO, CFO and other members of the senior leadership,
is the Chief Operating Decision Maker (CODM) who monitors the operating results of the Group’s reportable segments separately
for the purpose of making decisions about resource allocation and performance assessment. The CODM uses a measure of Adjusted
operating profit to assess the performance of the reportable segments. Adjusted operating profit is defined as operating profit less
net intangible amortisation and impairment of brands, licences, and patents, restructuring costs, transaction-related costs, separation
and admission costs, and disposals and others. The CODM does not review IFRS operating profit or total assets on a segment basis.
The composition of these geographical segments is reviewed on an annual basis. Analysis of revenue and Adjusted operating profit
by geographical segment is included below:
Revenue by segment
2022
£m
2021
£m
2020
£m
North America
4,116
3,525
3,779
EMEA and LatAm
4,270
3,877
4,059
APAC
2,472
2,143
2,054
Group revenue
10,858
9,545
9,892
Adjusted operating profit by segment
2022
£m
2021
£m
2020
£m
Group operating profit
1,825
1,638
1,598
Reconciling items between Group operating profit and Group Adjusted operating profit
1
647
534
476
Total
2,472
2,172
2,074
North America
1,070
828
897
EMEA and LatAm
977
960
857
APAC
506
461
377
Corporate and other unallocated
(81)
(77)
(57)
Total
2,472
2,172
2,074
1
The reconciling items above include:
a)
Net amortisation and impairment of intangible assets of £172m (2021: £16m, 2020: £97m): Amortisation and impairment of intangible assets, excluding computer software and
impairment of goodwill net of reversals of impairment.
b)
Restructuring costs of £41m (2021: £195m, 2020: £411m): Expenses related to business transformation activities where the plans are sufficiently detailed and well advanced, and
where a valid expectation to those affected has been created.
c)
Transaction related costs of £8m (2021: £nil, 2020: £91m): Costs related to acquisition of a manufacturing site, in 2020 costs related to the unwind of uplift in fair value of inventory
arising from the Pfizer Transaction.
d)
Separation and admission costs of £411m (2021: £278m, 2020: £66m): Costs incurred in relation to and in connection with separation and listing of the Group as a standalone business.
e)
Disposals and others of £15m (2021: £45m, 2020: £(189)m): Gains and losses on disposals of assets and businesses, tax indemnities related to business combinations and other
items including litigation.
The primary products sold by each of the reportable segments consist of Oral Health, Vitamin, Minerals and Supplements, Pain Relief,
Respiratory Health, Digestive Health and Other products and the product portfolio is consistent across the reportable segments.
Analysis of revenue by product category is included below:
Revenue by product category
2022
£m
2021
£m
2020
£m
Oral Health
2,957
2,724
2,745
Vitamins, Minerals and Supplements
1,675
1,501
1,494
Pain Relief
2,551
2,237
2,192
Respiratory Health
1,579
1,132
1,298
Digestive Health and Other
2,096
1,951
2,163
Group revenue
10,858
9,545
9,892
Notes to the Consolidated Financial Statements
continued
Revenue attributable to the country of domicile and foreign countries with the most significant contribution to the Group’s revenue are
included below:
2022
£m
2021
£m
2020
£m
UK
348
327
374
US & Puerto Rico
3,692
3,187
3,414
China
907
801
700
Rest of the World
5,911
5,230
5,404
Group revenue
10,858
9,545
Other segmental information
North America
£m
EMEA and
LatAm
£m
APAC
£m
Other
reconciling
items
£m
Total
£m
Year ended 31 December 2022
Impairment charges
2
7
1
133
143
Impairment reversal
–
–
–
–
–
Year ended 31 December 2021
Impairment charges
5
5
2
25
37
Impairment reversal
–
–
–
(48)
(48)
Year ended 31 December 2020
Impairment charges
6
10
6
68
90
Impairment reversal
–
–
–
(21)
(21)
2022
£m
2021
£m
2020
£m
UK
440
430
410
US & Puerto Rico
8,519
7,884
7,827
Rest of the World
21,508
20,551
20,593
Non-current assets
30,467
28,865
28,830
Other operating income includes income and expense from all other operating activities which are not related to the ordinary course
of business of the Group, such as gains/losses from disposals and transaction-related costs.
Included in other operating income, the Group recognised a £24m gain on the disposal of the Polocard brand, a product sold in
Poland. In 2021 and 2020, the Group recognised a net gain on disposals of intangible assets and businesses of £31m and £212m,
respectively, which included divestments of Transderm Scop, Acne-Aid, Baldriparan, Breathe Right, Physiogel, Coldrex, Venoruton,
Expenditure is recognised in respect of goods and services received when supplied in accordance with contractual terms. Provision is
made when an obligation exists for a future liability in respect of a past event and where the amount of the obligation can be reliably
estimated. A&P expenditure is charged to the income statement as incurred. Shipment costs on intercompany transfers are charged to
cost of sales, distribution costs on sales to customers are included in selling, general and administration (SG&A) expenditure.
Key expenses included in operating profit
2022
£m
2021
£m
2020
£m
Advertising and promotion
1
2,026
1,941
2,013
Distribution costs
1
237
209
226
Separation and admission costs
1
411
278
66
Restructuring costs
41
195
411
1
Reported within selling, general and administration expense.
Separation and admission costs represent costs incurred in relation to and in connection with the separation and listing of the Group
as a standalone business in 2022.
Restructuring costs
Restructuring costs are recognised and provided for, where appropriate, in respect of the direct expenditure of a business reorganisation
where the plans are sufficiently detailed and well advanced, and where a valid expectation to those affected has been created by
either starting to implement the restructuring plans or announcing its main features. Restructuring costs are those mainly related to
specific Board-approved restructuring programmes, including integration costs following material acquisitions, which are structural in
nature and significant in scale.
Restructuring costs include severance and other personnel costs, professional fees, impairments of assets, and other related items.
Restructuring costs in 2022, 2021 and 2020 mainly relate to activities aiming to generate synergies from the integration of the
Pfizer Group’s Consumer Healthcare business into the Group’s business, following the Pfizer Transaction completed on 31 July 2019.
Refer to Note 21 ‘Provisions’ for further details about the Group’s provisions.
Notes to the Consolidated Financial Statements
continued
A breakdown of the restructuring costs is included below:
2022
£m
2021
£m
2020
£m
Cost of sales
19
44
89
Selling, general and administration, and other operating expenses
25
150
314
Research and development
(3)
1
8
Total
41
195
411
2022
£m
2021
£m
2020
£m
Cash
39
175
336
Non-cash
2
20
75
Total
41
195
411
In light of UK and US rules on audit firm independence, following the demerger, and for the period ended 31 December 2022, the
Group had two external auditors. Deloitte LLP was engaged in respect of the statutory audit of the financial statements of the Group’s
parent company and its subsidiaries in accordance with International Standards of Auditing (UK ISAs). KPMG LLP was appointed to
conduct an audit of the Group’s financial statements under the rules and standards of the US Securities and Exchange Commission
(SEC) and the US Public Company Accounting Oversight Board (PCAOB) standards. A fee breakdown for each firm is shown in the
following table:
2022
£m
2021
£m
2020
£m
Deloitte LLP
Audit of Parent Company and Consolidated Financial Statements
1
10
5
5
Audit of the Company’s subsidiaries
5
6
6
Audit services
15
11
11
Other assurance services
2
6
2
–
Total
21
13
11
KPMG LLP
Audit of Group Consolidated Financial Statements
14
–
–
Audit services
14
–
–
Other services
3
3
–
–
Total
17
–
–
1
Includes £nil (2021: £0.9m, 2020: £nil) in relation to incremental audit work performed for audit opinions issued in compliance with PCAOB auditing standards in preparation for the
proposed separation of the Group from GSK.
2
Includes £3m (2021: £2.4m, 2020 £nil) in relation to reporting accountant work performed in preparation for the proposed separation of the Group from GSK.
3
Employees
The average number of employees by individual geographical segment and the Group’s total employment costs are included below.
Average number of employees
2022
’000
2021
’000
2020
’000
North America
5
6
5
EMEA and LatAm
10
12
11
APAC
6
5
6
Total
21
23
22
Aggregate remuneration of all employees including Directors
2022
£m
2021
£m
2020
£m
Wages and salaries
1,534
1,287
1,362
Social security costs
163
147
151
Pension and other post-employment costs (Note 20)
52
30
30
Share-based incentive plans (Note 26)
78
59
63
Severance costs from integration and restructuring activities
8
95
77
Total
1,835
1,618
1,683
Remuneration of key management personnel
Key management personnel comprises the Executive Board members and the Executive Team. The compensation of key management
personnel in respect of their services to the Group in aggregate was as follows:
Remuneration of key management personnel
2022
£m
2021
£m
2020
£m
Wages and salaries
18
12
14
Social security costs
1
1
1
Pension and other post-employment costs
1
2
1
Share-based incentive plans
9
7
8
Total
29
22
24
Directors’ remuneration
In the prior year, two of GSK nominated Directors for the year ended 31 December 2021 and three of GSK nominated Directors for the
year ended 31 December 2020 had responsibility for managing the Consumer Healthcare business and also undertook a variety of
work relating to the wider GSK. It is not deemed practical to make an apportionment of remuneration for the Company. The remainder
Notes to the Consolidated Financial Statements
continued
income on other financial assets. Finance expense includes interest costs in relation to financial liabilities including interest on bonds
and lease liabilities, which represents the unwind of the discount rate applied to lease liabilities. Borrowing costs are recognised
Net finance costs
2022
£m
2021
£m
2020
£m
Interest income on financial assets at amortised cost:
Other receivables
38
10
12
Cash and cash equivalents
18
3
2
Financial assets measured at fair value through profit or loss
(5)
4
4
Net gains and losses arising from:
Financial instruments mandatorily measured at fair value through profit or loss
208
(35)
(27)
Retranslation of loans and bonds
(208)
35
29
Total
51
17
20
2022
£m
2021
£m
2020
£m
Interest expense arising on:
Financial liabilities at amortised cost
(274)
(7)
(8)
Derivatives at fair value through profit or loss
6
(5)
(7)
Reclassification of hedges from other comprehensive income
18
–
–
Finance expense arising on lease liabilities
(4)
(4)
(7)
Other finance expense
(4)
(3)
(5)
Total
(258)
(19)
Income tax
Current tax payable or recoverable is based on taxable profit for the year, and any adjustments in respect of prior periods. Taxable
profit differs from profit as reported in the income statement because some items of income or expense are taxable or deductible
in different years or may never be taxable or deductible. The amount of current tax payable or receivable is the best estimate of the
amount expected to be paid to, or received from, tax authorities. It is calculated using tax rates and laws that have been substantively
enacted at the reporting date.
Tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities
and when they either relate to income taxes levied by the same taxation authority on either the same taxable entity or on different
taxable entities which intend to settle the current tax assets and liabilities on a net basis.
Tax is charged or credited to the income statement, except when it relates to items charged or credited to other comprehensive
income/(expense) or directly to equity, in which case the tax is recognised in other comprehensive income/(expense) or in equity.
The Group recognises provisions for uncertain tax positions when it is probable that a tax authority would not accept an uncertain
tax treatment. This is done by assuming the tax authority will examine all the amounts and would have full knowledge of all related
information when making those examinations. Uncertain tax positions are assessed and measured on an issue by issue basis within
the jurisdictions that we operate either using management’s estimate of the most likely outcome where the issues are binary, or the
expected value approach where the issues have a range of possible outcomes.
Where open tax matters exist, the ultimate liability for such matters may vary from the amounts provided and is dependent upon
the outcome of negotiations with the relevant tax authorities or, if necessary, litigation proceedings. At 31 December 2022, the Group
had recognised provisions of £159m in respect of such uncertain tax positions (2021: £150m and 2020: £124m). Due to the number
of uncertain tax positions held and the number of jurisdictions to which these relate, it is not practicable to give meaningful
sensitivity estimates.
The Group recognises interest on late paid taxes as part of financing costs, and any penalties, if applicable, as part of the income
Tax charged to the income statement
The major components of income tax expense are:
Taxation charge/(credit) based on profits for the period
2022
£m
2021
£m
2020
£m
Current year charge
412
361
540
Charge in respect of prior periods
25
(50)
11
Total current taxation
437
311
551
Total deferred taxation
62
(114)
(141)
Total
499
197
410
The tax charge on the Group’s profit for the year can be reconciled from the standard rate of corporation tax in the UK of 19% as follows:
Reconciliation of the taxation rate on the Group profits
2022
£m
2021
£m
2020
£m
Profit before tax
1,618
1,636
1,591
UK statutory rate of taxation of 19%
307
311
302
Differences in overseas taxation rates
72
105
124
Benefit of substance-based tax rulings
(15)
(18)
(70)
R&D tax credits
(3)
(2)
(2)
Tax losses not recognised
1
3
8
Permanent differences on disposals, acquisitions and transfers
–
(164)
(20)
Items non-deductible/taxable for tax purposes
56
3
25
Re-assessment of prior year estimates
5
(70)
19
Changes in tax rates
76
29
24
Total tax charge
499
197
410
The Group has a substantial business presence in many countries around the world. The effect of overseas tax rates represents the
tax impact on profits arising outside the UK that are then taxed at rates different to the statutory rate in the UK.
This impact of higher tax rates incurred overseas was partially offset by the beneficial incentives offered in certain countries.
The tax effect of disposals, acquisitions and transfers can vary from the accounting profit or loss that arises. The amount recorded
in 2021 reflects a tax credit related to an uplift of the tax basis of certain intra-group brand transfers.
In 2022, the costs associated with the listing of the Company on the LSE and NYSE as part of the demerger have been treated as not
deductible for tax purposes.
The re-assessment of prior year estimates includes settlements reached following conclusion of tax authority review and differences
between final tax return submissions and liabilities accrued in these financial statements. This includes adjustments for both current
and deferred tax.
The impact of changes in tax rates results from the revaluation of temporary differences due to new tax rates coming into force.
In 2022, this primarily relates to the different blend of state taxes applicable to the Group’s operations in the US, which is higher
than that which previously applied when reported and taxed as part of GSK’s combined US business. In 2021, this was a result of the
substantive enactment of the increase in the UK corporation tax rate from 19% to 25%, whilst in 2020 this was a result of the repeal
of the previously legislated reduction in the UK corporation tax rate to 17% resulting in the existing 19% rate being maintained.
Future tax charges, and therefore the effective tax rate, may be affected by factors such as acquisitions, disposals, restructurings,
the location of research and development activity, tax regime reforms, agreements with tax authorities and resolution of open matters
as the Group continues to bring its tax affairs up to date around the world.
In addition to the amounts charged to the income statement, tax of £73m has been debited to equity through other comprehensive
income/(expense) (2021: £14m debit, 2020: £13m credit) of which a £5m debit (2021: £nil, 2020: £nil) is included in current tax and
a £68m debit (2021: £14m debit, 2020: £13m credit) is included in deferred tax and principally relates to cash flow hedges and
Notes to the Consolidated Financial Statements
continued
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable
profit. It is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that temporary differences
or taxable profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business
combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax
liabilities are not recognised to the extent they arise from the initial recognition of non-tax deductible goodwill.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint arrangements, except where the Group is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting period date and adjusted to reflect changes in the Group’s
assessment that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated
at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates that have
been enacted or substantively enacted by the reporting period date.
Deferred tax assets and liabilities comprise of:
2022
£m
2021
£m
Deferred tax assets
220
312
Deferred tax liabilities
(3,601)
(3,357)
Total
(3,381)
Movement in deferred tax assets and liabilities
Accelerated
capital
allowances
£m
Intangibles
£m
Pensions &
other post-
employment
benefits
£m
Tax losses
£m
Other net
temporary
differences
1
£m
Total
£m
As at 1 January 2022
(66)
(3,438)
50
9
400
(3,045)
Exchange adjustments
(6)
(233)
3
1
29
(206)
(Charge)/credit to income statement
(18)
(78)
1
4
29
(62)
Charge to statement of comprehensive income
–
–
(24)
–
(44)
(68)
Reclassification and other movements
–
108
–
–
(108)
–
At 31 December 2022
(90)
(3,641)
30
14
306
(3,381)
1
Other net temporary differences contain £135m (2021: £117m) related to a deferred tax asset recognised on intra-group profits arising on intercompany inventory which is eliminated
within the Consolidated Financial Statements.
Accelerated
capital
allowances
£m
Intangibles
£m
Pensions &
other post-
employment
benefits
£m
Tax losses
£m
Other net
temporary
differences
£m
Total
£m
As at 1 January 2021
(45)
(3,451)
82
26
266
(3,122)
Exchange adjustments
(6)
(18)
(8)
–
9
(23)
(Charge)/credit to income statement
(15)
31
(12)
(17)
127
114
Charge to statement of comprehensive income
–
–
(12)
–
(2)
(14)
At 31 December 2021
(66)
(3,438)
50
9
400
(3,045)
Provision for deferred tax liabilities of £40m (2021: £38m) has been made in respect of the taxation that would arise on the future
distribution of retained profits by certain overseas subsidiaries. Deferred tax is not provided on temporary differences of £385m
(2021: £147m) arising on unremitted profits as management can control any future reversal and does not consider such a reversal
to be probable.
The Group has recognised a deferred tax asset for trading losses of £14m (2021: £9m) on the basis of management forecasts which
demonstrate these losses should be recovered in the foreseeable future. Additional losses have been recognised in the period as a
result of recent profitability. No deferred tax asset has been recognised in respect of gross tax losses of £266m (2021: £408m) due to
the unpredictability of future profits. Included in this unrecognised amount are US state tax losses of £178m (2021: £314m) which can
only be carried forward for between 15 and 20 years. These losses expire at various dates over the next 18 years. Other unrecognised
Dividends paid
During 2022, 2021 and 2020, the Group declared and paid a series of dividends to GSK and Pfizer under the Shareholders’ Agreement
valid at that time. These dividends included the following:
Dividends declared and paid during the year
2022
2021
2020
Total dividends paid (£m)
11,930
1,148
2,371
Per share (£)
11,930
1,148
2,371
The dividends per share for the dividends declared and paid before the demerger activities that took place in July 2022 were paid
from the former ultimate holding company of CHHL2 and were calculated based on CHHL2’s share structure. The Group utilised a
£9,211m loan plus £37m of interest receivable from its former equity shareholders, prior to the demerger, to partially fund the
Notes to the Consolidated Financial Statements
continued
of share units in issue during the year after deducting treasury shares if any.
Basic earnings per share for the years ended 31 December 2021 and 2020 have been adjusted retrospectively, as required by IAS 33
‘Earnings per share’, to reflect the share structure of the Company resulting from the increase in the number of ordinary shares
outstanding as a result of the demerger activities that took place in July 2022. As a result, basic earnings per share for the years ended
31 December 2021 and 2020 have been calculated by dividing the profit attributable to shareholders by the Company’s weighted
average number of shares in issue, with 9,234,573,831 shares outstanding upon the completion of the demerger activities.
Diluted earnings per share has been calculated after adjusting the weighted average number of shares used in the basic calculation
Earnings per share
2022
2021
2020
Profit after tax attributable to equity shareholders (£m)
1,060
1,390
1,145
Basic weighted average number of shares (million)
9,235
9,235
9,235
Effect of dilutive potential shares (million)
4
–
–
Diluted weighted average number of shares (million)
9,239
9,235
9,235
Basic earnings per share (pence)
11.5
15.1
12.4
Diluted earnings per share (pence)
11.5
15.1
impairment losses.
Assets under construction are carried at cost, less any recognised impairment losses. Depreciation of these assets commences when
the assets are ready for their intended use.
The cost of property, plant and equipment includes directly attributable incremental costs incurred in acquisition and installation
of the assets.
reviewed, and where appropriate adjusted annually. Estimated useful lives of the major categories of assets are shown below:
Freehold buildings
20 to 50 years
Leasehold land and buildings
Lease term or 20 to 50 years
Plant and machinery
10 to 20 years
Equipment and vehicles
Property, plant and equipment is subject to review for impairment if triggering events or circumstances indicate an impairment may
exist. If an indication of impairment exists, the recoverable amount of the asset or cash generating unit is estimated and any
impairment loss is charged to the income statement as it arises.
Where there has been a change in the estimates used to determine recoverable amount and an impairment loss subsequently
reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, not to exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset in prior years and an impairment
loss reversal is recognised immediately in the income statement.
On disposal of property, plant and equipment, the cost and related accumulated depreciation and impairments are derecognised
Property, plant and equipment
Land and
buildings
£m
Plant,
equipment
and vehicles
£m
Assets under
construction
£m
Total
£m
Cost at 1 January 2021
910
1,490
278
2,678
Exchange adjustments
15
(27)
(3)
(15)
Additions
1
13
215
229
Disposals and write-offs
(40)
(132)
(7)
(179)
Reclassifications
34
150
(184)
–
Transfer to assets held for sale
–
(8)
–
(8)
Cost at 31 December 2021
920
1,486
299
2,705
Exchange adjustments
59
86
20
165
Additions
4
9
292
305
Disposals and write-offs
(13)
(130)
–
(143)
Reclassifications
(40)
201
(222)
(61)
Cost at 31 December 2022
930
1,652
389
2,971
Depreciation at 1 January 2021
(273)
(863)
–
(1,136)
Exchange adjustments
–
17
–
17
Charge for the year
(32)
(107)
–
(139)
Disposals and write-offs
28
114
–
142
Transfer to assets held for sale
–
6
–
6
Depreciation at 31 December 2021
(277)
(833)
–
(1,110)
Exchange adjustments
(16)
(52)
–
(68)
Charge for the year
(29)
(113)
–
(142)
Disposals and write-offs
9
110
–
119
Depreciation at 31 December 2022
(313)
(888)
–
(1,201)
Impairment at 1 January 2021
(6)
(46)
(4)
(56)
Exchange adjustments
(2)
–
–
(2)
Impairment losses
(6)
(8)
(3)
(17)
Disposals and write-offs
8
20
3
31
Reversal of impairments
–
12
–
12
Impairment at 31 December 2021
(6)
(22)
(4)
(32)
Exchange adjustments
(1)
(3)
–
(4)
Impairment losses
–
(8)
–
(8)
Disposals and write-offs
4
20
–
24
Reclassifications
–
7
–
7
Impairment at 31 December 2022
(3)
(6)
(4)
(13)
Depreciation and impairment at 31 December 2021
(283)
(855)
(4)
(1,142)
Depreciation and impairment at 31 December 2022
(316)
(894)
(4)
(1,214)
Net book value at 31 December 2021
637
631
295
1,563
Net book value at 31 December 2022
614
758
385
1,757
No impairment losses have been charged to cost of sales for 2022 (2021: £2m, 2020: £11m) and £8m for 2022 (2021: £15m, 2020: £8m)
have been charged to selling, general and administration expenses.
Reversals of impairment arise from subsequent reviews of the impaired assets where the conditions which gave rise to the original
impairments are deemed no longer to apply. No impairment reversals have been credited to cost of sales for 2022 (2021: £12m).
Reclassifications include £54m for 2022 (2021: £nil, 2020: £8m) related to assets under construction that have been reclassified to
Notes to the Consolidated Financial Statements
continued
When the Group leases an asset, a ‘right of use asset’ is recognised for the leased item and a lease liability is recognised for any lease
payments to be paid over the lease term at the lease commencement date except for short-term leases (defined as leases with a lease
term of 12 months or less) and leases of low value assets (defined as assets with an initial fair value less than approximately £10,000).
The right of use asset is initially measured at cost, being the present value of the lease payments paid or payable, plus any initial direct
costs incurred in entering into the lease and less any lease incentives received. Non-lease components are accounted for separately
from the lease components in plant and equipment leases but are not separately accounted for in land and buildings or vehicle leases.
Right of use assets where title is expected to pass to the Group at a point in the future are depreciated in a manner consistent to that
for owned property, plant and equipment. In other cases, right of use assets are depreciated over the shorter of the useful life of the
asset or the lease term. The lease term is the non-cancellable period of the lease plus any periods for which the Group is ‘reasonably
certain’ to exercise any extension options. If right of use assets are considered to be impaired, the carrying value is reduced
accordingly.
Lease liabilities are initially measured at the value of the lease payments over the lease term that are not paid at the commencement
date and are usually discounted using the incremental borrowing rates of the applicable Group entity (the rate implicit in the lease is
used if it is readily determinable). Lease payments included in the lease liability include both fixed payments and in-substance fixed
payments during the term of the lease.
After initial recognition, the lease liability is recorded at amortised cost using the effective interest method. It is remeasured when
there is a change in future lease payments or if the Group’s assessment of the lease term changes; any changes in the lease liability
as a result of these changes also results in a corresponding change in the recorded right of use asset.
Right of use assets
Land and
buildings
£m
Plant and
equipment
£m
Vehicles
£m
Total
£m
Net book value at 1 January 2021
97
5
14
116
Exchange adjustments
1
–
(1)
–
Additions
27
4
6
37
Depreciation
(27)
–
(8)
(35)
Disposals and write-offs
(10)
(8)
(1)
(19)
Net book value at 31 December 2021
88
1
10
99
Exchange adjustments
8
–
1
9
Additions
62
–
10
72
Depreciation
(30)
(1)
(7)
(38)
Net book value at 31 December 2022
128
–
14
142
The total cash outflow for leases amounted to £45m in 2022 (2021: £38m, 2020: £44m). The Group has lease commitments relating
to leases that have not commenced at year end of £30m (2021: £1m). Refer to Note 19 ‘Borrowings’ for further details on the Group’s
Goodwill arising on consolidation represents the excess of the fair value of the consideration transferred over the fair value of the
Group’s share of the identifiable assets and liabilities of the acquired subsidiaries at the date of acquisition. Goodwill is not subject to
amortisation but is tested annually for impairment, or more frequently where indicators of impairment exist and is carried at cost less
any accumulated impairment losses.
For the purpose of impairment testing, assets are grouped in cash generating units (CGUs). A CGU is identified as the lowest
aggregation of assets that generate largely independent cash inflows, and which is looked at by management for monitoring and
managing the business.
If the recoverable amount of the CGU is less than the carrying amount, an impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of
each asset in the CGU. Any impairment loss is immediately recognised in the consolidated income statement and an impairment loss
recognised for goodwill is not subsequently reversed.
The recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
Management prepares formal three-year cash flow forecasts for the Group’s CGUs, which are the basis for the value in use
calculations.
Intangible assets are recognised when they are identifiable, the Group controls the asset, it is probable that future economic benefits
attributed to the asset will flow to the Group and the cost of the asset can be reliably measured.
Separately purchased brands are initially measured at cost, being the purchase price as at the date of acquisition. Acquired brands
are valued independently and recognised at fair value when the Group completes a business combination from third parties, where
brands have a value which is substantial and long-term and where the brands either are contractual or legal in nature or can be sold
separately from the rest of the businesses acquired. The determination of the fair values of the separately identified intangibles is
based, to a considerable extent, on management’s judgement. Brands are amortised over their estimated useful lives of up to 20 years,
except where it is considered that the useful economic life is indefinite.
Indefinite life brands mainly comprise trademarks and brands for which there is no foreseeable limit to the period over which they are
expected to generate net cash inflows. These are considered to have an indefinite life, given the strength and durability of the brands
and the level of advertising and promotion support. These brands are in relatively similar, stable and profitable market sectors, with
similar risk profiles, and their size, diversification and market shares mean that the risk of market-related factors causing a reduction
in the lives of the brands is considered to be relatively low. The Group is not aware of any material legal, regulatory, contractual,
competitive, economic or other factors which could limit their useful lives. Accordingly, they are not amortised.
Intangible assets are stated at cost less provisions for amortisation and impairments. Licences, patents, know-how and marketing
rights separately acquired or acquired as part of a business combination are amortised over their estimated useful lives, generally not
exceeding 20 years, using the straight-line basis from the time they are available for use. The estimated useful lives for determining the
amortisation charge consider patent lives, where applicable, as well as the value obtained from periods of non-exclusivity. Asset lives
are reviewed and, where appropriate, adjusted annually.
Any development costs incurred by the Group and associated with acquired licences, patents, know-how or marketing rights are
written off to the income statement when incurred.
The costs of acquiring and developing computer software for internal use and internet sites for external use are capitalised as
intangible fixed assets where the software or site supports a significant business system and the expenditure leads to the creation of
an asset. Enterprise Resource Planning (ERP) systems software is amortised over 7-10 years and other computer software over 3-5 years.
The carrying values of all non-current assets are reviewed for impairment, either on a standalone basis or as part of a larger CGU, when
there is an indication that the assets might be impaired. Additionally, intangible assets with indefinite useful lives and intangible assets
which are not yet available for use are tested for impairment annually. Any provision for impairment is charged to the income statement.
If the recoverable amount of an intangible is less than the carrying amount, an impairment loss is recognised in the income statement.
The recoverable amount is the higher of fair value less costs of disposal and value in use. Impairment losses are only reversed if there
has been a change in estimates used to determine recoverable amounts and only to the extent that the revised recoverable amounts
Notes to the Consolidated Financial Statements
continued
Intangible assets
Goodwill
£m
Indefinite life
brands
£m
Amortised
brands,
licences
and patents
£m
Computer
software
£m
Total
£m
Cost at 1 January 2021
8,265
18,312
712
429
27,718
Exchange adjustments
(19)
65
(2)
(3)
41
Additions
–
–
7
66
73
Disposals and write-offs
–
–
(23)
(20)
(43)
Reclassifications
–
(9)
9
–
–
Transfer to assets held for sale
–
(43)
(6)
–
(49)
Cost at 31 December 2021
8,246
18,325
697
472
27,740
Exchange adjustments
150
1,090
(3)
14
1,251
Additions
–
178
3
21
202
Disposals and write-offs
–
(122)
(23)
(6)
(151)
Reclassifications
–
–
–
54
54
Transfer to assets held for sale
–
(6)
–
–
(6)
Cost at 31 December 2022
8,396
19,465
674
555
29,090
Amortisation at 1 January 2021
–
–
(160)
(168)
(328)
Exchange adjustments
–
–
1
–
1
Charge for the period
–
–
(40)
(54)
(94)
Disposals and write-offs
–
–
–
3
3
Transfer to assets held for sale
–
–
2
–
2
Amortisation at 31 December 2021
–
–
(197)
(219)
(416)
Exchange adjustments
–
–
(12)
(3)
(15)
Charge for the period
–
–
(43)
(64)
(107)
Disposals and write-offs
–
–
23
5
28
Amortisation at 31 December 2022
–
–
(229)
(281)
(510)
Impairment at 1 January 2021
–
(158)
(11)
(3)
(172)
Exchange adjustments
–
–
–
–
–
Impairment losses
–
–
(12)
(8)
(20)
Reversal of impairment losses
–
36
–
–
36
Transfer to assets held for sale
–
–
23
4
27
Impairment at 31 December 2021
–
(122)
–
(7)
(129)
Exchange adjustments
–
(3)
–
–
(3)
Impairment losses
–
(129)
–
(6)
(135)
Disposals and write-offs
–
122
–
1
123
Impairment at 31 December 2022
–
(132)
–
(12)
(144)
Amortisation and impairment at 31 December 2021
–
(122)
(197)
(226)
(545)
Amortisation and impairment at 31 December 2022
–
(132)
(229)
(293)
(654)
Net book value at 31 December 2021
8,246
18,203
500
246
27,195
Net book value at 31 December 2022
8,396
19,333
445
262
28,436
The net book value of computer software included £133m (2021: £130m) of internally generated costs. During the year ended
31 December 2022, additions to indefinite life brands included £174m of non-cash purchases which were settled by offsetting
a liability owed to the Group by GSK.
Goodwill mainly arose from the Novartis Transaction in 2015 (£2.6bn) and the Pfizer Transaction in 2019 (£5.6bn).
Goodwill is allocated to the Group’s CGUs as follows:
2022
£m
2021
£m
APAC
2,164
2,127
EMEA and LatAm
2,955
2,902
North America
3,277
3,217
Net book value at 31 December
8,396
8,246
The recoverable amounts of the CGUs are assessed using a value in use model (2021: fair value less costs to sell). Value in use is
calculated using a discounted cash flow approach, with a pre-tax discount rate applied to the projected risk-adjusted pre-tax cash
flows and terminal value. The Group has stress tested the future cash flows for the potential impact of climate change and concluded
that there is sufficient headroom.
The discount rate used is based on the pre-tax weighted average cost of capital (WACC) of the CGUs. The discount rates are specific
to each CGU and are determined based on the cost of capital, including a market premium and country specific political risk premiums.
Details relating to the discounted cash flow model used in the impairment tests of the APAC, EMEA and LatAm, and North America
CGUs are as follows:
Valuation basis
Value in use
Key assumptions
Sales growth rates
Profit margins
Terminal growth rates
Discount rates
Taxation rates
Determination of assumptions
Growth rates are internal forecasts based on both internal and external market information.
Margins reflect past experience, adjusted for expected changes.
Terminal growth rates based on the weighted average calculation of the lower of internal
projections and external forecasts of the relevant markets.
Discount rates based on the Group WACC, adjusted where appropriate.
Taxation rates based on appropriate rates for each CGU.
Period of specific projected cash flows
Five years
Terminal growth rates
2022
2021
APAC
3.3% p.a.
4.5% p.a.
EMEA and LatAm
3.3% p.a.
3.5% p.a.
North America
2.4% p.a.
2.5% p.a.
Discount rates (pre-tax)
2022
2021
APAC
9.3%
7.5%
EMEA and LatAm
11.9%
8.8%
North America
8.0%
7.0%
The terminal growth rate does not exceed the long-term projected growth rate for the Group. Goodwill is monitored for impairment
at individual CGU level. In each case the valuation indicated substantial headroom such that it is remote that a reasonably possible
Notes to the Consolidated Financial Statements
continued
Indefinite life brands and amortised brands impairment
Indefinite life brands comprise a portfolio of consumer health products. The net book value of the major brands are as follows:
2022
£m
2021
£m
Advil
3,707
3,362
Voltaren
2,725
2,725
Centrum
1,943
1,828
Caltrate
1,811
1,731
Otrivin
1,385
1,385
Robitussin
1,239
1,126
Preparation H
1,164
1,152
Nexium
743
670
Fenistil
598
598
ChapStick
575
521
Emergen-C
490
439
Theraflu
452
436
Panadol
395
395
Sensodyne
291
270
Nicotinell
246
246
Excedrin
196
177
Polident
134
114
Biotene
130
121
Vitasprint
120
117
Corega
118
102
Other brands
871
688
Total
19,333
18,203
The Group tests all its indefinite life brands for impairment by applying a fair value less costs to sell model using post-tax cash flow
forecasts over a period of 10 years with a terminal value calculation. All brands were tested for impairment using brand specific
assumptions which included a discount rate equal to the Group’s post-tax WACC of 7.0% (6.0% for 2021 and 2020) adjusted where
appropriate for country and currency risks. This valuation methodology uses significant inputs which are not based on observable
market data, and therefore this valuation technique is classified as level 3 of the fair value hierarchy. In addition to the discount rate,
the main assumptions include future sales price and volume growth, product contribution and the future expenditure required to
maintain the product’s marketability and registration in the relevant jurisdictions. These assumptions are based on past experience
and are reviewed as part of management’s budgeting and strategic planning cycle. The terminal growth rates applied of between zero
and 3% (2021: -3% and 3%) are management’s estimates which align with those of market participants’ estimate of future long-term
average growth rates for the relevant markets. The Group has stress tested the future cash flows for the potential impact of climate
change and concluded that there is sufficient headroom.
In 2022, the Group recorded an impairment charge of £111m for Preparation H since the carrying value of the brand was higher than
the recoverable amount. The decrease in recoverable amount was mainly driven by an increase in the discount rate applied to the
forecasted future cash flows from 6% to 6.75%. If the discount rate for Preparation H had been 0.25% higher or the revenue growth
rate, including long term growth rate, had been 0.25% lower than management’s estimates respectively, the Group would have had
to recognise a further impairment of £70m or £75m respectively.
The Group’s operations and presence in Russia and Ukraine is limited as these markets combined accounted for less than 3% of the
Group’s revenue in 2022. The Group fully impaired Solpadeine, a brand primarily sold in Ukraine, and recognised an impairment charge
of £18m.
In addition, Robitussin, which was sensitive to reasonably possible changes in key assumptions in 2021, continues to be sensitive in
2022. Although the brand has recovered from the lower cold and flu incidence resulting from COVID-19 social distancing measures
from previous years, the discount rate has increased in the year causing the brand’s headroom to continue to be low at approximately
15% of its carrying value. The only reasonably possible change in key assumptions that would make the recoverable amount of
Robitussin be equal or less than the carrying value would be to increase the discount rate of 6.75% by 0.6%.
In 2021, Robitussin and Preparation H were affected by lower cold and flu incidence resulting from the COVID-19 social distancing
measures and by supply chain issues respectively which resulted in a reduced level of headroom. Robitussin and Preparation H had
headroom of approximately 15% and 4% of their carrying amounts respectively. The Group performed a sensitivity analysis based on
changes in key assumptions leaving all other assumptions unchanged as it was considered reasonably possible that a reasonable
change in key assumptions could result in an impairment charge. The Group determined at the time that in order for the recoverable
amounts to be equal to the carrying values of Robitussin and Preparation H, either the discount rate would have to be increased by
0.5% and 0.1%, or the long-term growth rate decreased by 0.7% and 0.2% respectively.
Other than as disclosed above, management do not consider that any reasonably possible changes in the key assumptions would
cause the fair value less costs to sell of the individually significant brands disclosed above to fall below their carrying values.
For 2021, the income statement charge for net impairment losses includes impairments of Zyrtec, Treely and capitalised costs for a
discontinued research and development project, netted off by reversal of impairments in relation to Alvedon, Abreva and Solpadeine.
For 2020, the income statement charge for net impairment losses mainly includes impairments of Zyrtec, capitalised costs for a
discontinued oral care project and a discontinued pain relief device, netted off by reversal of impairments in relation to Transderm Scop.
Certain assets were transferred from intangible assets to assets held for sale and subsequently disposed of during the year. There
were no assets and liabilities held for sale remaining as at 31 December 2022.
Amortisation
Net impairment
losses/(reversals)
2022
£m
2021
£m
2022
£m
2021
£m
Cost of sales
61
57
129
(32)
Selling, general and administration
46
37
6
8
Research and development
–
–
–
8
Total
107
94
135
direct costs and related production overheads) and net realisable value. Cost is determined on a first in, first out basis. Net realisable
Composition of inventory balances
2022
£m
2021
£m
Raw materials and consumables
310
233
Work in progress
35
47
Finished goods
1,003
671
Total
1,348
951
The total cost of inventories recognised as an expense and included in cost of sales amounted to £3,970m in 2022 (2021: £3,462m,
2020: £3,666m). This includes inventory write-down of £118m (2021: £174m, 2020: £141m). The Group reverses and reassesses its
inventory provisions in full every reporting period.
The reversals of prior year write-downs of inventories in 2022 is £40m (2021: £63m, 2020: £43m) and these reversals principally arise
for expected credit losses which are measured at an amount equal to lifetime expected credit losses. In determining credit risk, the
Group considers reasonable and supportable information that is relevant and available without undue costs or effort. This includes
both quantitative and qualitative information and analysis based on the Group’s ageing of the receivables, customers’ payment history,
and forward-looking information including wider macroeconomic factors.
When a trade receivable is determined to have no reasonable expectation of recovery it is written off, firstly against any expected
credit loss allowance available and then to the income statement.
Subsequent recoveries of amounts previously provided for or written off are credited to the income statement. Long-term receivables
Notes to the Consolidated Financial Statements
continued
Trade and other receivables
2022
2021
Current
£m
Non-current
£m
Total
£m
Current
£m
Non-current
£m
Total
£m
Trade receivables, net of expected credit loss allowance
1,487
–
1,487
1,318
–
1,318
Other prepayments and accrued income
106
–
106
56
–
56
Interest receivable
–
–
–
1
–
1
Employee loans and advances
6
–
6
4
–
4
Other third-party receivables
256
107
363
286
8
294
Other receivables with GSK companies
26
25
51
542
–
542
Total
1,881
132
2,013
2,207
8
2,215
2022
£m
2021
£m
At 1 January
53
51
Exchange adjustments
2
(1)
Charge for the year
14
33
Subsequent recoveries of amounts provided for
(19)
(30)
Utilised
(9)
–
At 31 December
41
53
Set out below is the information about the credit risk exposure of the Group’s trade receivables using a provision matrix:
Year ended 31 December 2022
Trade receivables
Days past due
Current
£m
0-30 days
£m
31-90 days
£m
91-180 days
£m
181 days-
1 year
£m
Greater
than
1 year
£m
Total
£m
Estimated total gross carrying amount at default
1,386
58
30
15
12
27
1,528
Expected credit loss
6
1
1
2
4
27
41
Year ended 31 December 2021
Trade receivables
Days past due
Current
£m
0-30 days
£m
31-90 days
£m
91-180 days
£m
181 days-
1 year
£m
Greater
than
1 year
£m
Total
£m
Estimated total gross carrying amount at default
1,255
46
30
16
7
17
1,371
Expected credit loss
7
1
5
16
7
17
53
Concentrations of credit risk with respect to trade receivables are limited, due to the Group’s customer base being large and diverse.
No single customer represents more than 10% of the Group’s sales.
Within other third-party receivables and other receivables with GSK companies, £157m (2021: £627m) was classified as financial
operating purposes with an original maturity of three months or less, that are readily convertible to a known amount of cash and
subsidiaries where it is held. Restrictions include exchange controls and taxes on repatriation.
Cash and cash equivalents held in the following currencies, that mostly influence the Group, are presented below:
2022
£m
2021
£m
Pound Sterling (GBP)
253
41
Taiwan Dollar (TWD)
72
67
United States Dollar (USD)
59
3
Indian Rupee (INR)
49
25
Euro (EUR)
25
18
Others
226
260
Total
684
Composition of trade and other payables
2022
£m
2021
£m
Trade payables
1,835
1,369
Customer return and rebate accruals
738
661
Other payables and accruals
558
434
Wages and salaries
290
237
Accrued interest on financial liabilities
104
–
Social security
39
45
VAT payables
34
35
Deferred income
23
11
Other payables with Pfizer companies
–
7
Other payables with GSK companies
–
203
Total
3,621
3,002
Customer return and rebate accruals are provided for by the Group at the point of sale in respect of the estimated rebates, discounts
or allowances payable to customers. Accruals are made at the time of sale but the actual amounts paid are based on claims made
some time after the initial recognition of the sale. The level of accrual is reviewed and adjusted quarterly in light of historical
experience of actual rebates, discounts or allowances given and returns made and any changes in arrangements. The assumptions
used in estimation are based on known facts with a high level of accuracy. In addition, the Group’s promotional programs are typically
short-term in nature resulting in lower inherent estimation uncertainty.
Customer return and rebate accruals are not presented net against any trade receivables that may be owing from the same customer
as the offsetting criteria in IAS 32 have not been met.
Refer to Note 24, ‘Related party transactions’ for further details on amounts payable to GSK and Pfizer.
with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge
Right of use assets
The carrying value of the Group’s right of use assets, depreciation charge for the year and additions during the year are disclosed in
Note 13 ‘Right of use assets’.
Notes to the Consolidated Financial Statements
continued
The corresponding liability to the lessor is recognised as a lease obligation within short and long-term borrowings. The carrying
amount is subsequently increased to reflect interest on the lease liability and reduced by lease payments made.
For calculating the discounted lease liability on leases, the implicit rate in the lease is used. If this is not available, the incremental
borrowing rate with a lease specific adjustment is used. Finance costs are charged to the income statement to produce a constant
periodic rate of charge on the remaining balance of the obligations for each accounting period.
Variable rents are not part of the lease liability and the right of use asset. These payments are charged to the income statement as
Composition of borrowings
2022
2021
Current
£m
Non-current
£m
Total
£m
Current
£m
Non-current
£m
Total
£m
Commercial paper
(302)
–
(302)
–
–
–
Loan and overdrafts
(91)
–
(91)
(49)
–
(49)
Lease liabilities
(44)
(117)
(161)
(30)
(87)
(117)
Non-voting preference shares
–
(25)
(25)
–
–
–
Bonds
–
(9,861)
(9,861)
–
–
–
Total
(437)
(10,003)
(10,440)
(79)
(87)
(166)
Carrying value
Bonds
1
Currency
Nominal
value
Redeemable
Nominal
interest
2022
£m
2021
£m
Sterling Eurobond
£
300
2028
2.875%
299
–
Sterling Eurobond
£
400
2038
3.375%
398
–
Euro Eurobond
€
850
2026
1.250%
694
–
Euro Eurobond
€
750
2030
1.750%
663
–
Euro Eurobond
€
750
2034
2.125%
659
–
USD callable bond due 2024
$
700
2024
3.024%
581
–
USD floating rate callable notes due 2024
$
300
2024
SOFR +
0.89%
249
–
USD Bond
$
1,750
2025
3.125%
1,385
–
USD Bond
$
2,000
2027
3.375%
1,653
–
USD Bond
$
1,000
2029
3.375%
822
–
USD Bond
$
2,000
2032
3.625%
1,652
–
USD Bond
$
1,000
2052
4.000%
806
–
Total
9,861
–
1
These instruments contain a variety of different features including early redemption options, call options, put options and mandatory early redemption options, which depend on
different triggering events such as change in control, change in laws, regulations and tax law. These features are considered embedded derivatives. These features have not been
accounted for separately from the instruments as they are considered closely related to the bonds.
Short-term borrowings
In August 2022, the Group established a £2bn Euro commercial paper programme and a $10bn US Dollar commercial paper
programme pursuant to which members of the Group may issue commercial paper from time to time. The weighted average interest
rate on the commercial paper as at 31 December 2022 was 3.23% (31 December 2021: nil).
As at 31 December 2022, the Group had short-term bank loans of £18m (31 December 2021: £41m). The weighted average interest rate
on short-term bank loans as at 31 December 2022 was 6.7% (31 December 2021: 3.7%).
Long-term borrowings
As part of the preparation for separation of the Group from GSK, on 16 March 2022, GSK Consumer Healthcare Capital UK plc and GSK
Consumer Healthcare Capital NL B.V. (subsidiary undertakings of the Group, the EMTN Issuers) established a £10bn Euro Medium Term
Note Programme (the Programme) pursuant to which the EMTN Issuers may issue notes from time to time. The EMTN Issuers have
issued Pre-Separation Programme Notes under the Programme.
In addition, on 24 March 2022, GSK Consumer Healthcare Capital US LLC (the US Issuer) and GSK Consumer Healthcare Capital UK plc
(the UK Issuer) issued a number of standalone bonds by way of a private placement to institutional investors in the USA and outside
the USA in reliance on the exemptions from the registration requirements of the US Securities Act provided, respectively, by Rule 144A
and Regulation S, each under the US Securities Act (Pre-Separation USD Notes). On 2 November 2022, the Company (via the US Issuer
and the UK Issuer) completed an SEC-registered exchange offer for any and all of the Pre-Separation USD Notes for notes registered
under the US Securities Act (the Exchange Notes and, together with the Pre-Separation USD Notes, the USD Notes) bearing
substantially identical terms to the Pre-Separation USD Notes, except that the transfer restrictions, the special mandatory redemption
provisions and registration rights applicable to the Pre-Separation USD Notes do not apply to the Exchange Notes. The special
mandatory redemption provisions and registration rights applicable to the Pre-Separation USD Notes also do not apply to the
remaining USD Notes that are not Exchange Notes.
As at 31 December 2022, the Group had within long-term borrowings, Pre-Separation Programme Notes and Pre-Separation USD Notes
of £9,861m (31 December 2021: £nil), of which £5,299m (31 December 2021: £nil) fell due in more than five years. The average effective
pre-swap interest rate of all notes in issue as at 31 December 2022 was 3.07% (31 December 2021: nil).
On 13 July 2022, the Group drew down £1,493m under a three-year term loan from its term loan facility in preparation for the payment
of the pre-separation cash dividend and the final sweep dividend. The interest rate on the loan was based on the Sterling Overnight
Interbank Average rate (SONIA) plus Margin, determined in accordance with the terms of the term loan facility. All of the term loan
was repaid during the year ended 31 December 2022 through a combination of operating cash flows and proceeds from commercial
paper issuance.
On 17 July 2022, as part of the demerger activities, the Company issued 25,000,000 non-voting preference shares of £1.00 each to
Pfizer Inc., with a coupon rate of 9.5% per annum. The non-voting preference shares (NVPS) command a mandatory quarterly coupon
and can only be redeemed after a period of five years. The Group has, therefore, classified the non-voting preference shares as a
financial liability. Pfizer Inc., has subsequently disposed of the NVPS to an external third party.
Committed credit facilities
The Group has undrawn credit facilities of £1,000m and $1,400m with initial maturity dates of September 2025 and September 2023
respectively. As at 31 December 2022, no amounts were drawn under these facilities.
Lease liabilities
The maturity analysis of lease liabilities recognised on the Group balance sheet is as follows:
2022
£m
2021
£m
Rental payments due within one year
(44)
(30)
Rental payments due between one and two years
(36)
(22)
Rental payments due between two and three years
(25)
(15)
Rental payments due between three and four years
(21)
(13)
Rental payments due between four and five years
(13)
(10)
Rental payments due after five years
(22)
(27)
Total
(161)
(117)
Refer to Note 8 ‘Net finance costs’ for further details on finance expense arising on lease liabilities.
At 1 January
2022
£m
Cash flows
£m
Foreign
exchange
£m
Fair value
adjustments,
interest and
other
movements
£m
At
31 December
2022
£m
Reconciliation of movement in liabilities to cash flow statement
Long-term borrowings
–
(9,209)
(772)
95
(9,886)
Short-term borrowings
(41)
(277)
–
(2)
(320)
Lease liabilities
(117)
45
(11)
(78)
(161)
Derivative financial instruments
(2)
(345)
–
235
(112)
Total financial liabilities arising from financing activities
1
(160)
(9,786)
(783)
250
(10,479)
Cash and cash equivalents net of bank overdrafts
406
190
15
–
611
Total
246
(9,596)
(768)
250
(9,868)
1
In addition, total cash flow relating to interest paid during the year was £163m and accrued interest as at year end was £104m (refer to Note 18 ’Trade and other payables’).
Notes to the Consolidated Financial Statements
continued
At 1 January
2021
£m
Cash flows
£m
Foreign
exchange
£m
Fair value
adjustments,
interest and
other
movements
£m
At
31 December
2021
£m
Reconciliation of movement in liabilities to cash flow statement
Long-term borrowings
–
–
–
–
–
Short-term borrowings
(37)
(8)
4
–
(41)
Lease liabilities
(139)
38
–
(16)
(117)
Derivative financial instruments
(19)
–
–
17
(2)
Total financial liabilities arising from financing activities
(195)
30
4
1
(160)
Cash and cash equivalents net of bank overdrafts
323
87
(4)
–
406
Total
128
117
–
1
liabilities is recognised as an asset or a liability on the consolidated balance sheet. Defined benefit plan liabilities are assessed using
the projected unit funding method and applying the principal actuarial assumptions at the reporting period date consistent with the
advice of qualified actuaries. Pension scheme assets are measured at fair value at the balance sheet date.
The amount charged to operating costs in the income statement is the cost of accruing pension benefits promised to employees over
the year, plus the costs of individual events such as past service benefit changes, settlements and curtailments (such events are
recognised immediately in the income statement).
Remeasurements of the net defined benefit liability (or asset) comprise actuarial gains and losses and the return on plan assets
excluding amounts included in net interest. Actuarial gains and losses are taken to the consolidated statement of comprehensive
income. Actuarial gains and losses comprise both the effects of changes in actuarial assumptions and experience adjustments arising
from differences between the previous actuarial assumptions and what has actually occurred. The return on plan assets, in excess of
interest income, and costs incurred for the management of plan assets are also taken to other comprehensive income.
The costs of other post-employment liabilities are calculated in a similar way to defined benefit pension schemes and spread over
the period during which benefit is expected to be derived from the employees’ services. Future cash flows are discounted at rates
reflecting the yields of high-quality corporate bonds.
Description of the schemes
The Group operates pension arrangements which cover the Group’s material obligations to provide pensions to retired employees.
These arrangements have been developed in accordance with local practices in the countries concerned. Pension benefits can be
provided by state schemes, by defined contribution schemes, whereby retirement benefits are determined by the value of funds
arising from contributions paid in respect of each employee, or by defined benefit schemes, whereby retirement benefits are based on
employee pensionable remuneration and length of service. In certain countries pension benefits are provided on an unfunded basis,
some administered by trustee companies. Formal, independent, actuarial valuations of the Group’s main plans are undertaken
regularly, normally at least every three years.
Discount rates are derived from AA rated corporate bond yields except in countries where there is no deep market in corporate bonds
where government bond yields are used. Discount rates are selected to reflect the term of the expected benefit payments. Projected
inflation rate and pension increases are long-term predictions based on the yield gap between long-term index-linked and fixed
interest gilts.
For the years ended 31 December 2021 and 2020, GSK operated certain pension schemes in which the Group’s UK and US employees
participated. These schemes included defined benefit arrangements where the assets were held independently of the Group’s
finances and which were funded partly by contributions from members and partly by contributions from GSK at rates advised by
independent professionally qualified actuaries.
Before the demerger from GSK in July 2022, it was announced that GSK’s UK defined benefit plans and US cash balance pension plans
were closed to future accruals and GSK would continue to maintain the plans only for existing participants. GSK charged the Group a
management fee relating to the pension arrangements for the Group’s UK and US employees calculated as if the arrangements were
on a defined contribution basis. The costs of such defined contribution arrangements were not included with the pension charge.
Following the demerger from GSK, the Group operates its own defined contribution pension schemes for the Group’s UK and US
employees.
In addition, there are a number of post-retirement healthcare schemes, the principal one of which is in the US.
Assumptions
The Group has applied the following financial assumptions in assessing the defined benefit liabilities:
2022
%pa
2021
%pa
Germany
Rate of increase of future earnings
3.0
3.0
Discount rate
3.7
1.1
Expected pension increases
2.5
2.1
Inflation rate
2.5
2.1
Switzerland
Rate of increase of future earnings
2.0
1.8
Discount rate
2.2
0.2
Expected pension increases
–
–
Inflation rate
1.3
1.0
Ireland
Rate of increase of future earnings
2.0
2.0
Discount rate
3.6
1.3
Expected pension increases
3.0
3.0
Inflation rate
2.4
2.1
Rest of World
Rate of increase of future earnings
N/A
N/A
Discount rate
5.4
2.7
Expected pension increases
N/A
N/A
Inflation rate
2.5
2.3
The average life expectancy assumed now for an individual at the age of 60 and projected to apply in the years stated below for an
individual then at the age of 60 is as follows:
As at 31 December 2022
Germany
Switzerland
Ireland
Rest of World
Years
Male
Female
Male
Female
Male
Female
Male
Female
Current
25.7
29.4
26.5
28.4
26.8
29.5
27.3
28.6
Projected for 2042
28.7
31.7
28.4
30.1
29.4
31.7
28.8
30.1
As at 31 December 2021
Germany
Switzerland
Ireland
Rest of World
Years
Male
Female
Male
Female
Male
Female
Male
Female
Current
25.4
29.2
26.6
28.5
26.7
29.3
27.2
28.5
Projected for 2041
28.4
31.5
28.4
30.2
29.2
31.5
28.7
30.0
Notes to the Consolidated Financial Statements
continued
Income statement
2022
£m
2021
£m
2020
£m
German pension schemes
5
4
3
Swiss pension schemes
9
5
7
Irish pension schemes
5
6
4
Other overseas pensions schemes
24
5
7
Unfunded post-retirement healthcare schemes
9
10
9
Total
52
30
30
Analysed as:
Defined benefit schemes
27
22
26
Defined contribution pensions schemes
25
8
4
The costs of the defined benefit pension and post-retirement healthcare schemes are charged in the income statement as follows:
Net pensions
total
£m
Other post
retirement
obligations
total
£m
Total post
retirement
obligations
£m
2022
Cost of sales
12
9
21
Research and development
1
–
1
Selling, general and administration
5
–
5
31 December 2022
18
9
27
2021
Cost of sales
10
10
20
Research and development
–
–
–
Selling, general and administration
2
–
2
31 December 2021
12
10
22
2020
Cost of sales
14
9
23
Research and development
–
–
–
Selling, general and administration
3
–
3
31 December 2020
17
9
26
The amounts recorded in the income statement and statement of comprehensive income in relation to the defined benefit pension and
post-retirement healthcare schemes were as follows:
2022
2021
2020
Pensions
£m
Other
post-
employment
benefits
£m
Total
£m
Pensions
£m
Other
post-
employment
benefits
£m
Total
£m
Pensions
£m
Other
post-
employment
benefits
£m
Total
£m
31 December
Amounts charged to operating profit:
Current service cost
16
7
23
18
8
26
24
6
30
Past service cost/(credit)
1
–
1
(4)
–
(4)
(7)
–
(7)
Gain from settlement
–
–
–
(3)
–
(3)
–
–
–
Net interest cost
1
2
3
1
2
3
–
3
3
Total
18
9
27
12
10
22
17
9
26
Re-measurements recorded in the
statement of comprehensive income
(91)
(32)
(123)
(8)
(19)
(27)
5
8
13
Balance sheet
The assets of funded schemes are generally held in separately administered trusts, either as specific assets or as a proportion of a
general fund or are insurance contracts. Assets are invested in different classes in order to maintain a balance between risk and return.
Investments are diversified to limit the financial effect of the failure of any individual investment.
The pension plans are exposed to risk that arises because the estimated market value of the plans’ assets might decline, the
investment returns might reduce, or the estimated value of the plans’ liabilities might increase.
In line with the agreed mix of return seeking assets to generate future returns and liability matching assets to better match future
pension obligations, the Group has defined an overall long-term investment strategy for the plans, with investments across a broad
range of assets. The main market risks within the asset and hedging portfolio are credit risk, interest rates, long-term inflation, equities
and property risk.
The plan liabilities are a series of future cash flows with relatively long duration. On an IAS 19 basis, these cash flows are sensitive
to changes in the expected long-term inflation rate and the discount rate (AA corporate bond yield curve) where an increase in
long-term inflation corresponds with an increase in the liabilities, and an increase in the discount rate corresponds with a decrease
in the liabilities.
Notes to the Consolidated Financial Statements
continued
The fair values of the assets and liabilities of the German, Swiss and Irish defined benefit pension schemes, together with aggregated
data for other defined benefit pension schemes in the Group are as follows:
31 December 2022
Germany
£m
Switzerland
£m
Ireland
£m
Rest of World
£m
Total
£m
Listed equities
48
81
69
6
204
Property
–
70
–
–
70
Listed bonds
49
80
110
21
260
Insurance contracts
26
46
–
–
72
Other assets
–
8
2
12
22
Fair value of assets
123
285
181
39
628
Asset ceiling restriction
–
(34)
–
–
(34)
Fair value of assets after asset ceiling
123
251
181
39
594
Present value of scheme obligations
(185)
(251)
(163)
(47)
(646)
Recognised on the balance sheet
(62)
–
18
(8)
(52)
Included in post-employment benefit assets
–
–
18
7
25
Included in post-employment benefit obligations
(62)
–
–
(15)
(77)
Total
(62)
–
18
(8)
(52)
Actual loss on plan assets
(19)
(36)
(67)
(3)
(125)
31 December 2021
Germany
£m
Switzerland
£m
Ireland
£m
Rest of World
£m
Total
£m
Listed equities
54
98
102
6
260
Property
–
52
–
–
52
Listed bonds
55
89
130
19
293
Insurance contracts
27
55
–
–
82
Other assets
–
6
1
12
19
Fair value of assets
136
300
233
37
706
Asset ceiling restriction
–
(26)
–
–
(26)
Fair value of assets after asset ceiling
136
274
233
37
680
Present value of scheme obligations
(246)
(274)
(254)
(48)
(822)
Recognised on the balance sheet
(110)
–
(21)
(11)
(142)
Included in post-employment benefit assets
–
–
11
–
11
Included in post-employment benefit obligations
(110)
–
(32)
(11)
(153)
Total
(110)
–
(21)
(11)
(142)
Actual return/(loss) on plan assets
15
(14)
(4)
1
(2)
The defined benefit pension obligation is analysed as follows:
2022
£m
2021
£m
Funded
(633)
(812)
Unfunded
(13)
(10)
Total
(646)
(822)
The movement in the net defined benefit liability is as follows:
Fair value
of assets
£m
Present
value of
obligation
£m
Net pensions
total
£m
Net post
retirement
obligations
£m
At 1 January 2021
663
(845)
(182)
(113)
Exchange adjustments
(34)
48
14
(2)
Service cost
–
(18)
(18)
(8)
Past service cost
–
4
4
–
Interest income/(cost)
4
(5)
(1)
(2)
Settlements and curtailments
(5)
8
3
–
Assets acquired/(liability assumed) from GSK
1
39
(39)
–
–
Re-measurements:
Return on plan assets, excluding amounts included in interest
(6)
–
(6)
–
Gain from change in demographic assumptions
–
7
7
–
Gain from change in financial assumptions
–
33
33
19
Experience losses
–
(26)
(26)
–
Employers’ contributions
30
–
30
–
Scheme participants’ contributions
7
(7)
–
–
Benefits paid
(18)
18
–
6
At 31 December 2021
680
(822)
(142)
(100)
Exchange adjustments
45
(56)
(11)
(8)
Service cost
–
(16)
(16)
(7)
Past service cost
–
(1)
(1)
–
Interest income/(cost)
6
(7)
(1)
(2)
Re-measurements:
Return on plan assets, excluding amounts included in interest
(131)
–
(131)
–
Gain from change in financial assumptions
–
235
235
25
Experience (losses)/gains
–
(13)
(13)
7
Employers’ contributions
28
–
28
–
Scheme participants’ contributions
7
(7)
–
–
Benefits paid
(41)
41
–
1
At 31 December 2022
594
(646)
(52)
(84)
1
There were £39m of assets acquired and £39m of liabilities assumed from GSK during the year ended 31 December 2021 as a result of the separation of the existing GSK Group Pension
Fund in Switzerland into two independent schemes, one for GSK and one for the Group. Under local plan rules the GSK Group Scheme could not accept any retired members and
therefore these members were included in the Group scheme.
Notes to the Consolidated Financial Statements
continued
A reconciliation of the net post-employment benefit to the balances recognised on the consolidated balance sheet is as follows:
2022
£m
2021
£m
Net pension obligations
(52)
(142)
Net post retirement obligations
(84)
(100)
Net post-employment benefit
(136)
(242)
Post-employment benefit assets recognised on the consolidated balance sheet
25
11
Post-employment benefit obligations recognised on the consolidated balance sheet
(161)
(253)
Net post-employment benefit
(136)
(242)
Employer contributions for 2023 are estimated to be approximately £24m in respect of defined benefit pension schemes and £1m in
respect of post-retirement medical benefits.
The defined benefit pension and post-retirement obligations analysed by membership category is as follows:
Pension
Post-retirement obligations
2022
£m
2021
£m
2022
£m
2021
£m
Active
(389)
(418)
(81)
(97)
Retired
(150)
(237)
(3)
(3)
Deferred
(107)
(167)
–
–
Total
(646)
(822)
(84)
(100)
The approximate effect of changes in assumptions used on the benefit obligations and on the annual defined benefit and
post-retirement costs are detailed below. This information has been determined by taking into account the duration of the liabilities
and the overall profile of the plan membership.
Sensitivity analysis
2022
£m
2021
£m
A 0.25% decrease in discount rate:
Increase in annual pension cost
1.2
0.8
Increase in annual post-retirement benefits cost
0.1
0.1
Increase in pension obligation
21.0
34.8
Increase in post-retirement benefits obligation
1.8
2.9
A 0.25% increase in discount rate:
Decrease in annual pension cost
(1.2)
(0.9)
Decrease in annual post-retirement benefits cost
(0.1)
(0.1)
Decrease in pension obligation
(19.7)
(32.6)
Decrease in post-retirement benefits obligation
(1.7)
(2.8)
A 0.25% increase in inflation:
Increase in annual pension cost
0.2
0.2
Increase in pension obligation
6.4
11.0
A 0.25% decrease in inflation:
Decrease in annual pension cost
(0.2)
(0.2)
Decrease in pension obligation
(6.1)
(10.7)
A one year increase in life expectancy:
Increase in annual pension cost
0.6
0.9
Increase in annual post-retirement benefits cost
–
0.2
Increase in pension obligation
16.2
27.8
Increase in post-retirement benefits obligation
1.0
2.0
The weighted average duration of the defined benefit obligation is as follows:
Years
2022
2021
Pension benefits
15
18
Post-retirement benefits
13
where the amount of the obligation can be reliably estimated and where the outflow of economic benefit is probable.
Provisions are measured at management’s best estimate of the most likely outcome of the expenditure required to settle the
obligation at the reporting date and are discounted to present value where the effect is material. Provisions are classified as
Provisions
Restructuring
programmes
£m
Other
provisions
£m
Total
£m
As at 1 January 2021
(132)
(36)
(168)
Exchange adjustments
3
1
4
Charge for the period
(52)
(9)
(61)
Reversed unused
9
4
13
Utilised
68
9
77
Other movements
(8)
4
(4)
As at 31 December 2021
(112)
(27)
(139)
Exchange adjustments
(4)
(2)
(6)
Charge for the period
(7)
(50)
(57)
Reversed unused
35
5
40
Utilised
50
15
65
Other movements
2
(2)
–
As at 31 December 2022
(36)
(61)
(97)
2022
£m
2021
£m
To be settled within one year
(71)
(112)
To be settled after one year
(26)
(27)
Total provision
(97)
(139)
Other provisions include employee-related, legal, environmental, and other provisions. Refer to Note 6, ‘Operating profit’ for further
Contingent liabilities are potential future outflows where the likelihood of payment is considered more than remote, but is not
considered probable or cannot be measured reliably. No provision is made for contingent liabilities, but there is a chance that they
At 31 December 2022, contingent liabilities, comprising guarantees and other items arising in the normal course of business, amounted
to £30m (2021: £33m).
The Group is involved in significant legal and administrative proceedings, principally relating to product liabilities. The most significant
of these matters, other than tax matters, are described herein. Provision is made for the outcome of tax, legal and other disputes
where it is both probable that the Group will suffer an outflow of funds and it is possible to make a reliable estimate of that outflow.
Notes to the Consolidated Financial Statements
continued
Legal proceedings
The Group may become involved in legal proceedings, in respect of which it is not possible to make a reliable estimate of the expected
financial effect, if any, that could result from ultimate resolution of the proceedings. In these cases, appropriate disclosure about such
cases would be included but no provision would be made. Costs associated with claims made by the Group against third parties are
charged to the income statement as they are incurred.
The Group makes provision for these proceedings on a regular basis as summarised in the accounting policy above.
The Group may become involved in significant legal proceedings in respect of which it is not possible to determine whether a potential
outflow is probable. In these cases, appropriate disclosures about such cases would be included in this note, but no provision would
be made for the cases.
With respect to each of the legal proceedings described below, other than those for which a provision has been made, the Group is
unable to make a reliable estimate of the expected financial effect at this stage. The Group does not believe that information about
the amount sought by the plaintiffs, if that is known, would be meaningful with respect to those legal proceedings. This is due to a
number of factors, including, but not limited to, the stage of proceedings, the entitlement of parties to appeal a decision and clarity
as to theories of liability, damages and governing law.
The Group’s position could change over time, and, therefore, there can be no assurance that any losses that result from the outcome
of any legal proceedings will not exceed by a material amount the value of the provisions reported in the Group’s financial statements.
If this were to happen, it could have a material adverse impact on the results of operations of the Group in the reporting period in
which the judgements are incurred or the settlements entered into.
Zantac litigation
GSK and/or Pfizer have been named as defendants (alongside other manufacturers of ranitidine, as well as retailers and distributors)
in personal injury lawsuits, as well as economic injury and medical monitoring class actions, filed in the US involving Zantac. The Group
understands that outside the US, there are class actions and individual actions pending against GSK and Pfizer in Canada, along with
a class action against GSK in Israel.
The Group is not a party to any Zantac claims and the Group has never marketed Zantac in any form in the US or Canada. The Group is
not primarily liable for any OTC or prescription Zantac claims.
The Group has received notices of potential claims for indemnification relating to OTC Zantac arising out of the Stock and Asset
Purchase Agreement (SAPA), which the Group has rejected on the basis that the scope of the indemnities set out in the SAPA only
covers the Consumer Healthcare businesses of GSK and Pfizer as conducted when their Consumer Healthcare joint venture was
formed in 2018. At that time, neither GSK nor Pfizer marketed OTC Zantac in the US or Canada.
Proton pump inhibitor litigation
The Group is a defendant in the ongoing proton pump inhibitor (PPI) litigation, in which plaintiffs allege that their use of PPIs caused
serious bodily injuries, predominantly kidney-related injuries. As of January 2023, there were approximately 1,400 Prevacid24HR (OTC)
personal injury lawsuits and approximately 2,200 Nexium 24HR (OTC) lawsuits pending against the Group, nearly all of which are in a
multi-district litigation (MDL) in the District of New Jersey. In addition to the MDL cases, there is a small subset of cases pending in
several state courts.
The Group recently reached a settlement agreement with plaintiffs’ counsel to resolve the vast majority of PPI cases (Nexium24HR and
Prevacid24HR) pending against the Group. The financial impact has been recognised in the Group’s Consolidated Financial Statements,
and is not material to the Group’s financial position, results of operations or cash flows.
German competition litigation
In 2013, GlaxoSmithKline Consumer Healthcare GmbH & Co. KG and other members of a working group of a German trademark
association were fined by the Federal Cartel Office of Germany, as a result of the exchange of certain information related to retailers
during meetings from 2004 to 2006.
Following the fine imposed by the Federal Cartel Office in 2013, the Group is party to civil proceedings in Germany brought by or on
behalf of retailers against the Group and other manufacturers of branded drugstore products, alleging that the exchange of information
within the working group led to higher purchase prices being paid by the retailers, and claiming that the Group and other working
group members are jointly and severally liable for potential damages. The proceedings are taking place in different courts across
Germany and are at different stages.
Commitments
Commitments are contractual obligations to acquire certain classes of assets in the future. These amounts are not recorded in the
Consolidated Financial Statements.
2022
£m
2021
£m
Contracted for but not provided in the Consolidated Financial Statements:
Intangible assets
107
68
Property, plant and equipment
126
80
Total
233
Share premium includes any premiums received on the issue of share capital. Any transaction costs associated with the issuing of
shares are deducted from share premium, net of any related income tax benefits.
Other reserves include the following:
—
Share-based payment reserve – comprises fair value adjustment of equity-settled share schemes over the vesting periods.
—
Cash flow hedge reserve – comprises gains and losses relating to these types of financial instruments.
—
Other reserves – comprises mainly differences between the fair value of the consideration paid for an investment, and the carrying
value of assets and liabilities acquired from business combinations under common control.
Translation reserve arises from the foreign currency translation of the Group’s foreign operations into the Group’s presentation currency.
Retained earnings includes all current and prior years’ retained profits, remeasurement gains/(losses), including any tax impacts on
Notes to the Consolidated Financial Statements
continued
Share capital and share premium
At
31 December
2021
Issue of
share capital
Capital
Reduction
Consolidation/
redemption of
shares
Sub-division
of shares
At
31 December
2022
Ordinary shares at £1.00 each
Number
2
18
–
(20)
–
–
£’000
–
–
–
–
–
–
Ordinary shares at £5.00 each
Number
–
–
–
4
(4)
–
£’000
–
–
–
–
–
–
Ordinary shares at £1.25 each
Number
–
9,234,573,815
(9,234,573,831)
–
16
–
£’000
–
11,543,217
(11,543,217)
–
–
–
Ordinary shares at £0.01 each
Number
–
–
9,234,573,831
–
–
9,234,573,831
£’000
–
–
92,346
–
–
92,346
Redeemable Preference Shares
at £1.00 each
Number
–
49,996
–
(49,996)
–
–
£’000
–
50
–
(50)
–
–
Share capital
£’000
–
11,543,267
(11,450,871)
(50)
–
92,346
Share premium
£’000
–
10,606,752
(10,606,752)
–
–
–
The table above presents the movement of share capital and share premium of the Company for the year ended 31 December 2022.
The Company was incorporated on 20 October 2021 in preparation for the demerger that took place in July 2022 to succeed CHHL2
as the new ultimate holding company of the Group. All ordinary shares are issued and fully paid. All ordinary shares rank equally with
regard to the Company’s residual assets. Holders of these shares are entitled to dividends declared from time to time and are entitled
to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Group are
suspended until those shares are reissued. The redeemable preference shares carry limited class voting rights and no dividend rights.
Pre-demerger from GSK
Movement in share capital and share premium of CHHL2
The share capital on the consolidated balance sheet as at 31 December 2021 of £1m and certain movements within share capital and
share premium in the consolidated statement of changes in equity represented the share structure of CHHL2, the former ultimate
holding entity of the Group before the demerger from GSK that took place in July 2022.
Before the demerger in July 2022, CHHL2 issued one D Deferred share of £21,758m to GlaxoSmithKline Consumer Healthcare Holdings
Limited (GSKCHHL, a fully controlled subsidiary of GSK at this time). The D Deferred share was non-redeemable and did not carry any
voting rights, dividend rights or rights in the event of a return of capital. Subsequently, CHHL2 cancelled the fully paid-up D Deferred
share of £21,758m in the share capital of CHHL2 held by GSKCHHL, to convert the share capital into distributable profits.
Before the demerger in July 2022, CHHL2 also issued one Deferred share of one penny to GSKCHHL for a consideration of £70m
reflected in share premium. The Deferred share was non-redeemable and did not carry any voting rights, dividend rights or rights in the
event of a return of capital.
Changes in the Company’s share structure in preparation for the demerger
The Company issued 20 ordinary shares of £1 each for a total consideration of £20 during the period 20 October 2021 (the date of
incorporation) to 23 May 2022.
On 4 February 2022, the Company issued 49,996 redeemable preference shares of £1 each. The redeemable preference shares were
redeemable at the option of the Company and carried a cumulative right to a dividend at a fixed rate of 0.1% of the nominal value per
annum but carried no other right to income by way of dividend out of the profits of the Company.
On 11 April 2022, the Company redeemed the 49,996 preference shares at the redemption price of £49,996. The share capital of
£49,996 has been transferred to the capital redemption reserve in order to preserve the nominal value of the share capital in
accordance with section 733 of the Companies Act 2006.
On 23 May 2022, the Company consolidated its 20 ordinary shares of £1 each into 4 ordinary shares of £5 each. The Company then
sub-divided its 4 ordinary shares of £5 each into 16 ordinary shares of £1.25 each.
Demerger activities
The Company completed the acquisition of the shares of GSKCHHL and PF Consumer Healthcare Holdings LLC (PFCHHL) on 17 July
2022. GSKCHHL and PFCHH were the entities that previously held the shares of the previous holding company of the Group (CHHL2)
on behalf of GSK and Pfizer. The Company accounted for most of its investment in GSKCHHL at fair value, whilst the investment in
PFCHH was accounted for at the aggregate nominal value of the Company’s shares as a result of the application of various provisions
of the Companies Act 2006.
Share-for-share exchanges with GSK
On 15 July 2022, the Company issued 5,084,190,079 ordinary shares of £1.25 each to the shareholders of GSK plc in satisfaction of the
demerger dividend in specie declared by GSK plc, in exchange for GSK plc transferring in its entirety the A Ordinary shares in GSKCHHL
to the Company.
On 17 July 2022, the Company issued 692,593,037 ordinary shares of £1.25 each to the Scottish Limited Partnerships established by
GSK companies, in exchange for the Scottish Limited Partnerships transferring in their entirety the C Ordinary shares in GSKCHHL to the
Company.
On 17 July 2022, the Company issued 502,727,073 ordinary shares of £1.25 each to GSK plc, in exchange for GSK plc transferring in its
entirety the B Ordinary shares in GSKCHHL to the Company.
In respect of the GSKCHHL share exchanges the Company recorded an aggregate share capital of £7,849m and share premium of
£10,607m.
Share-for-share exchanges with the Pfizer Group
On 17 July 2022, the Company issued 2,955,063,626 ordinary shares of £1.25 each, and 25,000,000 non-voting preference shares of
£1.00 each to Pfizer Inc., in exchange for Pfizer Inc., the ultimate parent company of PFCHHL, transferring in its entirety its shareholding
in PFCHHL to the Company. The non-voting preference shares (NVPS) of £25m were classified as a non-current liability given the NVPS
commands a mandatory quarterly coupon and can only be redeemed after a period of five years or upon a change if control of the
Group. Pfizer Inc., has subsequently disposed of the NVPS to an external third party. These shares are not dilutive to earnings per
share given they cannot be converted into common shares. Refer to Note 19 ‘Borrowings’ for further details about the Group’s NVPS.
Post-demerger activities
On 18 July 2022, regular trading of the Company’s ordinary shares commenced on the main market of the London Stock Exchange
(as a constituent of the FTSE 100).
On 22 July 2022, regular-way trading of the Company’s American Depositary Shares commenced on the New York Stock Exchange,
having traded on a when-issued basis from 18 July 2022 to 21 July 2022.
On 3 August 2022, the Company undertook a court-approved capital reduction in accordance with section 645 of the Companies Act
2006, through which:
—
the nominal value of the Company’s ordinary shares was reduced from £1.25 to £0.01, reducing the Company’s share capital from
£11,543m to £92m; and
—
the Company’s share premium of £10,607m was cancelled in full.
The Group has recognised the admission costs related to the listing of the Company’s shares in the income statement as these costs
were merely incurred in order to enable the distribution of shares to the GSK plc shareholders and the listing of the Company’s shares
rather than to obtain new equity funding. These costs mainly include the preparation of the prospectus, reporting accountant,
long-form and working capital reports, historical financial information (HFI), financial position and prospects procedures (FPPP),
bank and legal fees, listing and registrars’ fees and costs reasonably incurred by the Pfizer Group in assisting the Company to achieve
its listing.
Notes to the Consolidated Financial Statements
continued
Other reserves
The analysis of other reserves is as follows:
EBT shares
reserve
1
£m
Cash flow
hedge reserve
£m
Merger
reserve
£m
Total
£m
As at 1 January 2021
–
(1)
(11,651)
(11,652)
Other comprehensive income
–
9
–
9
Contribution from parent
–
–
11
11
As at 31 December 2021
–
8
(11,640)
(11,632)
Other comprehensive income
–
142
–
142
Effect of change in ultimate holding company
–
–
(47)
(47)
As at 31 December 2022
–
150
(11,687)
(11,537)
1
Shares owned through an Employee Benefit Trust (EBT).
Merger reserve arises as a result of business combinations of entities under common control.
The cumulative translation exchange in equity is attributable to:
Shareholders
of the Group
£m
Non-
controlling
interests
£m
Total
cumulative
translation
reserve
£m
As at 1 January 2021
482
16
498
Exchange movements on overseas net assets
(34)
–
(34)
As at 31 December 2021
448
16
464
Exchange movements on overseas net assets
598
(10)
588
As at 31 December 2022
1,046
6
Related parties
Upon the completion of the demerger on 18 July 2022, GSK ceased to be a related party of the Group under IAS 24, ‘Related Party
Disclosures’. The Group undertook significant transactions with entities from within GSK during the period ended 18 July 2022, and the
years ended 31 December 2021 and 31 December 2020 and with entities from within Pfizer for the years ended 31 December 2022,
2021 and 2020.
The Group had transactions with related parties under manufacturing and supply agreements, distribution agreements, support
service agreements, provision of research and development, toll-manufacturing services and transitional services agreements.
In addition, the Group earned net interest income resulting from funds on-lent to GSK and Pfizer. All related party transactions are
undertaken at arm’s length in accordance with the Group transfer pricing policy.
Where the legal completion of local transfer of assets and liabilities has been delayed, but the Group is able to exercise control over
the relevant activities, the relevant net assets and profits have been recognised in the results.
Transaction values for the year ended 31 December (unless otherwise indicated):
Pfizer companies
GlaxoSmithKline companies
2022
£m
2021
£m
2020
£m
Period ended
18 July 2022
£m
2021
£m
2020
£m
Sales of goods
–
–
17
91
114
397
Purchases of goods
–
–
(11)
(41)
(81)
(81)
Services, royalties, and other income
–
–
17
74
20
49
Services, royalties, and other expense
(5)
(68)
(121)
(135)
(354)
(384)
Interest income
12
–
–
30
10
12
Interest expense
–
–
–
(2)
(4)
(6)
Dividend paid
3,801
367
735
8,129
781
1,636
Balance outstanding as at 31 December:
Pfizer companies
GlaxoSmithKline companies
2022
£m
2021
£m
2022
£m
2021
£m
Other amounts owing to related parties
–
(7)
–
(203)
Other amounts owing from related parties
–
–
51
542
Loan amounts owing to related parties
–
–
–
(825)
Loan amounts owing from related parties
–
–
–
1,508
Pre demerger, the Group had a £9,211m loan receivable from GSK/Pfizer together with £37m accrued interest receivable. This loan was
primarily funded by proceeds from the bond offerings during the first half of 2022 (refer to Note 19 ‘Borrowings’). The loan receivable
and interest accrued were exchanged to partially settle the £11,930m of pre-demerger dividend.
As at 31 December 2022, other amounts owing from GSK of £51m comprise balances arising from arrangements set up with GSK before
the demerger activities. Since these balances occurred when GSK was still a related party of the Group, they continue to be disclosed
in the table above.
As at 31 December 2021, the loan amounts owing from related parties of £1,508m were held with GSK finance companies as part of
the Group’s banking arrangements received at the new risk free benchmark rate – 0.05% and were repayable on demand.
As at 31 December 2021, the loan amounts owing to related parties of £825m were held with GSK finance companies as part of the
Group’s banking arrangements. These balances were unsecured with interest largely paid at the new risk free benchmark rate + 0.10%
Financial assets are measured at amortised cost, fair value through other comprehensive income (FVTOCI) or fair value through profit
or loss (FVTPL). The measurement basis is determined by reference to both the business model for managing the financial asset and
the contractual cash flow characteristics of the financial asset. For financial assets other than trade receivables a 12-month expected
credit loss allowance is recorded on initial recognition. If there is subsequent evidence of a significant increase in the credit risk of an
asset, the allowance is increased to reflect the full lifetime expected credit loss. If there is no realistic prospect of recovery, the asset
is written off.
Derivative financial instruments are used to manage exposure to market risks. The principal derivative instruments used by the Group
are forward foreign exchange contracts and swaps.
Derivative financial instruments are classified as held-for-trading and are measured at fair value. Derivatives designated as hedging
instruments are classified on inception as cash flow hedges, net investment hedges or fair value hedges. The treatment of changes in
the value of derivatives depends on their use as explained below.
Notes to the Consolidated Financial Statements
continued
Fair value hedges
Certain derivatives are held to hedge the risk of changes in value of a specific bond or other loan. In these situations, the Group
designates the liability and related derivative to be part of a fair value hedge relationship. The carrying value of the bond is adjusted
by the fair value of the risk being hedged, with changes going to the income statement. Gains and losses on the corresponding
derivative are also recognised in the income statement. The amounts recognised are offset in the income statement to the extent that
the hedge is effective. Ineffectiveness may occur if the critical terms do not exactly match, or if there is a value adjustment resulting
from a change in credit risk (in either the Group or the counterparty to the derivative) that is not matched by the hedged item. When
the relationship no longer meets the criteria for hedge accounting, the fair value hedge adjustment made to the bond is amortised to
the income statement using the effective interest method.
Cash flow hedges
Derivatives are also held to hedge the uncertainty in timing or amount of future forecast cash flows. Such derivatives are designated
as being part of cash flow hedge relationships. For an effective hedge, gains and losses from changes in the fair value of derivatives
are recognised in equity. Any ineffective elements of the hedge are recognised in the income statement. Ineffectiveness may occur
if there are changes to the expected timing of the hedged transaction. If the hedged cash flow relates to a non-financial asset, the
amount accumulated in equity is subsequently included within the carrying value of that asset. For other cash flow hedges, amounts
deferred in equity are taken to the income statement at the same time as the related cash flow. When a derivative no longer qualifies
for hedge accounting, any cumulative gain or loss remains in equity until the related cash flow occurs. When the cash flow takes place,
the cumulative gain or loss is taken to the income statement. If the hedged cash flow is no longer expected to occur, the cumulative
gain or loss is taken to the income statement immediately.
Net investment hedges
Certain derivatives are designated as hedges of the currency risk on the Group’s investment in foreign subsidiaries. Differences arising
on retranslation of a financial liability designated as a foreign currency net investment hedge are recorded in equity to the extent that
the hedge is effective. These differences are reported within the income statement to the extent that the hedge is ineffective. Gains
and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.
Derivatives for which hedge accounting is not applied
Derivatives not designated as hedges are held in order to hedge certain balance sheet items and commodity exposures. No hedge
Risk management
The key objectives of the Group’s treasury activities are to minimise the net cost of financial operations and reduce volatility arising
from financial risks.
Treasury activities are governed by the Board. The Group has a Treasury Risk Committee (TRC), chaired by the Chief Financial Officer
(CFO), that meets on a regular basis to review treasury activities. Its members receive management information relating to treasury
activities.
The Group may use a variety of financial instruments to finance its operations and derivative financial instruments to manage market
risks from these operations. Derivatives principally comprise of foreign exchange forward contracts and swaps which are used to
manage interest rate and foreign exchange risk on borrowings.
Derivatives are used exclusively for hedging purposes in relation to underlying business activities and not as trading or speculative
instruments.
The Group manages its capital to ensure that entities in the Group are able to operate as going concerns whilst availing themselves
of intercompany funding where appropriate.
2022
£m
2021
£m
Cash and cash equivalents
684
414
Short-term borrowings
(437)
(79)
Long-term borrowings
(10,003)
(87)
Derivative financial assets associated to long-term borrowings
44
5
Derivative financial liabilities associated to long-term borrowings
(181)
(1)
Total equity
16,457
26,480
Total capital
6,564
26,732
As at 31 December 2022, the Group’s long-term credit rating with Standard & Poor’s is BBB (stable outlook) and with Moody’s
Investors Service (Moody’s) it is Baa1 (stable outlook). The Group’s short-term credit ratings are A-2 and P-2 with Standard & Poor’s
The Group’s policy is to borrow centrally in order to meet anticipated funding requirements. The strategy is to diversify liquidity
sources and to maintain broad access to financial markets. Each day, the Group sweeps cash to or from a number of global subsidiaries
and central treasury accounts for liquidity management purposes.
The Group uses both notional and physical cash pool arrangements as appropriate by location and currency. For notional cash pools,
liquidity is drawn against foreign currency balances to provide both local funding and central liquidity as required and with balances
actively managed and maintained to appropriate levels. As balances in notional pooling arrangements are not settled across currencies,
gross cash and overdraft balances are reported. At 31 December 2022, the Group had £437m (2021: £79m) of borrowings repayable
within one year and held £684m (2021: £414m) of cash and cash equivalents.
The Group uses short-term financing to manage working capital requirements and has access to a $10,000m US commercial paper
programme and a £2,000m Euro commercial paper programme, both of which were established in August 2022. At 31 December 2022,
the Group had $225m (2021: $nil) of US commercial paper in issue and €130m (2021: €nil) Euro Commercial Paper in issue.
In February 2022, the Group signed two revolving credit facilities, a $1,400m facility maturing in September 2023 with the option to
extend or term out for a year; and a £1,000m facility maturing in September 2025 with two one-year extension options. These
committed facilities were undrawn at 31 December 2022.
In July 2022, the Group drew down £1,493m against a three-year committed term loan facility to fund the pre-separation dividend.
The facility has been fully repaid during the year.
Long-term financing consists of $8,750m in USD bonds, as well as €2,350m Euro bonds and £700m GBP bonds issued under a
Foreign exchange risk management
Foreign currency transaction exposures arising on internal and external trade flows are selectively hedged. The Group’s objective is
to minimise the exposure of overseas operating subsidiaries to transaction risk by matching local currency income with local currency
costs where possible. Foreign currency cash flows may be hedged selectively as approved by the TRC. Cash surpluses or borrowing
requirements of subsidiary companies are usually managed centrally using foreign exchange forward contracts and swaps to hedge
future repayments back into the originating currency.
Borrowings denominated in, or swapped into, foreign currencies that match investments in overseas Group assets may be treated as a
hedge against the relevant assets. Forward contracts in major currencies are also used to reduce exposure to the Group’s investment
in overseas assets. Refer to ‘Net investment hedges’ section of this note for further details.
Credit risk is the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group and arises on
cash and cash equivalents and favourable derivative financial instruments held with banks and financial institutions as well as credit
exposures to wholesale and retail customers, including outstanding receivables.
The Group considers its maximum credit risk to be £2,441m (2021: £3,894m) which is the total of the Group’s financial assets, excluding
other investments which bear equity risk rather than credit risk.
The Group’s greatest concentration of credit risk at 31 December 2022 is £310m with HSBC Group (A-/A3), and £158m with Citibank
Group (BBB+/A3). The Group’s greatest concentration of credit risk at 31 December 2021 was £456m with GSK LLC (A/A2), and £229m
with GSK IHC Ltd (A+/A2).
There has been no change in the estimation techniques or significant assumptions made during the current reporting period in
assessing the loss allowance for financial assets at amortised cost since the adoption of IFRS 9.
Treasury-related credit risk
The Group has continued to maintain a consistent approach to counterparty risk throughout 2022. The aggregate credit risk in respect
of financial instruments that the Group may have with one counterparty is limited by reference to the long-term credit ratings assigned
for that counterparty by a recognised credit rating agency (e.g., Standard and Poor’s or Moody’s Investors Service). The Group
measures expected credit losses over cash and cash equivalents as a function of individual counterparty credit ratings and associated
12-month default rates. Based on the available credit ratings, the credit risk of outstanding financial instruments has not increased
significantly since their initial recognition. Expected credit losses over cash and cash equivalents and third-party financial derivatives
are deemed to be immaterial and so have not been recognised. No such loss has been experienced during 2022 and 2021. The credit
ratings of counterparties are set out in the below table.
Notes to the Consolidated Financial Statements
continued
AAA/Aaa
£m
AA/Aa
£m
A/A
£m
BBB/Baa
£m
BB+/Ba1
and below
or unrated
£m
Total
£m
2022
Bank balances and deposits
–
87
276
252
59
674
Money market funds
10
–
–
–
–
10
Cash and cash equivalents
10
87
276
252
59
684
Derivative financial instruments
–
–
59
35
–
94
Total
10
87
335
287
59
778
2021
Bank balances and deposits
–
–
394
14
3
411
Money market funds
3
–
–
–
–
3
Cash and cash equivalents
3
–
394
14
3
414
Derivative financial instruments
–
–
17
–
–
17
Total
3
–
411
14
3
431
The credit ratings in the above tables are as assigned by Standard and Poor’s and Moody’s. Where the opinion of the two rating
agencies differs, the lower rating of the two is assigned to the counterparty. Where local rating or Fitch data is the only source
available, the ratings are converted to global ratings equivalent to those of Standard and Poor’s or Moody’s using published
conversion tables.
Wholesale and retail credit risk
Where appropriate, the Group utilises credit insurance to minimise the credit risk of the trade receivables in the Group (refer to Note
16 ‘Trade and other receivables’ for further details about the Group’s expected credit losses). The Group does not have a substantial
wholesale and retail credit risk as a result of its diversified geographical presence, product offering, consumer profile, and historical
Interest rate risk management
The Group manages the interest rate risk on its net debt portfolio, with the objectives of minimising the effective net interest cost and
income statement volatility.
The Group’s main interest rate risk arises from borrowings and investments with floating rates and from the refinancing of maturing
fixed rate debt where any changes in interest rates will affect future cash flows. The policy on interest rate risk management limits the
net amount of floating rate debt to a specific cap.
87% of the Group’s debt was held at fixed rates as at 31 December 2022, including the impact of swaps. Any bond debt with less than
6 months to maturity is considered floating rate.
Interest rate and forward starting interest rate swaps
The forward starting interest rate contracts, exchanging floating interest for fixed interest, were designated as cash flow hedges to
hedge the interest variability of the interest cash flows associated with the future fixed rate debt.
The interest rate swap contracts, exchanging fixed interest rate for floating interest, have been designated as fair hedges to hedge the
variability in fair value associated with Group’s fixed rate debt. The interest rate swaps and the interest payments on the loan occur
simultaneously and the fair value of interest rate swaps and the fair value of related debt affect the income statement at the same time.
Derivative financial instruments and hedging
Derivative financial instruments are used to mitigate exposure to foreign exchange transactional risks of the Group. The fair value of
a derivative financial instrument is classified as a non-current asset or liability if the remaining maturity is more than 12 months and as
a current asset or liability if the maturity is less than 12 months. All foreign exchange contracts are for periods of 12 months or less.
The Group has the following derivative financial instruments:
2022
2021
Notional
amount
£m
Fair value
of assets
£m
Fair value
of liabilities
£m
Notional
amount
£m
Fair value
of assets
£m
Fair value
of liabilities
£m
Non-current
Fair value hedges – interest rate swap contracts
2,207
2
(139)
–
–
–
Net investment hedges – cross currency interest rate swaps
910
1
(36)
–
–
–
Cash flow hedges – interest rate swap contracts
–
–
–
1,996
12
(1)
Current
Net investment hedges – foreign exchange contracts
329
1
(8)
–
–
–
Derivatives designated and effective as hedging instruments
3,446
4
(183)
1,996
12
(1)
Non-current
Cross currency interest rate swap contracts
1,409
41
–
–
Current
Foreign exchange contracts
3,364
49
(23)
1,854
5
(18)
Derivatives classified as held for trading
4,773
90
(23)
1,854
5
(18)
Total derivative instruments
8,219
94
(206)
3,850
17
(19)
Fair value hedges
At issuance in March 2022, $1,750m and €850m bonds were converted from fixed rate to floating rate using interest rate swaps as
shown in the above table. These bonds and swaps were designated in fair value hedges (2021: £nil).
Net investment hedges
At 31 December 2022, certain foreign exchange contracts and cross currency interest rate swaps were designated as net investment
hedges in respect of the foreign currency translation risk arising on consolidation of the Group’s net investment in its European (Euro)
and Chinese (CNY) foreign operations as shown in the table above (2021: £nil).
The carrying value of the EUR bonds in Note 19 ‘Borrowings’ included £1,526m (2021: £nil) that were also designated as hedging
instruments in net investment hedges in respect of the foreign currency translation risk arising on consolidation of the Group’s net
investment in its European (Euro) foreign operations. For net investment hedges, the balance in the foreign currency translation
reserve in relation to continuing hedges is £140m (2021: £nil).
Cash flow hedges
Both in 2021 and 2022 the Group entered into forward starting interest rate swaps (derivatives) to pre-hedge interest rate risk on the
fixed rate bonds issued in March 2022. These derivatives were designated in a cash flow hedge relationship. The derivatives were
settled in March 2022 and as result cash flow hedges were terminated with a net cash inflow of £206m. The element of gains/loss of
these cash flow hedges relating to other comprehensive income is being amortised to the income statement as per the maturity profile
of the loan notes.
Notes to the Consolidated Financial Statements
continued
The following tables provide information regarding hedging instruments and the related hedged items as at 31 December:
Hedging instruments
Average
strike price
Notional
principal
value
£m
Change in fair value
for recognising hedge
ineffectiveness
£m
Carrying value assets/
(liabilities)
£m
2022
Fair value hedges
Below 10 years
EUR IRS
1.3%
754
(59)
(59)
USD IRS
3.1%
1,454
(78)
(78)
Net investment hedges
Below 10 years
EUR FX Swaps
1.2
329
(7)
(7)
CNH CCIRS
8.6
910
(35)
(35)
EUR Bonds
1.1
887
(55)
867
10-30 years
EUR Bonds
1.1
665
(43)
659
2021
Cash flow hedges
Below 10 years
1.1%
668
4
4
10-30 years
1.3%
935
3
3
>30 years
1.5%
393
4
4
For the period ended 31 December 2021, there were no fair value or net investment hedges.
Hedged items
2022
2021
Carrying
amount
£m
Accumulated
fair value
adjustments
1
£m
Change in
value for
calculating
hedge
ineffectiveness
£m
Balance in
cash flow
hedge
reserve
2
£m
Carrying
amount
£m
Accumulated
fair value
adjustments
1
£m
Change in
value for
calculating
hedge
ineffectiveness
£m
Balance in
cash flow
hedge
reserve
2
£m
Cash flow hedges
Pre-hedging of long-term interest rate
–
–
–
(150)
–
(11)
(11)
(9)
Fair value hedges
Bonds
3
(2,078)
122
122
–
–
–
–
–
Net investment hedges
Net assets in foreign currency
4
2,791
140
140
–
–
–
–
–
1
Accumulated fair value adjustments on the hedged items included in the carrying amount of the hedged item.
2
Balance in cash flow hedge reserve for discontinued hedges net of tax.
3
The difference in change in value for calculating hedge ineffectiveness between derivatives and bonds is due to upfront cash receipt on derivatives and hedge ineffectiveness.
4
Relates to net investment hedges which is part of the translation reserve in equity.
The following table details the effectiveness of the hedging relationships and the amounts reclassified from the hedging reserve to
the income statement for cash flow hedges, recognised under finance income or expense. There was no ineffectiveness on fair value
or net investment hedges.
Hedging
gains/(losses)
in other
comprehensive
income
£m
Hedge
ineffectiveness
in profit or loss
£m
Hedged
future cash
flows no
longer expected
to occur
£m
As hedged
item affects
profit or loss
£m
2022
Cash flow hedges
Pre-hedging of long-term interest rates
Below 10 years
169
3
–
18
10-30 years
35
–
–
–
>30 years
–
–
–
–
For the period ended 31 December 2021, there were no fair value or net investment hedges. For cash flow hedges, the hedging gains/
(losses) recognised in other comprehensive income were £11m related to pre-hedging of long-term interest rates with a maturity
profile of £4m in 5-10 years, £3m in 10-30 years and £4m in >30 years.
The table below presents the carrying amounts and the fair values of the Group’s financial assets and liabilities. The fair values of the
financial assets and liabilities are included at the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
The following methods and assumptions were used to estimate the fair values:
—
Cash and cash equivalents carried at amortised cost, trade and other receivables and certain other non-current assets, loans
amounts owing from/(to) related parties, trade and other payables and certain other non-current liabilities: approximates to the
carrying amount.
—
Cash and cash equivalents (money market funds) carried at fair value: based on net asset value of the funds.
—
Short-term loans, overdrafts and commercial paper: approximates to the carrying amount because of the short maturity of
these instruments.
—
Interest rate swaps and foreign exchange contracts: based on present value of contractual cash flows using market sourced data
(exchange rates and interest rates) at the balance sheet date.
—
Long-term loans: based on executable quotes or thinly traded prices (a level 2 fair value measurement) for European and US
Medium Term Notes; based on present value of contractual cash flows for non-voting preference shares and based on the
approximation of the carrying amount in the case of other floating rate bank loans.
Notes to the Consolidated Financial Statements
continued
2022
2021
Carrying
value
£m
Fair value
£m
Carrying
value
£m
Fair value
£m
Financial assets measured at amortised cost:
Cash and cash equivalents
674
674
411
411
Trade and other receivables and certain other non-current assets
1,663
1,663
1,955
1,955
Loan amounts owing from related parties
–
–
1,508
1,508
Financial assets mandatorily measured at fair value through profit or loss:
Held for trading derivatives that are not in a designated and effective hedging relationship
90
90
5
5
Cash and cash equivalents (money market funds)
10
10
3
3
Derivatives designated and effective as hedging instruments
Derivatives designated in a cash flow hedge and net investment hedge
2
2
12
12
Derivatives designated in a fair value hedge
2
2
–
–
Total financial assets
2,441
2,441
3,894
3,894
Financial liabilities measured at amortised cost:
Short-term loans and overdrafts
(91)
(91)
(49)
(49)
Other bonds
(7,783)
(6,935)
–
–
Long-term loans
–
–
–
–
Commercial papers
(302)
(302)
–
–
Non-voting preference shares
(25)
(25)
–
–
Trade and other payables and certain other non-current liabilities in scope of IFRS 9
(3,253)
(3,253)
(2,673)
(2,673)
Loan amounts owing to related parties
–
–
(825)
(825)
Bonds in a designated hedge relationship
(2,078)
(2,081)
–
–
Financial liabilities mandatorily measured at fair value through profit or loss:
Held for trading derivatives that are not in a designated and effective hedging relationship
(23)
(23)
(18)
(18)
Derivatives designated and effective as hedging instruments
Derivatives designated in a cash flow hedge and net investment hedge
(44)
(44)
(1)
(1)
Derivatives designated in a fair value hedge
(139)
(139)
–
–
Total financial liabilities
(13,738)
(12,893)
(3,566)
(3,566)
Net financial assets and financial liabilities
(11,297)
(10,452)
328
328
Financial instruments held at fair value shown according to the fair value hierarchy is provided below. Financial assets and liabilities
held at fair value are categorised by the valuation methodology applied in determining their fair value. Where possible, quoted prices
in active markets are used (level 1). Where such prices are not available, the asset is classified as level 2, provided all significant inputs
to the valuation model used are based on observable market data. If one or more of the significant inputs to the valuation model is
not based on observable market data, the instrument is classified as level 3.
At 31 December 2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets at fair value through profit or loss:
Held for trading derivatives that are not in a designated and effective hedging
relationship
–
90
–
90
Derivatives designated and effective as hedging instruments in a fair value hedge
–
2
–
2
Cash and cash equivalents (money market funds)
10
–
–
10
Derivatives designated and effective as hedging instruments in cash flow hedge and
net investment hedge
–
2
–
2
Total financial assets
10
94
–
104
Financial liabilities at fair value through profit or loss:
Held for trading derivatives that are not in a designated and effective hedging
relationship
–
(23)
–
(23)
Derivatives designated and effective as hedging instruments in a fair value hedge
–
(139)
–
(139)
Derivatives designated and effective as hedging instruments in cash flow hedge and
net investment hedge
–
(44)
–
(44)
Total financial liabilities
–
(206)
–
(206)
At 31 December 2021
Financial assets at fair value through profit or loss:
Held for trading derivatives that are not in a designated and effective
hedging relationship
–
5
–
5
Cash and cash equivalents (money market funds)
3
–
–
3
Derivatives designated and effective as hedging instruments in cash flow hedge and
net investment hedge
–
12
–
12
Total financial assets
3
17
–
20
Financial liabilities at fair value through profit or loss:
Held for trading derivatives that are not in a designated and effective hedging
relationship
–
(18)
–
(18)
Derivatives designated and effective as hedging instruments in cash flow hedge and
net investment hedge
–
(1)
–
(1)
Total financial liabilities
–
(19)
–
Trade and other receivables and other non-current assets
The following table reconciles financial instruments within trade and other receivables and other non-current assets which fall within
the scope of IFRS 9 to the relevant balance sheet amounts.
The financial assets are predominantly non-interest earning. Non-financial instruments include tax receivables and prepayments,
which are outside the scope of IFRS 9.
At 31 December 2022
At 31 December 2021
Financial
instruments
£m
Non-financial
instruments
£m
Total
£m
Financial
instruments
£m
Non-financial
instruments
£m
Total
£m
Trade and other receivables (Note 16)
1,634
247
1,881
1,947
260
2,207
Loans amount owing from related parties (Note 24)
–
–
–
1,508
–
1,508
Other non-current assets (Note 16)
29
103
132
8
–
8
Total
1,663
350
2,013
3,463
260
3,723
Notes to the Consolidated Financial Statements
continued
Trade and other payables, other provisions and other non-current liabilities
The following table reconciles financial liabilities within trade and other payables, other provisions and other non-current liabilities
which fall within the scope of IFRS 9 to the relevant balance sheet amounts. Accrued wages and salaries are included within financial
liabilities. Non-financial instruments include payments on account, tax and social security payables and provisions which do not arise
from contractual obligations to deliver cash or another financial asset, which are outside the scope of IFRS 9.
At 31 December 2022
At 31 December 2021
Financial
instruments
£m
Non-financial
instruments
£m
Total
£m
Financial
instruments
£m
Non-financial
instruments
£m
Total
£m
Trade and other payables (Note 18)
(3,224)
(397)
(3,621)
(2,671)
(331)
(3,002)
Loan amounts owing to related parties (Note 24)
–
–
–
(825)
–
(825)
Provisions (Note 21)
(11)
(86)
(97)
–
(139)
(139)
Other non-current liabilities
(18)
(4)
(22)
(2)
(6)
(8)
Total
(3,253)
(487)
(3,740)
(3,498)
(476)
(3,974)
Financial assets and liabilities are offset and the net amount reported in the balance sheet where there is a legally enforceable right to
offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability
simultaneously. There are also arrangements that do not meet the criteria for offsetting but still allow for the related amounts to be
offset in certain circumstances, such as bankruptcy or the termination of a contract.
The following tables set out the financial assets and liabilities that are offset, or subject to enforceable master netting arrangements
and other similar agreements but not offset, as at 31 December 2022 and 31 December 2021. The column ‘Net amount’ shows the
impact on the Group’s balance sheet if all offset rights were exercised.
At 31 December 2022
Gross financial
assets/
(liabilities)
£m
Gross financial
assets/
(liabilities)
set off
£m
Net financial
assets/
(liabilities)
per balance
sheet
£m
Related
amounts
not offset
£m
Net amount
£m
Financial assets
Derivative financial assets
94
–
94
(58)
36
Financial liabilities
Derivative financial liabilities
(206)
–
(206)
58
(148)
At 31 December 2021
Financial assets
Derivative financial assets
17
–
17
(9)
8
Financial liabilities
Derivative financial liabilities
(19)
–
(19)
9
(10)
Amounts which do not meet the criteria for offsetting on the balance sheet but could be settled net in certain circumstances
principally relate to derivative transactions under ISDA (International Swaps and Derivatives Association) agreements where each
party has the option to settle amounts on a net basis in the event of default of the other party. As there is presently not a legally
enforceable right of offset, these amounts have not been offset in the balance sheet but have been presented separately in the
Sensitivity analysis
The two major foreign currencies in which the Group’s financial instruments are denominated are US Dollars and Euros. Financial
instruments are only considered sensitive to foreign exchange rates where they are not in the functional currency of the entity that
holds them. Intercompany loans which are fully hedged to maturity with a currency swap have been excluded from this analysis.
2022
(Decrease)/increase
in income
£m
2021
Increase/(decrease)
in income
£m
10 cent appreciation of the US Dollar
(1)
2
10 cent depreciation of the US Dollar
1
(2)
10 cent appreciation of the Euro
13
(5)
10 cent depreciation of the Euro
(10)
4
The equity impact, shown below, for foreign exchange sensitivity relates to derivative and non-derivative financial instruments
hedging the Group’s net investments in its European (Euro) and Chinese (CNY) foreign operations.
2022
(Decrease)/increase
in equity
£m
2021
Increase/(decrease)
in equity
£m
10 cent appreciation of the CNY
(11)
–
10 cent depreciation of the CNY
11
–
10 cent appreciation of the Euro
(182)
–
10 cent depreciation of the Euro
152
Interest rate sensitivity
The Group is exposed to interest rate risk on its outstanding borrowings and investments where any changes in interest rates will
affect future cash flows or the fair values of financial instruments. The table below shows the Group’s hypothetical sensitivity to
changes in interest rates in relation to Pound Sterling, US Dollar and Euro variable rate financial assets and liabilities, including
derivatives. If the interest rates applicable to floating rate financial assets and liabilities were to have increased by 1% (100 basis
points), and assuming other variables had remained constant, it is estimated that the Group’s finance income for 2022 would have
decreased by approximately £45m (2021: increased by £1m). A 1% (100 basis points) movement in US Dollar interest rates would
not have any impact to equity (2021: increase of £197m to equity). A 1% (100 basis points) movement in interest rates in relation
to Pound Sterling or Euro is not deemed to have a material effect on equity.
2022
Increase/(decrease)
in income
£m
2021
(Decrease)/increase
in income
£m
1% (100 basis points) increase in Pound Sterling interest rates
6
(13)
1% (100 basis points) increase in US Dollar interest rates
(32)
8
1% (100 basis points) increase in Euro interest rates
(18)
6
1% (100 basis points) increase in Swiss Franc interest rates
(1)
–
Contractual cash flows for non-derivative financial liabilities and derivative instruments
The following table provides an analysis of the anticipated contractual cash flows including interest payable for the Group’s
borrowings on an undiscounted basis. Interest is calculated based on debt held at the balance sheet date without taking account of
future issuance. Floating rate interest is estimated using the prevailing interest rate at the balance sheet date. Cash flows in foreign
currencies are translated using spot rates at the balance sheet date.
Notes to the Consolidated Financial Statements
continued
At 31 December 2022
Borrowings
£m
Interest on
borrowings
£m
Lease
liabilities
£m
Interest
on lease
liabilities
£m
Trade
payables
and other
liabilities
not in
net debt
£m
Total
£m
Due in less than one year
393
316
44
3
3,242
3,998
Between one and two years
830
291
36
2
9
1,168
Between two and three years
1,385
248
25
2
1
1,661
Between three and four years
694
230
21
1
1
947
Between four and five years
1,653
184
13
1
–
1,851
After five years
5,299
1,370
22
2
–
6,693
Gross contractual cash flows
10,254
2,639
161
11
3,253
16,318
At 31 December 2021
Due in less than one year
49
2
30
4
3,496
3,581
Between one and two years
–
–
22
3
2
27
Between two and three years
–
–
15
2
–
17
Between three and four years
–
–
13
2
–
15
Between four and five years
–
–
10
1
–
11
After five years
–
–
27
3
–
30
Gross contractual cash flows
49
2
117
15
3,498
3,681
The table below provides an analysis of the anticipated contractual cash flows for the Group’s derivative instruments, using
undiscounted cash flows. Cash flows in foreign currencies are translated using spot rates at 31 December. The gross cash flows of
foreign exchange contracts are presented for the purposes of this table although, in practice, the Group uses standard settlement
arrangements to reduce its liquidity requirements on these instruments.
2022
2021
Receivables
£m
Payables
£m
Receivables
£m
Payables
£m
Foreign exchange contracts
Due in less than one year
5,476
(5,455)
1,852
(1,865)
Interest rate swap contracts
Due in less than one year
153
(198)
–
(13)
Between one and two years
173
(222)
12
(26)
Between two and three years
1,916
(2,009)
24
(26)
Between three and four years
573
(524)
28
(26)
Between four and five years
–
–
28
(26)
After five years
–
–
260
(221)
Gross contractual cash flows
8,291
(8,408)
2,204
26. Employee share scheme
Incentives in the form of shares are provided to employees under shares schemes. The fair value of equity-settled share schemes
is calculated at the grant date using a fair value model and is charged to the income statement over the vesting period with a
corresponding adjustment to the equity share-based payment reserve. At the end of each reporting period, the Group reviews
its charge and revises it accordingly based on the number of shares expected to vest. The impact of the revision of the original
estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate.
For cash-settled share-based payments, the fair value of service rendered is based on the fair value of the liability related to the
share-based instrument granted.
Description of the Group’s plans
The Group operates a number of share-based payment schemes for Executive Directors and other employees which are predominantly
equity-settled, however may be cash-settled in certain locations.
Haleon share plans
A description of the main share plans operated by the Group is included below:
Performance Share Plan
Under the Performance Share Plan, share awards are granted to Executive Directors and other employees at no cost. The percentage
of each award that vests is based upon the performance of the Group over a defined measurement period with dividends reinvested
during the same period. The performance conditions attached to each award are based on two measures over a three-year performance
period. These are currently cumulative free cash flow (50%) and the ratio of net debt/Adjusted EBITDA (50%). In addition, an
Environmental, Social and Governance (ESG) qualifier applies which can reduce the level of the overall vesting by up to 75%.
The fair value of the awards is determined based on the closing share price prior to the day of grant.
Share Value Plan
Under the Share Value Plan, share awards are granted to certain employees at no cost. These awards generally vest after three years
and there are normally no performance conditions attached. Haleon Ownership Awards (equivalent to 100 ordinary shares, or 50 ADS
for US and Puerto Rico employees) were also granted under this plan in 2022 to all eligible permanent employees employed by Haleon
on the date of demerger. The fair value of these awards is determined based on the closing share price prior to the day of grant and
adjusted for expected dividend yield during the vesting period.
Share Save Plan and Share Reward Plans
The Share Save and Share Reward Plans are approved HMRC savings related plans made available to all UK employees who are
employed on the invitation date.
Participants of the Company’s Share Save Plan may save up a monthly amount from their salaries, over a three-year period, which can
be used to purchase shares in the Company at a predetermined price subject to the employee remaining in employment for three years
after the grant date of the options (or such shorter period in respect of certain ‘good leaver’ conditions) and satisfying the monthly
savings requirement.
Participants of the Share Reward Plan contribute up to a certain amount a month to purchase Haleon’s shares which the company
then matches.
The total cost between each of the relevant schemes is shown below:
Charge (£m)
2022
Performance Share Plan
6
Share Value Plan
11
Total
17
The Group has £2m of outstanding liabilities as at 31 December 2022 in relation to cash-settled awards.
The total number of awards (equivalent to ordinary shares) granted during the period between each of the relevant schemes is
shown below:
Number of share awards (’000)
1
2022
Performance Share Plan
12,719
Share Value Plan
38,845
Total
51,564
1
These awards were granted on 6 October 2022.
Fair value of awards
The following assumptions were used when determining the fair value of the awards:
2022 Grant
Share price at grant date
£2.74
Expected life
3 years
Expected dividend yield
1.59%
Notes to the Consolidated Financial Statements
continued
Legacy GSK share plans
Incentives in the form of shares in the Group’s equity shareholder, GSK plc, were provided to employees under share award schemes
until the demerger date. The share-based compensation charge for these schemes has been recorded in the income statement as
selling, general and administration expenses of £61m (2021: £59m, 2020: £63m). This expense was incurred in the form of a charge
from GlaxoSmithKline Services Unlimited, as calculated under IFRS 2. The share-based payment schemes that were operated prior
to demerger have vested early with all Haleon participants treated as good leavers.
predecessor accounting. Such business combinations are accounted for by recognising all assets and liabilities acquired at their
previous carrying values with effect from the beginning of the earliest period reported in the financial statements. No new goodwill
arises from such transactions and the differences between the fair value of the consideration paid and the carrying value of assets
and liabilities acquired is recorded within equity in the merger reserve.
Business combinations where common control does not exist before the transaction are accounted for using the acquisition
accounting method. Identifiable assets, liabilities and contingent liabilities acquired are measured at fair value at acquisition date.
The consideration transferred is measured at fair value and includes the fair value of any contingent consideration. Where the
consideration transferred, together with the non-controlling interest, exceeds the fair value of the net assets, liabilities and
contingent liabilities acquired, the excess is recorded as goodwill, denominated in the currency of the operation acquired.
The costs related to business combinations are charged to the income statement in the period in which they are incurred. Where not
all the equity of a subsidiary is acquired the non-controlling interest is recognised either at fair value or at the non-controlling
interest’s share of the net assets of the subsidiary, on a case-by-case basis.
Disposal groups are generally measured at the lower of their carrying value or fair value less costs to sell. Any gain or loss resulting
from the disposal are recognised in the consolidated income statement.
2020
Business acquisitions
On 28 September 2020, the Group completed the acquisition of legal ownership of approximately 55% equity interests in the legal
entity that holds the Hsinchu site in Taiwan from the Pfizer Group in a non-cash transaction, whereby the Group acquired the business as
part of the completion of the formation of the Group from GSK and Pfizer on 31 July 2019. The Group measured the business at fair value.
Goodwill of £124m, which is not expected to be deductible for tax purposes, was recognised. The goodwill represents the potential
for future synergies arising from combining the acquired businesses with the Group’s existing business together with the value of the
workforce acquired.
The non-controlling interest for this acquisition recorded in the Group, calculated applying the proportionate interests’ method,
represents the Pfizer Group’s share of the net assets of the Group, excluding goodwill.
The majority of the Hsinchu site’s revenue was generated through manufacturing of consumer health products for companies within
the Group and was eliminated on consolidation. Therefore, the external revenue arising from the Hsinchu site since the acquisition on
28 September 2020 was immaterial and would remain immaterial if the business had been acquired at the beginning of the year. The
business has been integrated into the Group’s existing activities and it is not practicable to identify the impact on the Group profit in
the period.
The fair value of the assets acquired in business combinations, including goodwill, are set out in the table below.
Taiwan
Hsinchu site
business
£m
Intangible assets
2
Property, plant and equipment
6
Inventory
5
Cash and cash equivalents
20
Other assets
6
Other liabilities
(21)
Non-controlling interests
(14)
Goodwill
124
Total
128
Consideration settled by shares in CHHL2
128
Cash consideration paid
–
Total consideration
128
2020
Business disposals
In 2020, the Group made several business disposals, resulting in the Group receiving net cash consideration of £221m. The business
disposals mainly related to the divestment of EMEA rights of Thermacare, which was acquired from the Pfizer Group as part of its
Consumer Healthcare business following the completion of the Pfizer Transaction on 31 July 2019 and was disposed of by the Group
on 30 March 2020 to meet anti-trust requirements.
The gain on the disposals of businesses in the year of £69m was calculated as follows:
Total
£m
Cash consideration received
221
Net assets sold:
Goodwill
(1)
Intangible assets
(125)
Property, plant and equipment
(12)
Inventory
(5)
Other net assets
(1)
(144)
Transaction costs
(8)
Total gain on disposal
Non-controlling interests comprises equity interests in entities not attributable, directly or indirectly, to a parent. The Group’s
On 2 March 2023 the Board declared a final dividend of 2.4 pence per ordinary share for a total amount of £222m. Subject to
shareholder approval at the Company’s AGM, this dividend will be paid on 27 April 2023 to holders of ordinary shares and ADRs
on the register as of 17 March 2023. The dividend will be paid out of retained profits.
To further optimise its capital structure, on 2 March 2023, the Group announced that it would exercise its option to redeem at par
Notes to the Consolidated Financial Statements
continued
A subsidiary is an entity directly or indirectly controlled by the Company. Control is achieved where the Company has existing rights
that give it the current ability to direct the activities that affect the Company’s returns and exposure or rights to variable returns from
the entity.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting policies in line with those used by the Group. All intra-group transactions,
balances, income and expenses are eliminated on consolidation. Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those
interests at the date of the original acquisition and the non-controlling shareholder’s share of changes in equity since the date of the
acquisition. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests
having a deficit balance.
List of subsidiaries
A full list of the Company’s subsidiaries (as defined in the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008) as at 31 December 2022 is detailed below:
Company name
Effective %
Ownership
Security
Registered address
Wholly owned subsidiaries
Alacer Corp
2
100%
Common
Corporate Service Company d/b/a CSC – Lawyers
Incorporating, Service, 2710 Gateway Oaks Drive, Suite
150N, Sacramento, California 95833-3505, United States
Block Drug Company, Inc.
2
100%
Common
Corporation Service Company, Princeton South
Corporate Center, Suite 160, 100 Charles Ewing Blvd,
Ewing NJ 08628, United States
Block Drug Corporation
100%
Common
Corporation Service Company, Princeton South
Corporate Center, Suite 160, 100 Charles Ewing Blvd,
Ewing NJ 08628, United States
Consumer Healthcare Holdings Limited
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Consumer Healthcare Intermediate Holdings Limited
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Duncan Consumer Healthcare Philippines Inc
100%
Common
23rd Floor, The Finance Centre, 26th Street Corner
9th Avenue, Bonifacio Global City, Taguig City, 1634,
Philippines
Ex-Lax, Inc.
100%
Common
Corporation Service Company Puerto Rico Inc.c/o RVM
Professional Services, LLC, A4 Reparto Mendoza,
Humacao,
00791, Puerto Rico
Ferrosan (No.2) AB
100%
Ordinary
Vetenskapsvagen 10, SE-191 90, Sollentuna, Sweden
Ferrosan ApS
100%
A Shares;
B Shares
Delta Park 37, 2665, Vallensbæk Strand, Denmark
Ferrosan S.R.L. (In Liquidation)
100%
Registered
Capital
178/C Calea Turzii, Cluj-Napoca, Cluj County, Romania
Glaxo Wellcome Ceylon Limited
100%
Ordinary,
Ordinary B
121 Galle Road, Kaldemulla, Moratuwa, Sri Lanka
GlaxoSmithKline Asia Private Limited
2
100%
Equity
Patiala Road, Nabha 147201, Dist Patiala, Punjab, India
GlaxoSmithKline Brasil Produtos para Consumo
e Saude Ltda
100%
Quotas
Av das Americas, 3500, 4th floor, rooms 407-420,
Rio de Janeiro, RJ, 22621-000, Brazil
GlaxoSmithKline Consumer Healthcare (China) Co. Ltd
2
100%
Registered
Capital
Room 506, No.1 Shen’gang Boulevard, Lin-gang Special
Area of China Pilot Free Trade Z, Shanghai, Shanghai,
200000, China
Company name
Effective %
Ownership
Security
Registered address
GlaxoSmithKline Consumer Healthcare (Hong Kong)
Limited
100%
Ordinary
23/F., Tower 6, The Gateway, 9 Canton Road,
Tsimshatsui, Kowloon, Hong Kong
GlaxoSmithKline Consumer Healthcare (Thailand)
Limited
100%
Ordinary
13th Floor, Unit 13.06, Wave Place Building, 55 Wireless
Road, Lumpini Sub-district, Pathumwan District,
Bangkok, 10330, Thailand
GlaxoSmithKline Consumer Healthcare (UK) (No.1)
Limited
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GlaxoSmithKline Consumer Healthcare (UK) IP Limited
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GlaxoSmithKline Consumer Healthcare AB
100%
Ordinary
Hemvärnsgatan 9, P.O. Box 516, 169 29, Solna, Sweden
GlaxoSmithKline Consumer Healthcare Aps
100%
Ordinary
Delta Park 37, 2665, Vallensbæk Strand, Denmark
GlaxoSmithKline Consumer Healthcare Colombia SAS
100%
Ordinary
Carrera 7 No. 113 - 43 Piso 4, Colombia
GlaxoSmithKline Consumer Healthcare Czech Republic
s.r.o.
100%
Ordinary
Hvezdova 1734/2c, Prague, 4 140 00, Czech Republic
GlaxoSmithKline Consumer Healthcare Finance Limited
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GlaxoSmithKline Consumer Healthcare Finance No.2
Limited
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GlaxoSmithKline Consumer Healthcare Finland Oy
100%
Ordinary
Energiakuja 3, Helsinki, 00180, Finland
GlaxoSmithKline Consumer Healthcare GmbH
100%
Ordinary
Schottenring 25, Wien, 1010
GlaxoSmithKline Consumer Healthcare GmbH & Co. KG
2
100%
Partnership
Capital
Barthstr. 4, 80339, München, Germany
GlaxoSmithKline Consumer Healthcare Hellas Single
Member Societe Anonyme
100%
Ordinary
274 Kifissias Avenue Halandri, Athens, 152 32, Greece
GlaxoSmithKline Consumer Healthcare Holdings (No.2)
Limited
2
100%
A Shares;
B Shares;
Preference
shares;
Deferred
shares
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GlaxoSmithKline Consumer Healthcare Holdings
Limited
2
100%
A Shares,
B Shares,
C Shares
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GlaxoSmithKline Consumer Healthcare Investments
(Ireland) (No 3) Limited (In Liquidation)
100%
Ordinary
Knockbrack, Dungarvan, Co Waterford, X35 RY76,
Ireland
GlaxoSmithKline Consumer Healthcare Japan K.K.
100%
Ordinary
1-8-1 Akasaka Minato-ku, Tokyo, Japan
GlaxoSmithKline Consumer Healthcare Korea Co., Ltd.
100%
Ordinary
9F LS Yongsan Tower, 92 Hangang-daero, Yongsan-gu,
Seoul, 04386, Korea, Republic of
GlaxoSmithKline Consumer Healthcare Mexico, S. De
R.L. de C.V.
100%
Ordinary,
Ordinary
Variable
Boulevard Adolfo Ruiz Cortines No. 3720, Torre 3 Piso
11, Colonia Jardines del Pedregal, Alcaldía Alvaro
Obregón, Ciudad de México, C.P. 01900, Mexico
GlaxoSmithKline Consumer Healthcare Norway AS
100%
Ordinary
Drammensveien 288, Lysaker, 1326, Norway
GlaxoSmithKline Consumer Healthcare Philippines Inc
100%
Common
23rd Floor, The Finance Centre, 26th Street Corner 9th
Avenue, Bonifacio Global City, Taguig City, 1634,
Philippines
GlaxoSmithKline Consumer Healthcare Pte. Ltd.
2
100%
Ordinary
23, Rochester Park #03-02, Singapore, 139234,
Singapore
GlaxoSmithKline Consumer Healthcare S.A.
100%
Ordinary
Severo Ochoa, 2, Parque Tecnologico de Madrid,
Tres Cantos, 28760, Madrid, Spain
Haleon Italy S.r.l. (formerly known as GlaxoSmithKline
Consumer Healthcare S.r.l)
3
100%
Ordinary
Via Zambeletti snc, Baranzate, 20021, Milan, Italy
GlaxoSmithKline Consumer Healthcare Saudi Limited
100%
Ordinary
603 Salamah Tower, 6th Floor, Madinah Road, Al-
Salamah District, Jeddah 21425, Saudi Arabia
GlaxoSmithKline Consumer Healthcare Sdn. Bhd.
100%
Ordinary
Lot 89, Jalan Enggang, Ampang / Hulu Kelang Industrial
Estate, Selangor Darul Ehsan, 68000 Ampang, Malaysia
Notes to the Consolidated Financial Statements
continued
Company name
Effective %
Ownership
Security
Registered address
GlaxoSmithKline Consumer Healthcare Slovakia s. r. o.
100%
Ownership
Interests
Galvaniho 7/A, Bratislava, 821 04, Slovakia
GlaxoSmithKline Consumer Healthcare South Africa
(Pty) Ltd
100%
Ordinary
Flushing Meadows Building, The Campus, 57 Sloane
Street, Bryanston 2021, South Africa
GlaxoSmithKline Consumer Healthcare Sp. z.o.o.
100%
Ordinary
Ul. Grunwaldzka 189, 60-322, Poznan, Poland
GlaxoSmithKline Consumer Healthcare Sri Lanka
Holdings Limited
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GlaxoSmithKline Consumer Healthcare SRL
100%
Ordinary
1-5 Costache Negri Street, Opera Center One, 6th floor
(Zone 2), District 5, Bucharest, Romania
GlaxoSmithKline Consumer Healthcare ULC /
GlaxoSmithKline Soins De Sante Aux Consommateurs
SRI
100%
A Class
Preference,
Common
595 Burrard Street, Suite 2600 Three Bentall Centre,
P.O. Box 49314 Vancouver BC V7X 1L3, Canada
GlaxoSmithKline Consumer Healthcare Vietnam
Company Limited
100%
Charter
capital
Floor 16, Metropolitan, 235 Dong Khoi, Ben Nghe Ward,
District 1, Ho Chi Minh City, Vietnam
GlaxoSmithKline Consumer Healthcare, Produtos para
a Saude e Higiene, Lda
100%
Ordinary
Quota
Rua Dr Antonio Loureiro Borges No 3, Arquiparque,
Miraflores, 1495-131, Alges, Portugal
GlaxoSmithKline Consumer Private Limited
100%
Equity
Patiala Road, Nabha 147201, Dist Patiala, Punjab, India
GlaxoSmithKline Costa Rica S.A.
100%
Ordinary
Oficentro Terracampus, Edificio, Uno, Quinto Piso
Autopista Florencio del Castillo, kilometro siete,
Cartago, La Unión San Diego, Costa Rica
GlaxoSmithKline Dungarvan Limited
100%
Ordinary
Knockbrack, Dungarvan, Co Waterford, X35 RY76,
Ireland
GlaxoSmithKline Healthcare AO
100%
Ordinary
Premises III, Room 9, floor 6, Presnenskaya nab. 10,
123112, Moscow, Russian Federation
GlaxoSmithKline Healthcare Ukraine O.O.O.
100%
Ownership
Interests
Pavla Tychyny avenue, 1-V, Kiev, 02152, Ukraine
GlaxoSmithKline Limited
100%
Ordinary
Likoni Road, PO Box 78392, Nairobi, Kenya
GlaxoSmithKline Panama S.A.
100%
Ordinary
Urbanizacion Industrial Juan D, Calles A Y B, Republic of
Panama, Panama
GlaxoSmithKline Paraguay S.A.
100%
Ordinary
Oficial Gilberto Aranda 333, Planta Alta casi Salvador
del Mundo, Asuncion, Paraguay
GlaxoSmithKline Santé Grand Public
100%
Ordinary
23 rue François Jacob, 92500, Rueil-Malmaison, France
GlaxoSmithKline Technology (Taizhou) Co., Ltd
100%
Registered
Capital
Room 708 in Building D, Phase II of New Drug
Innovation Base, Taizhou, Jiangsu Province, 225300,
China
GlaxoSmithKline Tuketici Sagligi Anonim Sirketi
100%
Nominative
Büyükdere Caddesi No. 173, 1.Levent Plaza B Blok,
1.Levent, Istanbul, 34394, Turkey
GlaxoSmithKline-Consumer Kft.
100%
Membership
Interests
H-1124, Csorsz utca 43, Budapest, Hungary
GSK Bangladesh Private Limited
100%
Ordinary
K-248/1 Dewalibari, Konabari, Gazipur-1700,
Bangladesh, Gazipur, 1700, Bangladesh
GSK Canada Holding Company Limited
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK CH Caricam Sociedad de Responsabilidad Limitada
100%
Participation
interests
Urbanizacion Industrial Juan D, Calles A Y B, Republic of
Panama, Panama
GSK CH Kazakhstan LLP
100%
Charter
capital
32 A Manasa Str., Bostandyk District, Almaty, 050008,
Kazakhstan
GSK Consumer Healthcare Capital NL B.V.
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, United Kingdom
GSK Consumer Healthcare Capital UK PLC
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Chile SpA
100%
Interests
share
Av. Andrés Bello N°2687, 25th floor, Las Condes, Chile
Company name
Effective %
Ownership
Security
Registered address
GSK Consumer Healthcare Egypt Limited
100%
Ordinary
North 90th street, Boomerang building, 5th District,
Cairo, Egypt
GSK Consumer Healthcare Egypt LLC
100%
Quotas
North 90th street, Boomerang building, 5th District,
Cairo, Egypt
GSK Consumer Healthcare Holdings (No.1) Limited
2
100%
Non-voting
preference
shares;
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Holdings (No.3) Limited
2
100%
Non-voting
preference
shares;
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Holdings (No.4) Limited
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Holdings (No.5) Limited
4
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Holdings (No.6) Limited
4
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Holdings (No.7) Limited
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Holdings (No.8) Limited
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
GSK Consumer Healthcare Insurance Limited
100%
Ordinary
Dorey Court, Admiral Park, St Peter Port, GY1 4AT,
Guernsey
GSK Consumer Healthcare Israel Ltd
100%
Ordinary
25 Basel Street, Petech Tikva 49510, Israel
GSK Consumer Healthcare Levice s.r.o.
100%
Ordinary
Priemyselny Park Gena, Ul. E. Sachsa 4-6, 934 01, Levice,
Slovakia
GSK Consumer Healthcare Peru S.R.L
100%
Ordinary
Av Jorge Basadre 349, piso 5,San Isidro, Lima, 05W-109,
Peru
GSK Consumer Healthcare SARL
2
100%
Ordinary
Route de I’Etraz, 1197 Prangins, Switzerland
GSK Consumer Healthcare Schweiz AG
100%
Ordinary
Suurstoffi 14, 6343, Rotkreuz, Switzerland
GSK Consumer Healthcare Singapore Pte. Ltd.
2
100%
Ordinary
23, ROCHESTER PARK #03-02, Singapore, 139234,
Singapore
GSK Consumer Healthcare Trinidad and Tobago Limited
100%
Ordinary
5th Floor Algico Plaza, 91-93 St. Vincent Street, Port of
Spain, Trinidad and Tobago
GlaxoSmithKline Consumer Healthcare (US) IP LLC
100%
LLC Interests
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GlaxoSmithKline Consumer Healthcare Holdings (US)
LLC
2
100%
LLC Interests
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GlaxoSmithKline Consumer Healthcare L.L.C.
2
100%
LLC Interests
Corporation Service Company, 2595 Interstate Drive
Suite 103, Harrisburg PA 17110, United States
GSK Consumer Health, Inc.
100%
Common
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GSK Consumer Healthcare Capital US LLC
2
100%
LLC Interests
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GSK Consumer Healthcare Holdings (US) Inc.
2
100%
Preferred,
Common
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GSK Consumer Healthcare Holdings No. 2 LLC
2
100%
LLC Interests
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GSK Consumer Healthcare Services, Inc.
100%
Common
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
Notes to the Consolidated Financial Statements
continued
Company name
Effective %
Ownership
Security
Registered address
GSK New Zealand Holding Company Limited
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Haleon (Suzhou) Technology Co (formerly
GlaxoSmithKline (Suzhou) Trading Co., Ltd)
100%
Registered
Capital
Second floor of the Administrative building, No. 669,
Gangpu, Guoxiang Street, Wuzhong Economic
Development Zone, Suzhou
Haleon UK Export Limited (formerly GSK Consumer
Healthcare Export Limited)
7
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Haleon Australia Pty Ltd (formerly GlaxoSmithKline
Consumer Healthcare Australia Pty Ltd)
100%
Ordinary
Level 48, 8 Parramatta Square, 10 Darcy Street,
Parramatta, Sydney NSW 2150, Australia
Haleon Belgium N.V. (formerly GlaxoSmithKline
Consumer Healthcare S.A.)
3
100%
Ordinary
Site Apollo, Avenue Pascal 2-4-6, Wavre, 1300, Belgium
Haleon Germany GmbH (formerly GlaxoSmithKline
Healthcare GmbH)
2
100%
Ordinary
Barthstr. 4, 80339, München, Germany
Haleon Intermediate Holdings Limited
1,2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, United Kingdom
Haleon Ireland Limited (formerly GlaxoSmithKline
Consumer Healthcare (Ireland) Limited)
3
100%
Ordinary
12 Riverwalk, Citywest Business Campus, Dublin 24,
Ireland
Haleon Netherlands B.V. (formerly GlaxoSmithKline
Consumer Healthcare B.V.)
3
100%
Ordinary
Van Asch van Wijckstraat 55G, 3811 LP, Amersfoort,
Netherlands
Haleon New Zealand ULC (formerly GlaxoSmithKline
Consumer Healthcare New Zealand ULC)
100%
Ordinary
Level 1, 1.04, 12 Madden Street, Auckland, 1010, New
Zealand
Haleon UK Enterprises Limited (formerly PRISM PCH
Limited)
2
100%
Voting shares
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Haleon UK Research Limited (formerly SmithKline
Beecham Research Limited)
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Haleon UK Services Limited (formerly GlaxoSmithKline
Consumer Healthcare Overseas Limited)
2
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Haleon UK Trading Limited (formerly GlaxoSmithKline
Consumer Healthcare (UK) Trading Limited)
2,3
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Haleon UK Trading Services Limited (formerly
GlaxoSmithKline Consumer Trading Services Limited)
2,3
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, England
Iodosan S.p.A.
100%
Ordinary
Via Zambeletti snc, Baranzate, 20021, Milan, Italy
Kuhs GmbH
100%
Ordinary
Barthstr. 4, 80339, München, Germany
N.C.H. – Nutrition Consumer Health Ltd
100%
Ordinary
14 Hamephalsim St, Petach Tikva, Israel
P.T. Sterling Products Indonesia
100%
A Shares;
B Shares
Pondok Indah Office Tower 5 Level 12, Suite 1201, Jalan
Sultan Iskandar Muda Kav. V-TA, Pondok Pinang, Jakarta
Selatan 12310, Indonesia
PF Consumer Taiwan LLC
100%
Interests
The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, WILMINGTON DE 19801,
United States
PF Consumer Healthcare B.V.
2
100%
Class A,
Class B
Van Asch van Wijckstraat 55G, 3811 LP Amersfoort,
Netherlands
PF Consumer Healthcare Brazil Importadora e
Distribuidora de Medicamentos Ltda
100%
Quota
Barueri, at Avenida Ceci, No.1900, Block III, Part 67,
Tambore District, Sao Paulo, 06460, Brazil
PF Consumer Healthcare Canada ULC /
PF Soins De Sante SRI
100%
Common
595 Burrard Street, Suite 2600 Three Bentall Centre,
P.O. Box 49314 Vancouver BC V7X 1L3, Canada
PF Consumer Healthcare Holding B.V.
100%
Ordinary
Van Asch van Wijckstraat 55G, 3811 LP Amersfoort,
Netherlands
Pfizer Consumer Manufacturing Italy S.r.l.
3
100%
Quotas
90, Via Nettunese, 04011, Aprilia (Prov. di Latin), Italy
Pfizer Laboratories PFE (Pty) Ltd.
100%
Common
Flushing Meadows Building, The Campus, 57 Sloane
Street, Bryanston 2021, South Africa
Company name
Effective %
Ownership
Security
Registered address
Pfizer PFE Colombia S.A.S
100%
Common
Carrera 7 No. 113 - 43 Piso 4, Colombia
PT Haleon Indonesia Trading (formerly PT GSK
Consumer Healthcare Indonesia)
100%
Ordinary
Pondok Indah Office Tower 5 Level 12, Suite 1201,
Jalan Sultan Iskandar Muda Kav. V-TA, Pondok Pinang,
Jakarta Selatan 12310, Indonesia
PT. Bina Dentalindo (In Liquidation)
100%
Ordinary
Gedung Graha Ganesha Lantai 3, Jl Raya Bekasi Km 17,
No5, Jakarta Timur 13930, Indonesia
SmithKline Beecham S.A.
100%
Ordinary
Ctra de Ajalvir Km 2.500, Alcala de Henares, 28806,
Madrid, Spain
Stafford-Miller (Ireland) Limited
2
100%
Ordinary
Clocherane, Youghal Road, Dungarvan, Co. Waterford,
Ireland
Stafford-Miller Limited (In Liquidation)
100%
Ordinary
55 Baker Street, London, W1U 7EU, United Kingdom
Sterling Drug (Malaya) Sdn Berhad
100%
Ordinary
Lot 89, Jalan Enggang, Ampang / Hulu Kelang Industrial
Estate, Selangor Darul Ehsan, 68000 Ampang, Malaysia
Sterling Products International, Incorporated
100%
Common
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
Stiefel Consumer Healthcare (UK) Limited
100%
Ordinary
Building 5, First Floor, The Heights, Weybridge, Surrey,
KT13 0NY, United Kingdom
Stiefel Laboratories (Ireland) Limited (In Liquidation)
100%
Ordinary
Finisklin Business Park, County Sligo, Ireland
Treerly Health Co., Ltd
100%
Registered
Capital
Unit 01A, Room 3901, No 16. East Zhujiang Road,
Tianhe District, Guangzhou City, the PRC, China
Wyeth Pharmaceutical Co. Ltd
2
100%
Partnership
Interest
4 Baodai West Road, Suzhou, Jiangsu Province, 215128,
China
Wyeth Pharmaceuticals Company
100%
Partnership
Interests
Corporation Service Company Puerto Rico Inc.c/o RVM
Professional Services, LLC, A4 Reparto Mendoza,
Humacao, 00791, Puerto Rico
Subsidiaries where the effective interest is less than 100%
Company Name
Effective %
Ownership
Security
Registered Address
Beecham Enterprises Inc
88.0%
Common
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GlaxoSmithKline Consumer Healthcare, L.P.
2
88.0%
Partnership
Interests
Corporation Service Company, 251 Little Falls Drive,
Wilmington DE 19808, United States
GSK-Gebro Consumer Healthcare GmbH
50.0%
Ordinary
Bahnhofbichl 13, 6391 Fieberbrunn, Kitzbühel, Austria
Haleon Pakistan Limited (formerly GlaxoSmithKline
Consumer Healthcare Pakistan Limited)
3
85.8%
Ordinary
11-A, 11th Floor, Sky Tower (East Wing), Dolmen City,
HC-3, Block 4, Scheme-5, Clifton, Karachi, Sindh 75600,
Pakistan
Pfizer Biotech Corporation
2
55.0%
Ordinary
24F, No. 66, Sec 1, Zhong Xiao W. Rd, Taipei 100, Taiwan
Sino-American Tianjin Smith Kline & French
Laboratories Ltd
2
55.0%
Ordinary
Cheng Lin Zhuang Industrial Zone, Dong Li District,
Tianjin, 300163, China
SmithKline Beecham (Private) Limited
99.7%
Ordinary
World Trade Center, Level 34, West Tower, Echelon
Square, Colombo 1, Sri Lanka
Notes to the Consolidated Financial Statements
continued
The following UK subsidiaries will take advantage of the audit exemption set out in the Companies Act 2006 for the year ended
31 December 2022. Unless otherwise stated, the undertakings listed below are owned, either directly or indirectly, by the Company.
Name
Company
Number
GlaxoSmithKline Consumer Healthcare Sri Lanka Holdings Limited
9400298
GlaxoSmithKline Consumer Healthcare (UK) (No.1) Limited
00753340
GSK New Zealand Holding Company Limited
12342879
GSK Consumer Healthcare Holdings (No. 4) Limited
13401336
GSK Consumer Healthcare Holdings (No. 6) Limited
13401308
GSK Consumer Healthcare Holdings (No. 8) Limited
13434151
GSK Consumer Healthcare Holdings (No. 5) Limited
13401372
1
Directly held by Haleon plc.
2
Principal subsidiary of the Group as at 31 December 2022.
3
The Company changed its name during the period between demerger date and 1 March 2023. The former name of the Company is included in brackets. The Group has a programme of
Parent Company
Financial Statements
Contents
Parent Company balance sheet
188
Parent Company statement
of changes in equity
189
Notes to the Parent Company
Financial Statements
190
Ida
Line Operator
Working in our Levice site in Slovakia,
Ida is a Line Operator monitoring the
production of toothpaste, including
the most recommended toothpaste
by dentists – Sensodyne. Used by
530m people globally, Sensodyne is
the number one selling toothpaste
brand in Sensitivity and Enamel Care
globally and has already switched
over 350m toothpaste tubes to
become recycle-ready.
as at 31 December 2022
Note
2022
£m
Fixed assets
Investments
5
22,190
Current assets
Debtors: amounts falling due within one year
6
14
Total current assets
14
Creditors: amounts falling due within one year
7
(180)
Net current liabilities
(166)
Total assets less current liabilities
22,024
Creditors: amounts falling due after one year
8
(25)
Net assets
21,999
Capital and reserves
Share capital
9
92
Share-based payment reserve
15
Retained earnings
1
10
21,892
Shareholders’ equity
21,999
1
The loss for the period from incorporation on 20 October 2021 to 31 December 2022 was £166m.
The notes on pages 190 to 194 form part of these Parent Company Financial Statements.
The Parent Company Financial Statements on pages 188 and 194 were approved by the Board of Directors and signed on its behalf by:
Tobias Hestler,
Chief Financial Officer
20 March 2023
Haleon plc – Parent Company
statement of changes in equity
for the period from 20 October 2021 (date of incorporation)
to 31 December 2022
Note
Share
capital
£m
Share
premium
£m
Share-based
payment
reserves
£m
Retained
earnings
£m
Total
£m
At 20 October 2021
—
—
—
—
—
Ordinary shares issued
9
11,543
10,607
—
—
22,150
Capital reduction
9
(11,451)
(10,607)
—
22,058
—
Fair value of share-based payments
—
—
15
—
15
Loss for the period
10
—
—
—
(166)
(166)
At 31 December 2022
92
—
15
21,892
21,999
Notes to the Parent Company
Financial Statements
1. Presentation of the Financial Statements
Description of business
Haleon plc (the Company) and its subsidiary undertakings (collectively, the Group) is a group of companies focused on developing
and marketing a range of Oral Health, Vitamins, Minerals and Supplements (VMS), Pain Relief, Respiratory Health, Digestive Health
and Other products in more than 100 countries.
The principal activity of the Company is to act as the parent holding company of the Company and its subsidiary undertakings.
The Company is a public company limited by shares and is incorporated and domiciled in England with registered number: 13691224.
The address of the Company’s registered office is Building 5, First Floor, The Heights, Weybridge, Surrey, KT13 0NY, England.
The Company was incorporated as a private limited company on 20 October 2021 with the name of DRVW 2022 Limited. It was
subsequently re-registered as a public limited company on 23 February 2022 with the name DRVW 2022 plc. On 28 February 2022
the Company changed its name to Haleon plc.
The Company’s accounting reference period was extended to 31 December 2022, as such there are no comparatives.
Basis of preparation
The Parent Company Financial Statements, which are prepared using the historical cost convention and on a going concern basis,
are prepared in accordance with Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and
Republic of Ireland’ and the Companies Act 2006 as at 31 December 2022.
The Parent Company Financial Statements are presented in Pound Sterling (GBP, £), the functional currency of the Company, and all
values are denominated in millions of GBP (£m or £ million) unless stated otherwise.
As permitted by section 408 of the Companies Act 2006, the income statement of the Company is not presented in this Annual Report.
The Company loss for the period from incorporation on 20 October 2021 to 31 December 2022 was £166m.
In these Parent Company Financial Statements, the Company is considered to be a qualifying entity (for the purposes of this FRS) and
has applied the exemptions available under FRS 102 in respect of the following disclosures:
—
The requirements of Section 7 Statement of Cash Flows.
—
The requirements of Section 3 Financial Statement Presentation paragraph 3.17(d).
—
The requirements of Section 33 Related Party Disclosures.
—
The requirements of Section 11 Financial Instruments.
—
The requirements of Section 12 Other Financial Instruments.
—
The requirements of Section 28 to disclose information about Key Management Personnel compensation.
—
The requirements of Section 26 Share Based Payments.
Where required, equivalent disclosures are given in the Consolidated Financial Statements of the Group.
Going concern basis
The Company operates as the investment holding company for the Group, holding investments in subsidiaries financed by Group
companies and occasionally acting as financial guarantor of certain subsidiaries of the Group. As the Company is an intrinsic part of
the Group’s structure and considering the likelihood of the guarantees being called upon, the Directors have a reasonable expectation
that Group companies will continue to support the Company through trading and cash generated from trading for the foreseeable
future.
After considering the net current liability position, the Directors have taken into account that as parent of the Group, the Company can
call upon the necessary financial support from its subsidiaries, and can take actions to ensure business continuity through operational
channels, as well as the ability to manage variable costs.
Accounting principles and policies
The preparation of the balance sheet in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the balance sheet. Actual amounts could differ from those estimates.
The balance sheet has been prepared in accordance with the Company’s accounting policies approved by the Board and described
in Note 2.
Key accounting judgements and estimates
There are no key judgements or significant estimates.
2. Accounting policies
The accounting policies below have been applied throughout the Parent Company Financial Statements and apply to the Parent
Company Financial Statements as a whole.
Foreign currency transactions
Foreign currency transactions are recorded at the exchange rate ruling on the date of transaction. Foreign currency assets and
liabilities are translated at rates of exchange ruling at the balance sheet date.
Operating income and expenditure
Income and expenditure are recognised in respect of services provided or received when supplied in accordance with contractual
terms. An accrual is made when an obligation exists for a future liability in respect of a past event and where the amount of the
obligation can be reliably estimated.
Interest receivable and interest payable
Interest receivable and similar income includes interest receivable on intercompany loans. Interest payable and similar charges
includes interest payable on intercompany loans. Interest receivable and interest payable are recognised in profit or loss as they
accrue, using the effective interest rate method.
Taxation
Current tax is provided at the amounts expected to be paid or refunded applying tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the Parent Company Financial Statements. Deferred tax assets are only recognised to the
extent that they are considered recoverable against future taxable profits.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the temporary differences are
expected to be realised or settled. Deferred tax liabilities and assets are not discounted.
Investments in subsidiaries
Investments in subsidiaries are held at cost less accumulated impairment losses.
The carrying value of investments are reviewed for impairment at least once a year or more frequently when there is an indication that
the investment might be impaired. The primary method used to assess if the investment is impaired is to evaluate against the Group’s
valuation on the basis of overall market capitalisation. Another assessment method used is to compare the carrying value of each
investment against its share of the net assets value of the investment or against its share of the valuation of the subsidiary based on
expected discounted cash flows. Any impairment charge is recognised in the income statement in the year concerned.
Share-based payments
Incentives in the form of equity-settled share-based payments are provided to certain employees which are measured at fair value
(excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate
of the shares that will eventually vest, adjusted for the effect of non-market based vesting conditions.
Incentives in the form of shares provided by the Company to employees of its subsidiaries represents additional capital contributions.
An addition to the Company’s investment in subsidiary undertakings is reported with a corresponding increase in shareholders’ equity.
Refer to Note 26 of the Consolidated Financial Statements for details of the charge.
The Company has established an Employee Benefit Trust for the purposes of satisfying awards under share-based incentive schemes.
Shares in the Company acquired by the trusts are deducted from equity until shares are vested, cancelled, reissued or disposed.
Notes to the Parent Company
Financial Statements
continued
Financial assets and liabilities
Financial assets and liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the contractual
provisions of the instrument and derecognised when it ceases to be party to such provisions. Financial liabilities are classified as
current if they are legally due to be paid within 12 months of the balance sheet date.
Financial assets and liabilities are initially measured at fair value and are subsequently reported at amortised cost.
Receivables are recognised initially at fair value, and subsequently at amortised cost using the effective interest rate method, less any
expected credit losses.
Amounts owed to Group undertakings and other payables are recognised initially at the transaction price and subsequently measured
at amortised cost using the effective interest method.
Non-interest bearing payables are stated at their nominal value as they are due on demand.
Non-current liabilities are classified as financial liabilities in accordance with IFRS 9. They are recognised initially at the transaction
price and subsequently measured at amortised cost using the effective interest method.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources received or
receivable, net of the direct costs of issuing the equity instruments.
3. Auditor’s remuneration
Fees payable to the Company’s auditor for the audit of the Company and Consolidated Financial Statements are disclosed in Note 6 to
the Consolidated Financial Statements.
4. Employees
The Company has employees in order to provide management services to subsidiary undertakings. Below is the summary of the
employee costs:
Employee costs
2022
£m
Wages and salaries
0.2
Social security costs
0.1
Pension and other post-employment costs
0.1
Share-based payments
0.1
Total
0.5
The average monthly number of persons employed by the Company during the period
2022
Finance
4
Total
4
5. Investments
Subsidiary
undertakings
£m
Cost
At 20 October 2021
—
Additions
22,175
Share-based payments to employees of subsidiaries
15
At 31 December 2022
22,190
Impairment
At 20 October 2021
—
At 31 December 2022
—
Net book value
At 20 October 2021
—
At 31 December 2022
22,190
Additions during the period relate to (i) the acquisition of the Group in connection with the demerger from GSK in July 2022; and (ii)
the subsequent contribution by the Company of its investments in each of GlaxoSmithKline Consumer Healthcare Holdings Limited
and PF Consumer Healthcare Holdings LLC into a single intermediate holding company wholly owned by the Company, with no impact
on the expected cash flows to be received by the Company.
Details of the subsidiary undertakings of the Company as at 31 December 2022 are given in Note 30 of the Consolidated Financial
Statements.
6. Debtors: amounts falling due within one year
2022
£m
Amounts owed by Group undertakings
5
Corporation tax
9
Total
14
Amounts owed by Group undertakings are unsecured, interest free and repayable on demand.
7. Creditors: amounts falling due within one year
2022
£m
Amounts owed to Group undertakings
(180)
Amounts owed to Group undertakings are unsecured, interest free and repayable on demand except for a call account balance of
£0.9m which is unsecured and repayable on demand with interest paid at SONIA rate plus 0.1%.
8. Creditors: amounts falling due after more than one year
2022
£m
Other payables
(25)
Other payables relate to the 25,000,000 issued non-voting preference shares with a coupon rate of 9.5% per annum. The non-voting
preference shares command a mandatory quarterly coupon and can only be redeemed after a period of five years, and hence the
Company has an unavoidable obligation to deliver cash. The Company has, therefore, classified the non-voting preference shares
as a financial liability.
Notes to the Parent Company
Financial Statements
continued
9. Share capital and share premium
Number of
shares
2022
£m
Issued and fully paid
Ordinary shares of £0.01 each
9,234,573,831
92
Total ordinary shares of £0.01 each
9,234,573,831
92
Movements in share capital and share premium are set out in Note 23 of the Consolidated Financial Statements.
10. Retained earnings
The loss of the Company for the period from 20 October 2021 to 31 December 2022 was £166m.
In addition, the Company went through a capital reduction during the period and has £21,892m of reserves available for distribution
as at 31 December 2022.
11. Other guarantees and contingent liabilities
The total amount of guarantees is £10,471m. This consists of guarantees relating to:
—
The bond issuances by Group companies GSK Consumer Healthcare Capital US LLC, GSK Consumer Healthcare Capital UK plc and
GSK Consumer Healthcare Capital NL B.V.
—
Commercial paper issued by GSK Consumer Healthcare Capital UK plc.
—
International Swaps and Derivatives Association agreements for other Group companies.
—
Surety bonds for other Group companies.
The likelihood of any of these guarantees being called upon is considered remote and so the fair value is deemed to be immaterial.
Details regarding certain legal actions which involve the Company are set out in Note 22 to the Consolidated Financial Statements.
Strategic Report
Corporate Governance
Financial Statements
Other Information
Other
Information
Julien
Site Director
Julien is Site Director for our Aprilia
site in Italy where we currently
run the packaging operations for
Voltaren. Sold in 87 countries and
used by more than 40m households
globally, Voltaren is the number
one topical pain relief brand and is
often the most highly recommended
brand in its category by the relevant
Health Professionals.
Contents
Directors’ Report
196
Streamlined Energy and
Carbon Reporting
199
Group Information
201
History and development
of the Group
201
Risk factors
202
Director and Executive Team
shareholdings
211
Executive Director benefits upon
termination of office
211
Disclosure controls and procedures
211
Management's report on internal
control over financial reporting
211
Property, plant and equipment
211
Change in certifying accountant
211
Description of securities other
than equity securities
213
Articles of Association
214
Material contracts
216
Shareholder information
219
Tax information for shareholders
219
Summary of significant corporate
governance differences from
NYSE listing standards
221
Purchases of equity securities by the
Company and affiliated purchasers 221
Dividend history
222
Shareholder profiles
222
Exhibits
224
Form 20-F cross reference guide
226
Forward-looking statements
228
Glossary
229
Useful information
230
Investor information
230
Contacts
231
Haleon
Annual Report and Form 20-F 2022
195
Other Information
Group subsidiaries
As a Group that operates globally, Haleon’s operations
and activities are carried out by subsidiaries, branches and
scientific/representative offices established under the laws
of many jurisdictions. A full list of subsidiaries is provided
at Note 30 of the Financial Statements from page 180.
Directors’ powers
The Directors may exercise all the powers of the Company,
subject to the Articles of Association (Articles), legislation and
regulation. This includes the ability, subject to shareholder
approval at Haleon’s AGM each year, to exercise the authority
to allot or purchase the Company’s shares. Further details of
the powers of the Directors can be found in the Articles of
Association from page 214.
Conflicts of interest
Under the Articles and as permitted by the Companies Act,
the Board may authorise any matter which would otherwise
involve a Director breaching their duty to avoid conflicts
of interest and may attach to any such authorisation such
conditions and/or restrictions as the Board deems appropriate
(including in respect of the receipt of information or restrictions
on participation at certain Board meetings), in accordance
with the Articles. The Board has a formal system for Directors
to declare such situations to be considered for authorisation
by those Directors who have no interest in the matter
being considered. Situations considered by the Board and
authorisations given are recorded in the Board minutes and in
a register of conflicts maintained by the Company Secretary
and are reviewed annually by the Board. The Board believes
that this system operates effectively.
Insurance and indemnities
The Company maintained directors’ and officers’ liability
insurance cover during the period of this Annual Report.
Each Director also benefits from an indemnity provided by
the Company in respect of any proceedings brought by third
parties against them personally in their capacity as Directors.
Code of Conduct
Our Code of Conduct (Code) applies to the Board and
Executive Team, employees and contingent workers and
complies with the NYSE rules as set out in Section 406 of the
US Sarbanes-Oxley Act 2002. Further details on our Code are
set out in the Strategic Report on pages 16 and 25, and the
Board’s oversight of the Code is set out on page 75.
>>
Our Code is published on our website
www.haleon.com
Future business developments of the Group
Details of these are set out in the Strategy section from page 37.
Shares
As at 31 December 2022, the Company had 9,234,573,831
ordinary shares of £0.01 each and 25,000,000 non-voting
preference shares of £1.00 each in issue. No shares were held
in Treasury. There are no special control rights or restrictions
on share transfers or limitations on the holding of any class of
shares. Further information relating to the Company’s ordinary
shares and non-voting preference shares (including the rights
and obligations attached to such shares) can be found in
Articles of Association from page 214.
Prior to demerger, Haleon received shareholder approval
to make market purchases of its own shares up to a maximum
number representing 10% of its issued share capital, subject
to customary limitations on the minimum price applicable to
each purchase. During the year, the Company did not purchase
any of its own shares. A resolution seeking shareholder authority
for the purchase of the Company’s shares will be put to
shareholders at the AGM to be held in April 2023.
Dividends and dividend policy
For the period from demerger to 31 December 2022, there
have not been any dividends paid in respect of the Company’s
ordinary shares. Information about the dividends paid in respect
of the Company’s non-voting preference shares and relating to
the Group’s dividends paid prior to demerger can be found in
Note 10 to the Financial Statements on page 139.
On 2 March 2023, in respect of trading since demerger to
31 December 2022, the Company declared a final dividend
of 2.4 pence per ordinary share, which will be paid, subject
to shareholder approval, following the Company’s AGM.
Subject to Board approval, dividends are expected to be paid
half-yearly with approximately one third of the dividend paid
as an interim dividend following Haleon’s half year results
and paid in October, and the balance paid as a final dividend,
subject to shareholder approval following the Company’s AGM.
Dividends are announced in pound sterling, with an equivalent
US dollar amount paid in respect of the Company’s ADSs.
Further information on the Company’s dividend policy can
be found on page 11.
Financial risk management
The Group’s financial risk management objectives and policies,
including its use of financial instruments, are set out in Note 25
to the Financial Statements from page 165.
This Directors’ Report contains information to be given
in accordance with the Companies Act 2006. Relevant
information below, which is contained elsewhere in this
Annual Report, is incorporated by cross reference.
Directors’ Report
Haleon
Annual Report and Form 20-F 2022
196
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Significant shareholders
As at 31 December 2022 the following persons had disclosed
an interest in the issued ordinary share capital of the Company
in accordance with the requirements of rules 5.1.2 or 5.1.5 of
the Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules. The Company’s major shareholders have the
same voting rights as other shareholders. The Company does not
know of any arrangements the operation of which may result in
a change in its control. No changes to major shareholdings were
disclosed to the Company between 31 December 2022 and 10
March 2023.
The Company is a party to the Pfizer Relationship Agreement,
the principal purpose of which is to regulate the continuing
relationship between the Company and its controlling
shareholder, Pfizer Inc., following demerger. Pfizer retains a
significant interest in the Company including 32% of Haleon’s
shares and thus of the voting rights of the Company. As a result,
Pfizer possesses sufficient voting power to exercise significant
influence over all matters requiring shareholder approval,
including the election or removal of Directors and advisers,
the declaration of dividends, whether to accept the terms of
a takeover offer and other matters to be determined by the
Haleon shareholders.
In addition, Pfizer has the right to nominate two persons to be
appointed to the Board as representative Directors for so long as
it continues to hold 20% or more of Haleon’s shares in issue and
a right to nominate one person to be appointed to the Board as
a representative Director for so long as it continues to hold less
than 20% but at least 10% of Haleon’s shares in issue.
Number of ordinary shares disclosed as a percentage
of the Company’s issued share capital at:
Shareholder
Date of latest disclosure
to the Company
Number of ordinary
shares disclosed
Date of latest disclosure
to the Company
31 December 2022
Pfizer
3 August 2022
2,955,063,626
1
32%
32%
GSK and certain controlled undertakings of GSK
25 July 2022
1,195,320,110
12.94%
12.94%
1
Pfizer holds its interest in ordinary shares and ADSs.
The Companies (Miscellaneous Reporting)
Regulations 2018
Employee engagement
The below statement relates to our employees as defined in our
glossary, and should be read in conjunction with our stakeholder,
and people disclosures in the Strategic Report on pages 14
and 26, respectively, Section 172 Statement and workforce
engagement disclosures from page 71, and other engagement
disclosures in the Remuneration Committee Report from page 82.
During 2022, the key forms of engagement to provide
information to our employees included a bi-weekly global email
‘Connecting Haleon’, intranet global news page, CEO-led global
broadcasts, fireside chats on priority topics, internal social media
channels, dedicated senior manager calls, as well as regional
leadership calls and direct emails, videos and business function
team meetings.
Employees have been consulted and given opportunities to
express their views and concerns through participation in the
annual employee engagement survey, performance check-ins,
team meetings, townhalls, ERGs, and Q&As at each global
broadcasts and fireside chats.
Employees have been made aware of the financial and economic
factors affecting the performance of the Company through
quarterly, CEO-led global broadcasts and emails from the CEO,
internal social media updates, as well as functional and regional
team meetings.
The Chair and Directors have engaged with employees through
a number of means, including direct interactions, employee
listening sessions with our Workforce Engagement Director
and other opportunities held during the year to meet Executive
Directors via video meetings or in person.
Engagement with suppliers, customers and others in a business
relationship with Haleon
Our business relationships with our suppliers, customers and
others are fundamental to our success. During the year, the Board
considered matters related to them and had regard to the impact
of decisions on them as detailed in the Section 172 Statement
on page 71. The Board monitors relationships through a mixture
of presentations, reports and direct engagement. Details of how
relationships have been maintained throughout the year are set
out in the Stakeholder engagement section on page 14.
Employment of disabled persons
Our commitment is to ensure our employee workforce reflects
the diversity of the communities within which we operate, and
we believe in the power of diversity as a source of competitive
advantage. We are striving to create an inclusive environment
in which everyone can contribute and feel a sense of belonging,
are all understood and valued, treated fairly and equally, and
supported to progress and thrive. We want our people to
be able to be their authentic selves and, as a result, perform
at their best. All employees must ensure an equitable and
inclusive culture free of discrimination and encourage respectful
and inclusive behaviour. Every effort is made to ensure that
applications for employment from disabled employees are fully
and fairly considered and that disabled employees have equal
opportunities to training, career development and promotion.
Haleon
Annual Report and Form 20-F 2022
197
Directors’ Report
Directors’ Report
continued
Share plan details
2022 share awards and grants to employees
Our current policy is to settle the majority of awards or grants
under the Company’s share plans with shares purchased in
the market, however, the Company continues to review this
policy. The Company’s share plans incorporate the Investment
Association’s current guidelines on dilution. During the year, the
Company satisfied its obligations under its share plans solely
by the purchase of shares in the market, accordingly there has
been no dilution from the awards made. As at 31 December 2022,
there were 4,622,625 options outstanding, solely in respect of
the Company’s HMRC approved all-employee Share Save Plan.
Employee benefit trusts (EBTs)
The Group operates EBTs for the benefit of employees and
former employees. The EBTs purchase ordinary shares or ADSs
in the market and release them to current and former employees
in satisfaction of share awards. During 2022, the EBTs released
68 ordinary shares and nil ADSs. At 31 December 2022 the EBTs
held 124,676 ordinary shares and 62,147 ADSs in the Company.
The EBTs adopt a prudent approach to purchasing shares,
using funds provided by the Group, based on expectations of
future requirements.
The shares held by the nominee have been allocated to share
plan participants on terms that entitle those participants to
request or require the nominee to exercise the voting rights
relating to those shares. The nominee exercises those votes in
accordance with the directions of the participants. Shares that
have not been allocated to share plan participants under such
terms continue to be held by the EBT and although the trustee
has the right to vote or abstain from exercising their voting rights
in relation to those shares, it has a policy of not voting, which is
in line with guidelines. The trustee also has the right to accept
or reject any offer relating to the shares, in any way it sees fit.
Political donations
The Group does not make political contributions or sponsor
political meetings, conferences, conventions, or events, as
set out in our Anti-Bribery and Corruption Policy. In the year
to 31 December 2022, the Group did not make any political
contributions or provide any sponsorship.
In accordance with the Federal Election Campaign Act in the US,
Haleon employees are able to make personal contributions to
our US Political Action Committee (PAC). A PAC is a corporate
or labour-based political committee that collects voluntary
contributions from eligible US employees into a separate fund.
In donating to the PAC, participating eligible employees are
exercising their legal right to pool their resources and make
political contributions, which are subject to strict limitations
under US law. The fund is managed by a board of directors of
participating employees from Haleon’s US operating company
and makes contributions or expenditures in connection with
Federal and State elections. The PAC is not controlled by Haleon.
The operations of the Haleon PAC are reviewed regularly to
ensure compliance with applicable US laws. Disclosure reports
for the Haleon PAC can be viewed at www.fec.gov. In 2022,
a total of $2,500 was donated to political organisations by
the Haleon PAC.
English law requires prior shareholder approval for political
contributions to political parties and independent election
candidates as well as for any political expenditure. The
definitions of political donations, political expenditure and
political organisations used in the legislation are, however, quite
broad. As a result, the definitions may cover legitimate business
activities not in the ordinary sense considered to be political
donations or political expenditure, nor are they designed to
support any political party or independent election candidate.
Therefore, notwithstanding our policy, and while we do not
intend to make donations to any political parties or organisations,
nor to incur any political expenditure, we will annually seek
shareholder authorisation for any inadvertent expenditure as
a precautionary measure to ensure that the Company and its
subsidiaries do not inadvertently breach the legislation.
>>
See our Haleon positions on Anti-Bribery and Corruption and on
political advocacy on our website
www.haleon.com
.
Significant agreements and change of control
provisions
The Group is a party to the following arrangements which could
be terminated upon a change of control of the Company (and/
or the Group’s UK and US debt issuing entities) and which are
considered significant in terms of their potential impact on the
business of the Group as a whole:
—
Each series of notes issued under the Euro Medium Term Note
(EMTN) programme.
—
Each series of notes issued under the USD Note programme.
The notes contain a redemption or purchase upon change
of control provision which, if triggered, allows note holders
to exercise their option to require the UK and US debt issuing
entities to redeem, or at such issuers’ options, to purchase,
the notes and pay any accrued and unpaid interest due.
Further information on the notes issued and outstanding under
the programmes as at 31 December 2022, including principal
amount, currency denomination, applicable interest rates and
maturity is available in Note 19 to the Financial Statements from
page 149.
In addition, the Company is a party to the Pfizer Relationship
Agreement, the principal purpose of which is to regulate the
continuing relationship between the Company and its controlling
shareholder, Pfizer, following demerger. This terminates upon
Pfizer (or a member of its group) ceasing to hold at least 10% of
Haleon’s ordinary shares. Throughout the period under review,
the Company has complied with provisions and obligations in
the Pfizer Relationship Agreement and, as far as the Company is
aware, Pfizer has also complied. Further information on the Pfizer
Relationship Agreement can be found on page 218.
Haleon
Annual Report and Form 20-F 2022
198
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Streamlined Energy and Carbon Reporting
In line with the requirements set out in the UK Government’s guidance on Streamlined Energy and Carbon Reporting (SECR), the table
below represents Haleon’s energy use and associated carbon emissions from electricity and fuel in the UK and the rest of the world
(ROW), calculated with reference to the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard. In our 2022
reporting period, the UK accounted for 4% of our global total energy use as well as 3% of our Scope 1 and 2 emissions, outlined in
the table below.
>>
See Strategy from page 24
2020
Baseline year
2020
Total
2021
2021
Total
2022
1
2022
Total
Third-party
verification
2
Carbon emissions from our Operations
3
UK
ROW
Global
UK
ROW
Global
UK
ROW
Global
Total Scope 1 emissions
(thousands of tonnes CO
2
e,
including on-site fuel use, fleet
mileage and refrigerant losses)
2
55
57
3
57
60
3
52
55
Yes
Total Scope 2 emissions (location-
based)
(thousands of tonnes CO
2
e)
3
138
141
3
142
145
3
134
137
Yes
Total Scope 2 emissions (market-
based)
(thousands of tonnes CO
2
e)
–
32
32
–
15
15
–
7
7
Yes
Total Scope 1 & 2 emissions
(location-based)
(thousands of tonnes CO
2
e)
5
193
198
6
199
205
6
186
192
Yes
Total Scope 1 & 2 emissions
(market-based)
(thousands of tonnes CO
2
e)
2
87
89
3
72
75
3
59
62
Yes
Total Emissions offset
(thousands of tonnes CO
2
e)
4
–
–
–
–
–
–
–
9
9
Yes
Total Net Scope 1 & 2
emissions (market-based)
(thousands of tonnes CO
2
e)
5
2
87
89
3
72
75
3
50
53
Yes
Total energy consumed in
our operations
(GWh)
28
648
676
31
667
698
29
647
676
Yes
Total renewable energy
consumed
(GWh)
16
302
318
16
309
325
15
344
359
Yes
Total renewable electricity
consumed
(GWh)
16
285
301
16
289
305
15
314
329
Yes
Intensity Ratio
Emissions intensity
(location-based)
(tonnes of
CO
2
e per tonne of production)
6
–
–
–
0.16
0.58
0.54
0.15
0.55
0.51
No
1
For the 2022 reporting period we have used data from 1 December 2021 to 30 November 2022. Data for 2020 and 2021 was restated for estimates during those reporting periods.
Scope of reporting is sites over which Haleon has full operational control. We also include our site at Jacarepaguá, Brazil, which is currently under the operational control of GSK until
it transitions to Haleon’s operational control.
2
‘Yes’ indicates the selected metrics were disclosed in respect of the 2022 reporting period and have been subject to limited assurance by DNV to ISAE 3000 (revised) standards.
Methodologies for reporting are provided in our Basis of Reporting.
3
Carbon emissions are expressed in carbon dioxide equivalents (CO
2
e) reflecting the effective amount of CO
2
generated by all gas emissions which add to the greenhouse effect and
global warming. Carbon emissions have been calculated according to the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (updated with Scope 2
guidance). For further information on the methodologies used to calculate our emissions and energy metrics please see our Basis of Reporting.
4
Total amount of emissions offset by reduction or removal of carbon emissions in the same country in order to compensate for part of our carbon emissions.
5
This calculation takes the total emissions offset in the reporting year into account.
6
Emissions intensity is derived from the ratio of the total Scope 1 & 2 emissions (location-based) (tCO
2
e) from all sites where we have full operational control to the total metric tonnes
of production in the reporting year. Jacarepaguá, Brazil, is not included in this calculation.
Energy efficiency action taken
In 2022, we focused on reducing our Scope 2 carbon emission footprint. As part of this, we invested c.£9m in procuring a solar farm
in Guayama, Puerto Rico. In addition, we set up a long-term Power Purchase Agreement in Oak Hill, New York. In our 2022 reporting
period, our solar electricity consumption increased by 47% versus 2021. Combined with procuring renewable electricity certificates
and a modest amount of offsets to cover in-house, fossil-powered electricity generation, we have achieved our 100% renewable
electricity goal at sites we own and control. To increase our capacity to generate renewable electricity ourselves, we now have solar
panels installed at 12 out of 24 manufacturing sites, and more are in the pipeline. We spent more than £1m on energy reduction
projects and began redesigning our sites’ energy strategy by developing our technology roadmap to decarbonise our energy mix
and reduce our Scope 1 carbon emissions. This new strategy, when implemented, will replace most of our fossil-fuelled boilers with
electric ones to meet our 2030 goal of 100% net reduction in Scope 1 and 2 carbon emissions versus our 2020 baseline. We have
allocated more than £20m to the decarbonisation fund in our capital planning process.
>>
See our Basis of Reporting at
www.haleon.com
Haleon
Annual Report and Form 20-F 2022
199
Streamlined Energy and Carbon Reporting (SECR)
Directors’ Report
continued
Disclosure of information to the Auditor
For details see page 108.
Related party transactions
For details see page 144.
Research and development
For details see pages 19 and 20.
Going concern
An overview of the business activities of Haleon, including a review of the key business risks that the Group faces, is given in the
Strategic Report on pages 56 to 60 and in Group information from page 202.
The scenarios considered and assessment made by the Directors with respect to the Company’s viability are set out on page 61.
The Directors have reviewed the Group’s cash flow forecasts, financial position and exposure to the Principal Risks and have formed
the view that the Group will generate sufficient cash to meet its ongoing requirements for at least 12 months from the date the
financial statements have been authorised. At 31 December 2022, the Group had cash and cash equivalents, net of bank overdrafts
of £611m and undrawn credit facilities of $1.4bn and £1bn with initial maturity dates of September 2023 and September 2025,
respectively. As a result, the Directors believe that it is appropriate to adopt the going concern basis of accounting in preparing the
Group’s consolidated financial statements.
Compliance requirements under Listing Rule 9.8.4
The only matters to report in respect of Listing Rule 9.8,4 are in relation to contracts of significance (set out from page 216) and
agreements with controlling shareholders (set out at pages 197, 198 and from page 216).
Directors’ Report
In addition to the information set out herein, this Directors’ Report incorporates by reference the following sections of this
Annual Report:
—
Strategic Report
—
Corporate Governance
—
Statement of Directors’ responsibilities
—
Group Information, including Articles of Association and Material contracts
—
Note 29 to the Financial Statements (Post balance sheet events)
—
Shareholder Information
By order of the Board
Amanda Mellor
Company Secretary
Haleon plc
Registered in England and Wales, Company number 13691224
20 March 2023
Haleon
Annual Report and Form 20-F 2022
200
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Group information
History and development of the Group
Haleon was formed following its successful demerger from GSK
on 18 July 2022. Prior to demerger, the Group had transformed
since 2012 through progressive strategic M&A and divestments
to create a world leader in consumer health.
The Group’s scale has greatly expanded through the successful
combination of the legacy GSK consumer healthcare business
with the Novartis consumer healthcare business in 2015, and
the subsequent combination of this business with the Pfizer
consumer healthcare business in 2019. In addition, the Group’s
focus has been sharpened since 2012 through the progressive
divestment of GSK’s nutritionals businesses and the divestment
by the Group of non-strategic OTC brands including its
programme of divestments of non-strategic and growth-dilutive
brands (with aggregate net proceeds from divested brands of
£1.1bn) during the period from 2019 to 2021. This deliberate
strategy has resulted in a portfolio more focused on higher-
growth categories, markets and channels. These transactions also
provided a catalyst for a broader transformation of the Group.
Prior to its combination with the Novartis consumer healthcare
business in 2015, GSK’s consumer healthcare business was
already one of the world’s leading OTC and Oral Health
companies with a long heritage in consumer health products
dating back to the 18th century. The Group sold a range of
leading OTC brands across Respiratory Health, Pain Relief,
Digestive Health, Skin Health and Smokers’ Health, together with
a strong portfolio of Oral Health brands. Geographically, the GSK
consumer healthcare business had a strong presence in higher
growth emerging markets in the Middle East, Africa and Asia,
which complemented its businesses in Europe and North America.
On 2 March 2015, GSK and Novartis formed a consumer
healthcare joint venture to combine the majority of GSK’s
consumer healthcare business and all of Novartis’ OTC
business. Novartis’ business provided GSK with a meaningful
incremental presence in OTC. The combination added a leading
portfolio of globally recognised consumer-preferred and
expert-recommended brands in the Pain Relief, Respiratory
Health, Smokers’ Health and Skin Health categories to the
Group’s business.
In June 2018, GSK acquired Novartis’ shareholding in the GSK/
Novartis JV for $13bn, enabling GSK to take full operational and
strategic control of the business.
On 31 July 2019, GSK completed a transaction with Pfizer to
combine substantially all of GSK and Pfizer’s respective consumer
healthcare businesses into a new world-leading consumer
healthcare joint venture (the Pfizer Transaction). The transaction,
which was transformational to the scale of the Group’s business,
brought together two businesses with highly complementary
geographic footprints and brand portfolios.
While the Group retained its strong European footprint,
completion of the transaction also provided the Group with
incremental geographical scale in the US, where it became the
leader in OTC/VMS, and in China, where it became the leading
OTC/VMS multinational. From a portfolio perspective, the
transaction provided the Group with global leadership in the
higher growth VMS market as well as a leading presence in the US
Pain Relief market complementing the Group’s existing Pain Relief
portfolio. Since completion of the Pfizer Transaction and prior to
demerger, GSK owned 68% of the ordinary shares in the entity
through which both GSK and Pfizer held their equity interests in
the joint venture with Pfizer holding the remaining 32%.
Alongside integration of the Pfizer consumer healthcare business,
the Group exited approximately 50 non-strategic and growth-
dilutive OTC and skincare assets from 2019 to 2021 to raise
£1.1bn of net proceeds. These disposals have further focused the
business on higher-growth categories, markets and channels and
thereby enhanced the growth profile of Haleon.
Haleon
Annual Report and Form 20-F 2022
201
Group information
The Group’s ability to execute its marketing and sales strategy
is subject to challenges
As a consumer products business, the Group relies on a strategy
of leveraging its existing brands and products to drive increased
sales and profits. The successful implementation of this strategy
depends on, among other things, the Group’s ability to: identify
and offer competitively-priced products that appeal to evolving
consumer preferences; formulate its strategy in response to these
changing consumer preferences; innovate successfully on its
existing products; and effectively utilise a range of distribution
channels in its key markets.
Failure to execute this strategy successfully for any reason,
including any reduction in consumer demand for the types
of products which the Group offers due to changes in consumer
lifestyle, environmental concerns, economic downturns or
other considerations could have a material adverse effect on
the Group’s business, prospects, financial condition and results
of operations.
The Group’s business results are impacted by the Group’s
ability to manage disruptions in the Group’s global supply chain
The Group is engaged in the manufacturing and sourcing of
products and materials on a global scale. The Group’s operations
and those of its suppliers, contract manufacturers and logistics
providers have been and may continue to be disrupted by a
number of factors, including, but not limited to: increased and/
or changing regulation, as well as regulatory compliance issues;
environmental events, including natural disasters (such as fires,
floods and earthquakes) and any potential effect of climate
change; global shipping, logistics, transport and warehousing
constraints, for example due to widespread health emergencies,
such as COVID-19 or other pandemics or epidemics which may
lead to delays in deliveries and constraints on shipping and
logistics as a result of local lockdowns, such as lockdowns and
more recently increased COVID-19 infection rates in China;
global supply chain disruption impacting their suppliers; strikes
and other labour disputes; cybersecurity failures or incidents;
loss, impairment, closure or disruption of key manufacturing
sites; loss of, or capacity constraints relating to, key suppliers
or contract manufacturers; raw material and product quality or
safety issues (see The Group may incur liabilities or be forced to
recall products as a result of real or perceived product quality or
other product-related issues on page 205); industrial accidents
or other occupational health and safety issues; the impact on the
Group’s suppliers of tighter credit or capital markets; the lack of
availability, or retention, of qualified personnel; governmental
incentives and controls (including exchange controls, import and
export restrictions, such as new or increased tariffs, sanctions,
quotas or trade barriers); acts of war (see The Group’s business
may be impacted by the effects of Russia’s invasion of Ukraine
on page 209) or terrorism, political unrest or uncertainty, fires or
explosions, and other external factors over which the Group has
no control; and increases in ingredient, commodity, utilities and
oil prices.
Group information
continued
Risk factors
The Group has identified a broad range of risks relating to its
business, the industry in which it operates and in connection
with its separation from GSK. These risks are described below
and, together with all other information contained in this Annual
Report, should be carefully considered in evaluating the Group.
The risks and uncertainties described below represent those
we consider to be material as at the date of this Annual Report,
with material risks being those to which senior management pay
particular attention and which could cause the delivery of the
Group’s strategy, financial condition, results of operations and/or
prospects to differ materially from expectations. However, these
risks and uncertainties are not the only ones facing the Group.
If any of the following risks occur, our business, financial
condition, results of operations and prospects could be materially
and adversely affected. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also
may impair our business operations.
Risks relating to the Group’s business and industry
The Group operates in a highly competitive market
The Group faces substantial and increasing competition in all
of its product categories and geographic markets. There are
relatively low barriers to entry in certain product categories in
many of the markets in which the Group operates (particularly
in the VMS category) and accordingly the Group’s businesses
compete with companies of all sizes on many different fronts,
including cost-effectiveness, product effectiveness and quality,
brand recognition and loyalty, technological innovations,
consumer convenience, promotional activities, new product
introductions and expansion into new markets and channels.
The Group expects to continue to see heightened activity from its
competitors worldwide, including: (i) increasing and aggressive
competition from smaller, high-growth companies which often
operate on a regional basis, and may disrupt existing route-to-
market models; (ii) increasing competition from multinational
corporations moving for the first time into, or expanding or
focusing their presence (whether through acquisitions, disposals,
demergers or other means) in the global consumer healthcare
market; (iii) continuing competition from “private label” products,
which are brands sold exclusively by a particular retailer; and (iv)
an increase in the introduction and aggressive marketing of new
products in high demand healthcare areas.
Some of the Group’s competitors may conduct more effective
advertising and promotion activities than the Group does,
introduce competing products more quickly and/or respond more
effectively to business and economic conditions and changing
consumer preferences, including by launching innovative new
products. If the Group is unable to anticipate the timing and scale
of these threats across its markets or to successfully respond to
them, then its brand loyalty may be harmed, it may lose market
share and its business, prospects, results of operations and
financial condition may be materially adversely affected.
Haleon
Annual Report and Form 20-F 2022
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Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
While the product ranges of the Group’s leading brands are
manufactured by multiple sources, some of the Group’s products
are currently primarily manufactured at a single location and the
loss of the use of all or a portion of any of these manufacturing
facilities or the loss of the use of, or capacity constraints at, key
suppliers in relation to the Group’s other products could impact
the Group’s ability to provide these products.
In addition, the Group purchases certain raw and packaging
materials from single-source suppliers or a limited number of
suppliers and new suppliers may have to be qualified under
industry, governmental and its own standards, which can require
additional investment and take a significant period of time.
Although the Group has contingency plans in place, such as dual
sourcing programmes and alternative supply arrangements, those
plans may not be sufficient to mitigate manufacturing or supplier
interruptions, and the Group may also be limited in its ability to
pass on any increases in the prices it charges for its products as a
result of fixed-price supply agreements or hedging arrangements.
A significant disruption to the manufacturing or sourcing of
products or materials for any reason, including those mentioned
above, could interrupt product supply and, if not remedied,
could lead to litigation or regulatory action, product delistings by
retailers, financial penalties, and reputational damage that could
materially and adversely affect the Group’s business, results of
operations and financial condition.
Increasing dependence on key retail customers, changes
in the policies of the Group’s retail customers, the emergence
of alternative retail channels and the rapidly changing
retail landscape
The Group’s products are sold in a highly competitive
global marketplace which has experienced increased trade
concentration and the growing presence, in both traditional and
digital operations, of large-scale retailers, including pharmacies,
discounters and e-commerce retailers. The Group is increasingly
dependent on certain retailers, and some of these retailers
have and may continue to have greater bargaining strength than
the Group does. For example, similar to its competitors, while
the Group maintains relationships with a variety of significant
retailers across its key markets, sales attributable to its top five
largest retailers account for over half of the Group’s revenue in
the US market.
The Group’s large-scale retail customers, including pharmacies,
may use their leverage to demand higher trade discounts,
allowances, display fees or increased investment, which
could lead to reduced sales or profitability. The loss of a key
retailer or a significant reduction in sales to a key retailer could
materially and adversely affect the Group’s business, prospects,
results of operations and financial condition. The Group’s
business might also be negatively affected by the growing
presence and bargaining strength of customers who operate
internationally and retail buying alliances (horizontal alliances
of retailers, retail chains or entire retailer groups that cooperate
in pooling their resources) and the enhanced leverage that such
alliances possess.
The Group has also been and may continue to be negatively
affected by changes in the policies or practices of the Group’s
retail trade and pharmacy customers, such as inventory
de-stocking, limitations on access to shelf space, delisting
of the Group’s products, or environmental, sustainability,
supply chain or packaging initiatives and other conditions.
“Private label” products sold by the Group’s retail customers,
which are typically sold at lower prices than branded products,
are a source of competition for certain of the Group’s products.
In addition, the retail landscape in many of the Group’s
markets continues to evolve as a result of the rapid growth
of e-commerce retailers (who are able to generate “private
label” products and capitalise on access to data) and price
comparison sites, changing consumer preferences (as consumers
increasingly shop online), and, in certain categories (particularly
VMS), the increased presence of alternative retail channels,
such as subscription services, sales through social media
platforms and direct-to-consumer businesses (especially those
which specialise in rapid distribution). The strong growth in
e-commerce and the emergence of alternative retail channels
may create pricing and margin pressures and/or adversely affect
the Group’s relationships with key retailers. If the Group is not
able to successfully manage and adapt to these changes in
the retail landscape, the Group’s business, prospects, results
of operations and financial condition could be materially and
adversely affected.
The Group may not be able to develop and commercialise new
products effectively
The future growth of the Group is to a significant extent
dependent on its ability to develop new products or new
formulations of existing products. The Group’s ability to launch
new products and to expand into adjacent categories, channels
of distribution or markets is affected by whether the Group
can successfully: identify, develop and fund technological
innovations; obtain and maintain necessary intellectual property
protection and avoid infringing intellectual property rights
of others; obtain and maintain approvals and registrations of
regulated products in the countries in which the Group has
business operations; anticipate the needs and preferences of
consumers and customers by, among other things, effectively
utilising digital technology and marketing and data analytics to
gain new commercial insights and develop or identify relevant
products aligned to those preferences; and successfully compete
to in-licence products.
The identification, development and introduction of innovative
new products that drive incremental sales involves considerable
time, costs and effort, as well as significant risk that any new
product may not generate sufficient customer and consumer
interest and sales to become a profitable product or to cover
the costs of its development and promotion. New products
must be developed to meet the Group’s own rigorous internal
specifications, as well as the relevant regulatory and safety
requirements imposed in our various markets. Each of these
restrictions mean that a new product can fail to make it to market
at any stage or do so in a cost-effective manner. In addition, new
products that make it to market may not be accepted quickly or
significantly in the marketplace.
Any failure to develop and commercialise new products in a
timely fashion may lead to decreased market share, decreased
revenue and/or increased R&D costs and, consequently, may
materially and adversely affect the results of the Group’s
operations and financial condition.
Haleon
Annual Report and Form 20-F 2022
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Group information
Failure to retain key talent or attract new talent
The Group relies upon a number of key executives and employees
who have an in-depth understanding of the consumer health
industry and the Group’s technologies, products, programmes,
collaborative relationships and strategic goals. While the Group
follows a disciplined, ongoing succession planning process and
has succession plans in place for those individuals comprising
our Board of Directors and our Executive Team (as set out on
pages 64 to 67) (“Senior Management”) and other key executives,
these do not guarantee that the services of qualified senior
executives will continue to be available to the Group at all times.
Competition for such talent is intense, and there can be no
assurance that the Group will be able to continue to attract and
retain such talent.
If the Group is unable to recruit, attract and retain talented,
highly qualified Senior Management and other key people for any
reason the Group’s business, prospects, results of operations and
financial condition could be materially and adversely affected.
Damage to the Group’s reputation
Maintaining the Group’s strong reputation and trust with
consumers and customers globally is critical to selling the
Group’s branded products. Negative publicity, posts or comments
on social media about the Group, its products, the ways it
does business, threatened or pending litigation or regulatory
proceedings, its public policy engagement, environmental,
social and governance practices, including as they relate to
diversity, equality and inclusion, the health, safety and welfare of
employees or other stakeholders, or relations with its employees,
or regulatory infractions, violations of sanctions or anti-bribery
rules, whether or not deserved, could jeopardise the Group’s
reputation and/or expose it to adverse press and social media
attention. Whether true or untrue, such negative publicity, posts
or comments on social media could damage the Group’s brands
and its reputation and/or lead to boycotts of its products.
Moreover, the Group’s reputation could be harmed as a result of
inappropriate use of its branded products being promoted on
social media and any associated negative publicity.
The Group’s reputation may also be adversely affected if third
parties with whom the Group contracts (or an owner, acquirer or
other related party of such), including its suppliers, manufacturers
and customers, fail to maintain high ethical, social and
environmental standards, comply with local laws and regulations
or become subject to other negative events or adverse publicity.
While the Group has policies and procedures for managing
third-party relationships, it may not be possible to fully ensure
that third parties adhere to the same standards and values as the
Group or to replace third-party relationships in a timely and/or
cost-effective manner.
Counterfeiting is a common issue for successful brands and has
been amplified by the growth of e-commerce. Although the Group
has an anti-counterfeiting programme in place, third parties
continue to sell counterfeit versions of the Group’s products.
These counterfeits are inferior in quality to the genuine Group
products and may pose safety risks to consumers. Consumers of
the Group’s brands could confuse the Group’s products with or
purchase these counterfeit products. The consumption of inferior
quality products, which consumers believe to be genuine (and,
in some instances, may cause consumer safety issues) could also
damage the reputation of the Group and its brands and lead to
a reduction in market share.
Damage to the Group’s reputation or loss of consumer confidence
in the Group’s products for these or any other reasons could
materially and adversely affect the Group’s business, results of
operations, cash flows and financial condition, as well as require
resources to rebuild the Group’s reputation.
Failure to respond effectively to the challenges raised by
climate change and other sustainability matters
Concern over climate change has increased the focus on the
sustainability of practices and products in the market and may
result in new or additional legal and regulatory requirements
to reduce or mitigate the effects of climate change on the
environment. Areas of focus relevant to the Group’s business
include, among others, responsible sourcing and deforestation,
the use of plastic, energy and water, the recyclability or
recoverability of packaging, including single-use and other
plastic packaging, and the use of certain materials, such as palm
oil where the sourcing or environmental impact of the material
can attract scrutiny. New or additional legal and regulatory
requirements more stringent than the Group’s current legal and
regulatory obligations and/or the Group’s existing practices and
procedures may require the Group to revise its operations and
supply chain management. There may also be financial impacts
as governments implement taxation initiatives such as extended
producer responsibility taxes or carbon taxes to help to recover
the cost of managing plastic waste and the impacts of climate
change. There may also be reputational impacts, including
related impacts such as product delistings with customers or
loss of preference with consumers, investors, employees or other
stakeholders, should the Group fail, or be perceived to fail, to
meet either its publicly stated sustainability goals or community
expectations in relation to sustainability initiatives. For further
information on the specific climate-related risks facing the Group,
see Task Force on Climate-related Financial Disclosures from
page 28. These developments may result in increased costs and
disruption to the Group’s operations, and to loss of revenue,
which could materially and adversely affect the Group’s business,
results of operations, cash flows and financial condition.
The Group may not be able to sufficiently protect its
intellectual property rights or avoid claims of infringement on
the intellectual property rights of others
The Group relies on various types of intellectual property rights
such as trade marks, patents, copyrights and designs, whether
registered or unregistered, as well as unpatented proprietary
knowledge and trade secrets, to protect its business. However,
these rights do not afford complete protection against third
parties’ claims and infringements, for example, due to territorial
limitations on intellectual property protections in certain
markets in which the Group operates. Additionally, there can
be no assurance that third parties will not independently
develop knowledge and trade secrets that are similar to the
Group’s, or develop products or brands that compete effectively
with the Group’s products and brands without infringing,
misusing or otherwise violating any of the Group’s intellectual
property rights.
The Group’s intellectual property rights may also be challenged
in the future. In the event of such a challenge, the Group could
incur significant costs to defend its intellectual property rights,
even if it is ultimately successful. Additionally, there is a risk that
the Group will not be able to obtain licences for the intellectual
property rights necessary to support new product introductions
and product innovations.
Group information
continued
Risk factors
continued
Haleon
Annual Report and Form 20-F 2022
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Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
The Group also uses intellectual property rights in-licenced from
licensors. The Group’s licences to such intellectual property rights
may not provide exclusive or unrestricted rights in all fields of use
and in all territories in which the Group may wish to develop or
commercialise its products in the future, may restrict its rights to
offer certain products in certain markets, and may not grant the
Group full control over the maintenance, protection, enforcement
or use of such intellectual property rights, leaving the Group
reliant on the licensors to conduct such activities.
Further, the agreements under which the Group licences
intellectual property rights from others are complex, and the
provisions of such agreements may be susceptible to multiple
interpretations. As such, resolution of any dispute relating to such
contracts may be costly, time-consuming and ultimately narrow
the scope of the Group’s rights to the intellectual property being
licensed, or increase what the Group believes to be its financial
or other obligations under the relevant agreement.
Infringement, misuse or other violation of any of the Group’s
intellectual property rights, including by current or former
employees, contractors or third parties, may dilute or diminish
the value and goodwill of the Group’s brands and products in
the marketplace, which could materially and adversely affect
the Group’s results of operations and make it more difficult for
the Group to maintain a strong market position, leading to a
material and adverse effect on the Group’s business and results
of operations.
The Group may incur liabilities or be forced to recall products
as a result of real or perceived product quality or other
product-related issues
Failure to comply with good manufacturing or good distribution
practices and regulations, as well as other regulations in relation
to product quality, throughout the Group’s in-house and contract
manufacturing supply and distribution chains, could lead to
product supply interruptions, product recalls or withdrawals,
litigation and/or regulatory enforcement action and fines from
regulators, despite employee training, promotion of a health and
safety culture, and control measures and systems being in place
that are designed to ensure that the safety and quality of the
Group’s products is maintained. Additionally, products may be
contaminated or tampered with during distribution or at stores.
The Group is increasingly using new technology to enhance the
manufacture and testing of its products, such as the deployment
of new electronic documentation systems and advanced
laboratory information management tools. Such technology is
inherently susceptible to the threat of cyberattacks which pose
an ongoing risk to the integrity of product quality data and its
audit trail. The Group also continues to be reliant on third parties
and is continuing to undertake a global network rationalisation
programme to reduce the number of manufacturing sites it uses,
both of which are factors that may increase the risks to safe and
timely supply of products.
Product recalls or withdrawals arising as a result of real or
perceived product quality or other product related issues,
whether initiated on a voluntary basis or otherwise, can result
in a range of adverse consequences to the Group, including
lost sales, the requirement to hold increased inventories of
substitute products, damaged relationships with regulators,
loss of market share to competitors, adverse publicity and
reputational harm, in addition to the direct costs of implementing
any recall. Furthermore, such product quality or other product
related issues also expose the Group to a significant risk of
litigation, particularly product liability claims, and regulatory
action (see Risks related to litigation, disputes and regulatory
investigations from page 208).
Failure by the Group to manufacture its products in accordance
with good manufacturing practices could have the potential to
do significant damage to the Group’s reputation and materially
and adversely affect the results of its operations and financial
condition. In addition, if any of the Group’s competitors or
customers supply faulty or contaminated products to the market,
the Group’s industry could be negatively impacted, which in turn
could have material adverse effects on the Group’s business.
A cyber security incident, data breach or a failure of a key
information technology system
The Group relies extensively on information technology systems
(IT Systems), including some which are managed, hosted,
provided and/or used by third parties, including cloud-based
service providers, and their vendors, in order to conduct
its business.
Although the Group has a broad array of information security
measures in place, the Group’s IT Systems, including those of
third-party service providers with whom it has contracted, have
been, and will likely continue to be, subject to computer viruses
or other malicious codes, unauthorised access attempts, phishing
and other cyber-attacks.
Cyber-attacks and other cyber incidents are occurring more
frequently, are constantly evolving in nature, are becoming more
sophisticated and are being made by groups, individuals and
nation states with a wide range of expertise and motives. For
example, the Group experienced an increase in cyber-attacks and
other cyber incidents in the months before Russia’s invasion of
Ukraine, and there is a heightened risk of further cyber-attacks,
including from state actors (see The Group’s business may be
impacted by the effects of Russia’s invasion of Ukraine on page
209). While the Group has implemented systems, monitoring and
training to prevent cyber-attacks and other cyber-incidents from
being successful, the Group cannot guarantee that its security
efforts will protect against breaches or breakdowns of its, or its
third-party service providers’, IT Systems since the techniques
used in these attacks change frequently and may be difficult to
detect for periods of time, and so such cyber-attacks may from
time to time succeed. In addition, the Group cannot guarantee
that it or its third-party service providers’ response to any such
incidents will fully remedy the extent of the damage caused by
these incidents. Although the Group has policies and procedures
in place to ensure that all personal information collected by it
or its third-party service providers is securely maintained, data
breaches due to human error or intentional or unintentional
conduct may still occur in future.
Furthermore, the Group periodically upgrades its IT Systems
or adopts new technologies. If such an upgrade or new
technology does not function as designed, does not go as
planned or increases the Group’s exposure to a cyber-attack or
cyber incident, it may adversely impact the Group’s business,
including its ability to ship products to customers, issue invoices
and process payments or order raw and packaging materials.
If the Group were to suffer a significant loss or disclosure of
confidential business or stakeholder information as a result of a
breach of its IT Systems, including those of third-party service
providers with whom it has contracted, or otherwise, the Group
may suffer reputational, competitive and/or business harm, incur
Haleon
Annual Report and Form 20-F 2022
205
Group information
significant costs and be subject to government investigations,
litigation, fines and/or damages, which may materially and
adversely impact the Group’s business, prospects, results of
operations and financial condition.
While the Group has disaster recovery and business continuity
plans in place, if its IT Systems were damaged, breached or were
to cease to function properly for any reason or if they do not
effectively resolve such issues on a timely basis, the Group may
suffer interruptions in its ability to manage or conduct business
as well as reputational harm, and may be subject to governmental
investigations and litigation, any of which may materially and
adversely impact the Group’s business, prospects, results of
operations and financial condition.
The Group relies on third parties in many aspects of its business
Due to the scale and scope of the Group’s business, the Group
relies on relationships with third parties, including its suppliers,
contract manufacturers, distributors, contractors, commercial
banks, joint venture partners and external business partners,
for route to market and for certain administrative and other
functions. If the Group is unable to effectively manage and
maintain its third-party relationships, including its contractual
arrangements, if such third parties fail to meet their obligations
to the Group or if there are substantial disruptions in the
relationships between the Group and third parties, the Group’s
results of operations could be adversely impacted.
For example, in China, part of the Group’s business is conducted
through a joint venture between Haleon UK Services Limited,
the Tianjin Pharmaceutical Group and the Tianjin Zhongxin
Pharmaceutical Group (the TSK&F Joint Venture), pursuant to
a joint venture agreement which is due to expire in September
2024. If the Group does not renew these arrangements or
implement alternative measures, in either case on acceptable
terms, then the continuity and development of part of its
operations and route to market in China, as well as its business,
results of operations and cash flows in that market, may be
adversely affected.
Third-party relationships inherently involve the Group
holding a lesser degree of control over business operations,
and compliance with laws, regulations and Group policies
and practices than is available for the Group’s own operations
and compliance. As such, the Group’s financial, reputational,
operational and legal risk is potentially increased, including
in respect of health and safety, environmental, social
and governance issues, modern slavery, and anti-bribery
and corruption.
The Group faces various risks related to pandemics, epidemics
or similar widespread public health concerns
The Group faces various risks related to pandemics, epidemics
or similar widespread public health concerns, including the
COVID-19 pandemic. A pandemic, epidemic or similar widespread
health concern could have, and COVID-19 has had and will
continue to have, a variety of impacts on the Group’s business,
results of operations, cash flows and financial condition,
including: effects on the health, safety and wellbeing of the
Group’s employees, including key employees; volatility in the
demand for and availability of the Group’s products; decreases
in demand and sales for certain of the Group’s products such as
Theraflu and Robitussin due to a particularly weaker cold and
flu season; changes in regulatory policy, including restrictions
on sales of certain products; disruptions to the Group’s global
supply chain due to, among other things, the availability of
raw materials or manufacturing components; a decrease in the
Group’s workforce or in the efficiency of such workforce as a
result of illness, travel restrictions, absenteeism or governmental
regulations and transportation and logistics challenges; failure of
third parties on which the Group relies to meet their obligations
to the Group, or significant disruptions in their ability to do
so; restrictions on the Group’s employees’ ability to work and
travel, mandated closure of certain distributors or retailers, the
Group’s offices, shared business service centres and/or operating
and manufacturing facilities, or other restrictions that could
prevent the Group as well as its third-party partners, suppliers
or customers from sufficiently staffing operations; disruptions
and volatility in the global capital markets, which may increase
the cost of capital and/or adversely impact the Group’s access to
capital; and/or volatility in foreign exchange rates and in raw and
packaging materials and logistics costs.
Despite the Group’s efforts to manage these impacts, their
ultimate impact also depends on factors beyond the Group’s
knowledge or control, including the duration, severity and
geographic scope of an outbreak, the availability, widespread
distribution and use of safe and effective vaccines and the
actions taken to contain its spread and mitigate its public health
and economic effects.
The Group may not successfully acquire and integrate other
businesses, licence rights to technologies or products, form and
manage alliances, or divest businesses
The Group may decide in the future to pursue acquisitions,
technology licensing arrangements, strategic alliances or
divestitures as part of its business strategy. The Group may
not complete these transactions in a timely manner, on a cost-
effective basis or at all. In addition, the Group may be subject
to regulatory constraints or limitations or other unforeseen
factors that prevent it from realising the expected benefits
of such transactions.
Even if the Group is successful in completing an acquisition,
the products, intellectual property and technologies that are
acquired may not be successful or may require significantly
greater resources and investments than originally anticipated.
The Group may be unable to integrate acquisitions successfully
into its existing business, and the Group may be unable to
achieve expected operating margin improvements, synergies or
efficiencies. The Group could also incur or assume significant
debt and unknown or contingent liabilities in connection with
acquisitions. The Group’s reported operating results could be
negatively affected by acquisition or disposition-related charges,
amortisation of expenses related to intangibles and charges
for impairment of long-term assets. The Group may be subject
to litigation in connection with, or as a result of, acquisitions,
dispositions, licences or other alliances and the Group may be
liable for future or existing litigation and claims related to the
acquired business, disposition, licence or other alliance because
either the Group is not indemnified for such claims or the
scope or availability of indemnification is limited. These effects
could cause the Group to incur significant expenses and could
materially and adversely affect the Group’s business, results of
operations and financial condition.
Group information
continued
Risk factors
continued
Haleon
Annual Report and Form 20-F 2022
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Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Risks relating to the Group’s leverage and debt
service obligations
Prior to the demerger, the Group incurred financial indebtedness
in order to fund the pre-demerger dividend (as described in Note
10 to the Financial Statements). As a result, the Group has higher
leverage levels than are reflected in the Group’s longer-term
strategy and has significant debt service obligations. The Group’s
longer-term strategy to improve its financial risk profile, including
by reducing levels of indebtedness, may not be successful.
The Group’s outstanding financial indebtedness as at 31 December
2022 is set out in Note 19 of the Financial Statements.
The degree to which the Group is leveraged could have important
consequences to the Group’s business, including, but not limited
to: increasing the Group’s vulnerability to, and reducing its
flexibility to respond to, a downturn in the Group’s business
or general adverse economic and industry conditions; limiting
the Group’s ability to obtain additional financing in the longer
term; requiring the dedication of a substantial portion of the
Group’s cash flow from operations to the payment of interest
on the Group’s indebtedness and the repayment of principal,
thereby reducing the availability of such cash flow to fund
capital expenditures, dividends, joint ventures, acquisitions
or other general corporate purposes; increasing the cost of
future borrowings for the Group; a downgrade in the Group’s
credit rating, which may, in turn, increase the cost of the Group’s
financing arrangements and make it difficult for the Group to
access financing on commercially acceptable terms or at all;
limiting the Group’s flexibility in planning for, or reacting to,
changes in the Group’s business and the competitive environment
and the industry in which it operates; and placing the Group
at a competitive disadvantage as compared to some of its
competitors, to the extent that they are not as highly leveraged.
Any of these or other consequences or events could have a
material adverse effect on the Group’s business, financial
condition and results of operations. In addition, the Group
may incur substantial additional indebtedness in the future.
The covenants in existing financing instruments do not fully
prohibit the Company or its subsidiaries from incurring more
indebtedness. If new debt is added to the Group’s debt levels,
the risks that it faces could intensify. The incurrence of additional
indebtedness would increase the leverage-related risks
described herein and would increase the risk of a downgrade in
the Group’s credit rating.
Goodwill and indefinite-life intangible assets are a material
component of the Group’s balance sheet and may be subject
to impairments
The Group has recorded a significant amount of goodwill and
indefinite-life intangible assets, on its balance sheet as set
out in Note 14 to the Financial Statements. The Group tests
the carrying values of goodwill and indefinite-life intangible
assets for impairment at least annually and whenever events or
circumstances indicate the carrying value may not be recoverable.
The estimates and assumptions about future results of operations
and cash flows made in connection with impairment testing could
differ from future actual results of operations and cash flows.
Any resulting impairment charge, although non-cash, could have
a material adverse effect on the Group’s results of operations and
financial condition.
Risks relating to changes in law and the political and
economic environment, regulation and legislation
The Group’s business is subject to legal and regulatory risks
in all the markets in which it operates
The Group’s business is subject to extensive legal and regulatory
requirements in all the markets in which it operates. They
apply to most aspects of the Group’s products, including their
development, ingredients, formulation, manufacture, packaging
content, labelling, storage, transportation, distribution, export,
import, advertising, promotion beyond therapeutic indications,
sale and environmental impact. Many different governmental
and regulatory authorities in the Group’s markets regulate and
have jurisdiction over different aspects of the Group’s business
activities. In addition, the Group’s selling practices are regulated
by competition law authorities in the UK, as well as in the EU,
the US and other markets.
Additionally, in China, where the Group has significant sales
and operations, governmental authorities introduced changes
in regulations relating to registrations of all generic medicines
(including OTC products) and recently introduced changes
for oral health products. These affect both new and existing
products and impose increased data submission requirements
for products the Group markets in China. There is a risk that
commercialisation of certain products of the Group may be
restricted in China if the Group is unable to comply with these
regulatory changes on the required timetable.
Because of the Group’s extensive international operations, the
Group could be materially and adversely affected by violations
of worldwide anti-bribery laws, including those that prohibit
companies and their intermediaries from making improper
payments to government officials or other third parties for
the purpose of obtaining or retaining business, such as the US
Foreign Corrupt Practices Act, the UK Bribery Act 2010, and other
laws that prohibit commercial bribery. Additionally, in certain
jurisdictions, the Group’s engagement with Health Professionals
and other external leaders is subject to applicable restrictions.
While the Group’s policies mandate compliance with such laws,
the Group cannot provide assurance that the Group’s internal
control policies and procedures will always protect the Group
from reckless or criminal acts committed by its employees,
joint venture partners or agents. Similarly, due to the Group’s
international operations, the Group could also be materially and
adversely affected by any violations of international sanctions
laws, which continue to evolve in response to geopolitical events
(see also The Group’s business may be impacted by the effects of
Russia’s invasion of Ukraine on page 209).
While it is the Group’s policy to comply with all legal and
regulatory requirements applicable to the Group’s business,
there can be no guarantee that the Group will always achieve
full compliance and a finding that the Group is in violation of,
or out of compliance with, applicable laws or regulations could
subject the Group to civil remedies, including fines, damages,
injunctions or product recalls, or criminal sanctions. Even if a
claim is unsuccessful, is without merit or is not fully pursued, the
Group may incur costs in responding to such a claim and negative
publicity surrounding such assertions regarding the Group’s
products, processes or practices.
Haleon
Annual Report and Form 20-F 2022
207
Group information
The Group faces risks relating to the regulation and perception
of the ingredients it uses in its products
Regulatory bodies and consumer groups may, from time to time,
request or conduct reviews of the use of certain ingredients that
are used in manufacturing the Group’s products If the result of
such reviews is an inability to use, or restrictions on the use of,
certain ingredients and/or any requirement for remedial action,
the Group may incur significant additional costs and/or need to
invest substantial resources to make formulation adjustments to
its products. Additionally, the Group may be adversely affected
by the findings and any remedial actions resulting from the EU’s
ongoing investigations into the impact of pharmaceuticals in
the environment.
While the Group monitors and seeks to respond to and
address the impact of any emerging regulatory and legislative
developments, new or more stringent ingredient legislation could
have a negative impact on the Group’s business, undermine the
Group’s reputation and goodwill and affect consumer demand or
trade customer demand for products containing such ingredients.
If the Group voluntarily removes, or is required to remove, certain
ingredients from its products, it may not be able to develop an
alternative formulation, successfully modify its existing products
or obtain necessary regulatory approvals on a timely basis, or
at all, which could materially and adversely impact the Group’s
business, prospects, financial condition and results of operations.
The Group’s business is subject to market fluctuations and
general economic conditions, including inflationary pressures
and increased interest rates
Uncertainty, fluctuations or negative trends in the international
economic climate have had and could continue to have a material
adverse effect on the Group’s business and profitability. There
will be market fluctuations and economic factors that will be
beyond the Group’s control, but that will have the potential to
materially and adversely affect its business, revenue, financial
condition and operating results.
Such factors include: (i) inflation or deflation; (ii) changes in
government, fiscal and monetary policies; (iii) changes in the
financial standing of the Group’s customers, suppliers and
consumers, including levels of employment, real disposable
income, salaries and wage rates; (iv) consumer confidence and
consumer perception of economic conditions; (v) retailers’
perception of consumer spending habits; (vi) technological
change; (vii) exposure to possibly adverse governmental or
regulatory actions in countries where the Group operates or
conducts business; (viii) levels of volatility in global markets; (ix)
exposure to the effects of economic sanctions or other restrictive
economic measures as a result of the Group’s global presence;
and (x) any change or development in global, national or regional
economic and political conditions.
For example, the Group is exposed to inflationary pressures and
commodity prices, which generally affect the Group through their
impact on payroll and supply costs (including freight). Whilst
the Group may increase product prices in order to mitigate the
impact of inflation, competitive pressures may constrain the
Group’s ability to fully recover any increased costs in this way,
and so the Group may remain subject to market risk with respect
to inflationary pressures and increases in commodity prices. In
addition, the Group’s initiatives to offset headwinds from inflation
in input prices and commodities, including forward buying, value
engineering and alternative supply arrangements, may not be
sufficient to mitigate these risks.
Relatedly, the Group is also subject to risks arising from the
recent rapid increase of interest rates in many markets around
the world. In particular, the Group has obligations under financial
instruments that bear interest at floating rates, including one
series of the USD Notes and borrowings under the Group’s bank
financing facilities (see Note 25 to the Financial Statements
from page 165). Sustained elevated interest rates may in future
increase the Group’s interest expenses associated with these
and future debt obligations and thereby reduce flow available
for other purposes. Any hedging arrangements entered into by
the Group to offset this risk may prove not to be fully effective
or available on terms that are acceptable to the Group.
Risks related to litigation, disputes and regulatory
investigations
The Group is, and may in the future be, subject to legal
proceedings, disputes and regulatory and governmental
investigations in various contexts, including consumer fraud
actions, competitor and regulatory challenges to product and
marketing claims, competition law investigations, product liability
and quality claims, human resources claims, contractual disputes
and other disputes or claims arising in the ordinary course of its
business operations.
These legal actions, disputes and investigations may relate to
aspects of the Group’s businesses and operations that are specific
to the Group, or that are common to companies that operate in the
Group’s markets, and this risk may be enhanced in circumstances
where the Group is operating in new markets. Legal actions and
disputes may arise under contracts, regulations or from a course
of conduct taken by the Group, and may be class actions. Further
information on legal proceedings impacting the Group are detailed
in Note 22 to the Financial Statements on page 160.
In connection with acquisitions, disposals or other transactions,
we may enter into contractual arrangements pursuant to which
the Group may become exposed to litigation risk despite not
being a party to proceedings in relation to which the indemnities
may be implicated. In connection with the separation as further
set out below under “The Group has indemnification obligations
in favour of the GSK Group and the Pfizer Group, which could
be significant”, Pfizer and GSK have each served the Group with
notice of potential claims for indemnification relating to OTC
Zantac, the outcome of which claims is currently uncertain. We
have notified GSK and Pfizer that we reject their requests for
indemnification on the basis that the scope of the indemnities
set out in the joint venture agreement only covers their consumer
healthcare businesses as conducted when the JV was formed
in 2018.
Given the large or indeterminate amounts of damages sometimes
sought by claimants, other sanctions that might be imposed
(including the Group no longer being able to use key claims)
and the inherent unpredictability of litigation and disputes, it
is possible that an adverse outcome to any litigation, dispute,
government or regulatory investigation could have a material
adverse effect on the Group’s business, financial condition,
results of operations and prospects. The Group has made
provisions for legal disputes and matters, including amounts
relating to legal and administrative proceedings, which we
believe are reasonably possible (but not probable) to be realised.
Given the inherent uncertainty of litigation, it is possible that
we might incur additional liabilities as a consequence of the
proceedings and claims brought against us, including those that
are not currently believed by us to be reasonably possible. Details
of these contingencies are included within “Other provisions” as
set out in Note 21 to the Financial Statements on page 159.
Group information
continued
Risk factors
continued
Haleon
Annual Report and Form 20-F 2022
208
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
The Group faces risks associated with significant
international operations
The Group operates on a global basis. While geographic
diversity helps to reduce the Group’s exposure to risks in any
one country or part of the world, it also means that the Group
faces risks associated with significant international operations,
including, but not limited to: exchange rate risks; regulatory
limits on the import and export of products, or repatriation
of earnings (including exchange and export/import controls);
political or economic instability, geopolitical events and rising
geopolitical trade tensions as well as social or labour unrest;
foreign ownership and investment restrictions and the potential
for nationalisation or expropriation of property or other
resources; changes to trade policies and agreements and other
foreign or domestic legal and regulatory requirements, including
those resulting in potentially adverse tax consequences or the
imposition of and/or the increase in onerous trade restrictions,
tariffs and/or price controls (including requirements to exclusively
utilise local manufacturing); and changes to labour laws, travel or
immigration restrictions.
Any or all of the foregoing risks could adversely impact consumer
confidence, affect the Group’s product mix and/or have a
significant impact on the Group’s ability to sell its products on a
competitive basis in international markets and may materially and
adversely affect its business, prospects, results of operations and
financial condition.
Volatility in material and other costs could materially and
adversely impact the Group’s profitability
Increases in the costs of and/or a reduction in the availability
of materials, including active pharmaceutical ingredients and
excipients and raw and packaging material commodities, as
well as labour, energy, logistics and other necessary services,
such as those seen recently during the COVID-19 pandemic
and in relation to inflationary pressures, may adversely affect
the Group’s profit margins. If material and other cost increases
continue in the future the Group may be unable to pass along
such higher costs in the form of price increases, achieve cost
efficiencies, or otherwise manage the exposure through sourcing
strategies, ongoing productivity initiatives and the potential use
of commodity hedging contracts, Sustained price increases may
lead to declines in sales volumes as competitors may not adjust
their prices or consumers may decide not to pay higher prices,
which could lead to sales declines and loss of market share
and could materially and adversely affect the Group’s business,
results of operations and financial condition.
The Group’s business may be impacted by the effects of
Russia’s invasion of Ukraine
The Group monitors the effects of Russia’s invasion of Ukraine,
with the Board of Directors overseeing and monitoring key risks.
The Group’s operations and presence in Russia and Ukraine is
limited and these markets accounted for less than 3% of each
of the Group’s revenue and Adjusted operating profit in 2022.
However, the broader economic consequences of the invasion
continue to be difficult to predict, and the ongoing global
geopolitical and economic instability related to the invasion and
the actions of governments relating thereto (including sanctions
measures), the effects of which include (but are not limited to)
changes in commodity, freight, logistics and input costs could
continue to adversely impact the Group’s business and/or the
trading prices of its securities. Specifically, the Group faces the
following risks:
—
Disruption to the Group’s business operations in Russia and
Ukraine, including adverse impacts on its employees and on
its revenue derived in the region.
—
Foreign exchange risk relating its revenues denominated in
Russian Rubles. The Group generates revenue from sales of
its products in Russia in Russian Rubles, and denominates
its significant costs in other currencies, such as Pound
Sterling, Euro and US Dollars. Sanctions against Russia has
increased volatility in the value of the Russian Ruble, which
may affect the results of the Group’s operations in Russia as
the relative value between its derived revenues and incurred
costs fluctuates. The Group may not be able to offset any
devaluation of the Russian Ruble through increased prices of
its products. In addition, the imposition of exchange controls
may limit the Group’s ability to repatriate profits from its
operations in Russia.
—
Reduced demand for the Group’s products which exposes the
Group to increased counterparty risk in relation to customers
and receivables from customers.
—
Compliance with global sanctions regimes, and Russian counter
measures imposed in response, many of which are evolving
rapidly and are increasingly complex to operate within.
—
Potential litigation risk from the Group’s counter-parties
seeking to assert their rights for payments that are unable
to be made by the Group because of sanctions imposed on
counter-parties or financial institutions.
—
Reputational risks associated with the Group’s continued
presence in the Russian market. Negative publicity surrounding
the Group’s continued presence and/or supply of products in
Russia could damage the Group’s brands and its reputation,
lead to boycotts of its products outside Russia and/or have
consequences on the continuation of operations and/or
sales in Russia, including a determination by the Group to
discontinue all sales in Russia.
—
In the event that the Group discontinues its Russian operations,
the potential (i) nationalisation of the Group’s Russian assets,
(ii) devaluing of the Group’s Russian patents and trade marks
and (iii) introduction of restrictions on, or imposition of
unfavourable terms in respect of, payments made from Russia
or relating to assets in Russia, each as part of the Russian
Government’s indicated plans to seize the assets of western
companies leaving Russia.
The situation remains highly uncertain and there may be
additional risks to the Group arising out of or relating to the
Russian invasion of Ukraine, and the escalating military conflict
in the region, which could also have a material adverse effect
on the Group’s business.
Failure to comply with regulation regarding the use of
personal data
The Group is subject to regulations in the jurisdictions in which it
operates regarding the use of personal data. The Group collects
and processes personal data from its consumers, customers,
business contacts and employees as part of the operation of its
business, and therefore it must comply with data protection and
privacy laws. Those laws generally impose certain requirements
on the Group in respect of the collection, retention, use and
processing of such personal information. Notwithstanding its
efforts, the Group is exposed to the risk that this data could
be wrongfully appropriated, lost, disclosed, retained, stolen or
processed in breach of data protection laws.
EU GDPR and the GDPR as it forms part of retained EU law in the
UK as well as the increased data protection regulation in other
jurisdictions, such as China, Russia, and the US, introduced the
Haleon
Annual Report and Form 20-F 2022
209
Group information
potential for significant new levels of fines for non-compliance
based on turnover. As part of its ongoing compliance with
applicable requirements, the Group may be required to expend
significant capital or other resources and/or modify its operations
to meet such requirements, any or a combination of which could
have a material adverse effect on the Group’s business, financial
condition and financial results, or otherwise harm its reputation.
The Group is exposed to risks relating to fluctuations in
currency exchange rates and related hedging activities
The Group operates internationally and holds assets, incurs
liabilities, generates sales and pays expenses in a variety of
currencies other than Pounds Sterling (the currency in which
it reports its financial results). The most significant foreign
currency exposures are to the USD, Euro, Swiss Franc and Chinese
Renminbi, including $8,750 million of USD-denominated bonds
and €2,350 million of Euro-denominated bonds incurred by the
Group as at 31 December 2022.
Fluctuations in exchange rates for foreign currencies have
reduced and could continue to reduce the Pounds Sterling value
of sales, earnings and cash flows the Group receives from markets
outside the UK, increase its supply costs (as measured in Pounds
Sterling) in those markets, negatively impact its competitiveness
in those markets or otherwise materially and adversely impact
its business or financial condition. The Group’s foreign currency
exposure will be greater for so long as the leverage levels of the
Group are higher than are reflected in the Group’s longer-term
strategy, the success of which cannot be guaranteed. The Group
aims to manage this risk through hedging where possible and
practical; however, such hedging activities may be ineffective
or may not offset more than a portion of the adverse financial
effect resulting from variations to such rates. The Group is also
exposed to counterparty credit (or repayment) risk under hedging
contracts. To the extent any hedging activities of the Group
are wholly or partially ineffective, or to the extent a hedging
counterparty fails to meet its obligations under any hedging
agreement, this could result in losses which could have a material
adverse effect on the Group’s business, results of operations and
financial condition.
Determinations made by the Group with respect to the
application of tax law may result in challenges from or disputes
with tax authorities which result in the payment of additional
amounts for tax
The worldwide nature of the Group’s operations means that
the Group is subject to the tax laws in each country in which
we operate. Tax laws are complex and on occasion are subject
to interpretation by Haleon and the relevant fiscal authorities,
such that this may result in conflict and creates the risk of
double taxation.
Additionally, the Group is subject to many different forms
of taxation within any given jurisdiction in which it operates
(including, but not limited to, corporate income taxes, capital
gains taxes on direct or indirect transfers of ownership, stamp
duty and similar transfer taxes, value added taxes, property
taxes and social security and other payroll taxes). The global
tax environment across all taxes continues to change rapidly
creating further complexity and uncertainty. This means that
the Group may be subject to domestic and cross-border tax
authority disputes in the future, which could result in the payment
of additional amounts of tax. Such potential disputes and the
resulting payment obligations could have a material adverse
effect on the Group’s business, results of operations and financial
condition. At 31 December 2022, the Group had recognised
provisions of £159 million in respect of uncertain tax positions.
Changes in the tax systems of the countries in which the Group
operates could adversely affect the Group’s financial condition
and results of operations.
Many countries, including the ones in which the Group operates,
change their tax laws from time to time, including by legislation,
regulation, administrative practice, judicial action or entering into
or amending tax treaties. The Group’s financial condition and
results of operations may be adversely affected by such changes.
For example, the Organisation for Economic Co-Operation and
Development’s base erosion and profit shifting project and
proposed Pillar Two regime, which is focused on establishing
a global minimum corporate taxation rate, has caused or is
anticipated to cause proposed changes in the tax laws of many
countries in which the Group operates, and such changes could
increase the Group’s tax obligations. Similarly, the US Government
routinely proposes changes to US tax laws, and such changes,
including any expansion of the scope of the US anti-inversion
rules, could also adversely affect the Group’s tax profile.
Risks relating to separation
The Group has indemnification obligations in favour of the GSK
Group and the Pfizer Group, which could be significant
The Group, GSK, and Pfizer, entered into the Pfizer Stock and
Asset Purchase Agreement (Pfizer SAPA) on 19 December 2018
pursuant to which the Group, GSK, and Pfizer agreed to form a
new global consumer healthcare joint venture. The Pfizer SAPA,
as amended from time to time, including by the Pfizer SAPA
Amendment Agreement, contains certain cross indemnities
among the Group, the GSK Group and the Pfizer Group. Among
other provisions, the Group is required to indemnify the GSK
Group and Pfizer Group in respect of “Purchaser Liabilities” and
“Assumed Liabilities.” Pfizer and GSK have each served the Group
with notice of potential claims under the relevant indemnification
provisions in the Pfizer SAPA in relation to possible liabilities
connected with OTC Zantac (see Legal proceedings in Note 22 to
the Financial Statements on page 160), it is not possible, at this
stage, to meaningfully assess whether the outcome will result in a
probable outflow, or to quantify or reliably estimate what liability
(if any) that the Group may have to GSK and/or Pfizer under the
relevant indemnities.
If any amounts payable by the Group under these indemnities (or
additional taxes imposed on the Group that are not indemnified
by GSK and/or Pfizer under the Tax Covenant) are substantial, this
could have a material adverse effect on the financial condition,
results of operations and/or prospects of the Group.
The Tax Covenant will restrict the Company’s ability to engage
in certain transactions
The Tax Covenant imposes certain restrictions on the Company
for a number of years. For example, there are restrictions on
certain asset disposals as well as on certain internal restructuring
transactions (including liquidations or the issuance or redemption
of stock or debt of certain subsidiaries of the Company). Although
the Company does not currently anticipate that these restrictions
would have a material adverse impact on the Company, these
restrictions may reduce the Company’s ability to engage in certain
business transactions that otherwise might be advantageous.
Group information
continued
Risk factors
continued
Haleon
Annual Report and Form 20-F 2022
210
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Director and Executive Team
shareholdings
As at 10 March 2023, being the latest practicable date prior
to publication of this Annual Report, the Directors and the
Executive Team members had beneficial interests in 961,179
Haleon ordinary shares (including ordinary shares held
indirectly through Haleon ADSs), representing 0.01% of that class.
These shareholdings indicate all Directors’ or Executive Team
members’ beneficial interests and those held by their spouses
and other connected persons. As at 10 March 2023, no Director
or Executive Team member held more than 1% of the total
issued share capital or have a beneficial interest in the shares
of any subsidiary.
Executive Director benefits upon
termination of office
Further information can be found in the Directors’ Remuneration
Report from page 82.
Disclosure controls and procedures
The Group carried out an evaluation under the supervision and
with the participation of members of the Group’s management,
including the CEO and CFO, of the effectiveness of the design
and operation of the Group’s disclosure controls and procedures
as required by Item 15(a) of Form 20-F as at 31 December 2022.
Based on their evaluation, the CEO and the CFO concluded that,
as at that date, the Company maintained an effective system of
disclosure controls and procedures.
Management’s report on internal control
over financial reporting
This Annual Report and Form 20-F does not include a report
of management’s assessment regarding internal control over
financial reporting or an attestation report of the company’s
registered public accounting firm due to a transition period
established by rules of the SEC for newly public companies.
Property, plant and equipment
The Group has interests in properties in numerous countries.
None of these interests is individually material in the context of
the Group as a whole. Such properties are used by the Group
predominantly for manufacturing, distribution and R&D activities.
In particular, the Group owns a supply chain of 24 in-house
dedicated consumer healthcare manufacturing sites, with key
sites located in Levice (Slovakia), Dungarvan (Ireland), Nyon
(Switzerland) and Guayama (Puerto Rico). In addition, the Group
owns four R&D centres in Richmond, Virginia (USA), Weybridge
(UK), Maidenhead (UK) and Suzhou (China) providing it with a
broad range of in-house scientific capabilities.
The Group is not aware of any environmental issues affecting its
properties which would have a material impact upon the Group,
and there are no material encumbrances on its properties. The
Group believes its existing facilities are satisfactory for its current
business and it currently has no plans to construct new facilities
or expand or improve its current facilities in a manner that is
material to the Group.
Change in certifying accountant for the year ended
31 December 2022
The financial statements for the years ended 31 December 2020
and 31 December 2021 included in this Annual Report and Form
20-F have been audited by Deloitte LLP (Deloitte). In preparation
for the Group’s demerger from GSK and listing on the LSE and
NYSE, Deloitte advised the GSK Audit & Risk Committee that
in 2021 and 2022, firms that are part of the Deloitte Touche
Tohmatsu Limited network provided, and continued to provide,
certain non-audit services to Pfizer that caused Deloitte to be
considered not independent of the Company under the SEC’s
auditor independence rules. These non-audit services, which
included project management office services, managed services
and hosting of data, were considered permissible under local
independence standards, but were impermissible management
functions under the SEC’s auditor independence rules.
Deloitte informed the Audit & Risk Committee that (i) Deloitte
was capable of exercising objective and impartial judgment on
all issues encompassed within the entire audit and professional
engagement period in relation to the financial statements for the
years ended 31 December 2020 and 31 December 2021 included
in this Annual Report and Form 20-F and (ii) a reasonable investor
with knowledge of all relevant facts and circumstances would
conclude that Deloitte has been and is capable of exercising
objective and impartial judgment on all issues encompassed
within its audits of the financial statements for the years ended
31 December 2020 and 31 December 2021 included in this Annual
Report and Form 20-F, for several reasons, including:
—
The non-audit services provided were solely for the benefit of
Pfizer. The services did not impact the Company’s operations
or accounting records, result in the preparation or origination
of source data underlying the Financial Statements, or involve
making any management decisions or the performance of any
management functions at the Company. The services are not
subject to Deloitte’s audit;
—
The Deloitte audit engagement team is in a separate business
unit from the teams providing services to Pfizer with ethical
walls preventing the sharing of information between the teams
(except for information needed to evaluate independence
compliance); and
—
The fees for the non-audit services were not material to Pfizer
or to any firm in the Deloitte Touche Tohmatsu Limited network
that provided the services to Pfizer.
After considering the facts and circumstances, the Audit &
Risk Committee also concluded, for the reasons described
above, that (i) the non-audit services did not impair Deloitte’s
objectivity and impartiality with respect to the planning and
execution of the audits of the financial statements for the years
ended 31 December 2020 and 31 December 2021 included in
this Annual Report and Form 20-F and (ii) a reasonable investor
with knowledge of all relevant facts and circumstances would
conclude that Deloitte has been and is capable of exercising
objective and impartial judgment on all issues encompassed
within its audits of the financial statements for the years ended
31 December 2020 and 31 December 2021 included in this
Annual Report and Form 20-F. Following completion of the audit
Change in certifying accountant
Haleon
Annual Report and Form 20-F 2022
211
Group information
Group information
continued
Change in certifying accountant
continued
for the year ended 31 December 2021, Deloitte resigned as
PCAOB auditors of the Company.
As a result of the foregoing, following approval by the Board of
CH JVCo (and as subsequently reaffirmed by the Haleon Audit &
Risk Committee), on 24 March 2022, KPMG LLP (US) (KPMG US), an
independent registered public accounting firm, was appointed to
conduct the audit of the Company’s financial statements for the
year ending 31 December 2022.
We did not consult KPMG US during our two most recent
fiscal years or any subsequent interim period regarding (i) the
application of accounting principles to a specified transaction,
either completed or proposed or the type of audit opinion
that might be rendered on our financial statements; or (ii) any
matter that was the subject of a disagreement as that term is
used in Item 16F(a)(1)(iv) of Form 20-F or a “reportable event”
as described in Item 16F(a)(1)(v) of Form 20-F.
Auditor Independence
The financial statements for the year ended 31 December
2022 included in this Annual Report and Form 20-F have been
audited by KPMG US. In preparation for such audit, KPMG US
advised the Audit and Risk Committee that firms within the
KPMG International Limited (KPMG International) network have
provided certain non-audit services to, and had contingent
fee arrangements with, GSK in 2022 prior to the Company’s
separation from GSK that cause KPMG US to be considered
not independent of the Company under the SEC’s auditor
independence rules. KPMG US informed the Audit and Risk
Committee that (i) KPMG US was capable of exercising objective
and impartial judgment on all issues encompassed within the
entire audit and professional engagement period in relation to
the financial statements for the year ended 31 December 2022
and (ii) a reasonable investor with knowledge of all relevant
facts and circumstances would conclude that KPMG US has been
and is capable of exercising objective and impartial judgment
on all issues encompassed within its audit of the Company’s
consolidated financial statements for the year ended 31
December 2022, for several reasons, including:
—
The non-audit services and contingent fee arrangements
did not impact the Company’s operations or accounting
records, result in the preparation or origination of source data
underlying the financial statements, or involve making any
management decisions or the performance of any management
functions at the Company. The services are not subject to
KPMG US’ audit;
—
The KPMG US audit engagement team is in a separate business
unit from the teams providing services to GSK with ethical
walls preventing the sharing of information between the teams
(except for information needed to evaluate independence
compliance); and
—
The fees received by the member firms within the KPMG
International network of firms from GSK were not material
to the KPMG International firms or to GSK.
After considering the facts and circumstances, the Audit and Risk
Committee also concluded, for the reasons described above,
that (i) the non-audit services and contingent fee arrangements
did not and will not impair KPMG US’ objectivity and impartiality
with respect to the planning and execution of the audits of the
Company’s financial statements as of, and for the year ended, 31
December 2022 and (ii) a reasonable investor with knowledge of
all relevant facts and circumstances would conclude that KPMG
US has been and is capable of exercising objective and impartial
judgment on all issues encompassed within its audit of the
Company’s consolidated financial statements for the year ended
31 December 2022.
Change in certifying accountant for the year ended 31
December 2023
On 7 February 2023, Haleon announced that the Board had
approved the proposed appointment of KPMG LLP (KPMG
UK) as its principal accountants for the fiscal year ending 31
December 2023, subject to approval of Haleon’s shareholders at
its AGM to be held on 20 April 2023. KPMG US, which is currently
serving as the Company’s principal accountants in respect of the
US, declined to stand for re-election. The decision to change
principal accountants was approved by the Board of Directors of
the Company on the recommendation of the Company’s Audit &
Risk Committee.
During the fiscal year ended 31 December 2022, there were no:
(1) disagreements with KPMG US on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to
their satisfaction would have caused them to make reference
in connection with their opinion to the subject matter of the
disagreement, or (2) reportable events.
The audit report of KPMG US on the consolidated financial
statements of Haleon plc and subsidiaries as of and for the year
ended 31 December 2022 did not contain any adverse opinion
or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
We have provided KPMG US with a copy of the foregoing
disclosure, and we have requested that it furnish us with a letter
addressed to the SEC stating whether or not it agrees with the
above disclosures. A copy of this letter is filed as Exhibit 15.3 to
this Annual Report and Form 20-F.
We did not consult KPMG UK during our two most recent
fiscal years or any subsequent interim period regarding (i) the
application of accounting principles to a specified transaction,
either completed or proposed or the type of audit opinion
that might be rendered on our financial statements; or (ii) any
matter that was the subject of a disagreement as that term is
used in Item 16F(a)(1)(iv) of Form 20-F or a ‘reportable event’
as described in Item 16F(a)(1)(v) of Form 20-F.
Haleon
Annual Report and Form 20-F 2022
212
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Description of securities other than equity securities
Fees and charges payable by ADR holders
The Company’s American Depositary Receipt (ADR) programme is administered by J.P. Morgan Chase Bank, N.A. (the Depositary), as
the Depositary. The holder of an ADR may have to pay the following fees and charges to the Depositary in connection with ownership
of the ADR:
Category
Depositary actions
Associated fee or charge
Depositing or substituting the underlying
shares
Each person to whom ADRs are issued against deposits
of shares, including deposits and issuances in respect of:
(i) share distributions, stock splits, rights, mergers or
(ii) exchange of securities or any other transactions or
event or other distribution affecting the ADSs or the
deposited securities.
Up to $5.00 for each 100 ADSs
(or portion thereof) issued or
delivered (as the case may be).
Receiving or distributing dividends
Distribution of cash/stock dividends.
$0.05 or less per ADS.
Selling or exercising rights
Distribution or sale of securities, the fee being in an amount
equal to the fee for the execution and delivery of ADSs
which would have been charged as a result of the deposit of
such securities.
Up to $5.00 for each 100 ADSs
(or portion thereof).
Withdrawing, cancelling or reducing an
underlying security
Surrendering ADSs for cancellation and withdrawal of
deposited property.
Up to $5.00 for each 100 ADSs (or
portion thereof) surrendered or
cancelled (as the case may be).
Transferring, combination or split-up
of receipts
Not applicable.
Not applicable.
General depositary services, particularly
those charged on an annual basis
1
Other services performed by the depositary in administering
the ADRs.
A fee of $0.05 or less per ADS
per calendar year held on the
applicable record date(s)
established by the Depositary.
Fees and expenses of the depositary
Fees and expenses incurred by the Depositary or the
Depositary’s agents on behalf of holders, including in
connection with: (i) stock transfer or other taxes and other
governmental charges, (ii) cancellation transaction fees and
delivery expenses, (iii), transfer or registration expenses in
connection with the deposit and withdrawal of deposited
securities, (iv) expenses in connection with the conversion of
foreign currency into US dollars (which are paid out of such
foreign currency); (v) cable, telex, facsimile transmission/
delivery and (vi) any other charge payable by the ADR
Depositary or its agents.
As incurred by the Depositary.
1
With effect from 6 December 2022, Haleon agreed that the Depositary could charge a fee of $0.03 per ADR annually.
Direct and indirect payments by the Depositary
The Depositary anticipates reimbursing Haleon for certain expenses incurred by it that are related to the establishment and
maintenance of the ADR programme upon such terms and conditions as Haleon and the Depositary may agree from time to time. The
Depositary may make available to Haleon a set amount or a portion of the Depositary fees charged in respect of the ADR programme
or otherwise upon such terms and conditions as Haleon and the Depositary may agree from time to time. In respect of the year ended
31 December 2022 the Depositary made payments of approximately $13.2m.
Under certain circumstances, including removal of the Depositary or termination of the ADR programme by Haleon, Haleon is required
to repay certain amounts paid to it and to compensate the Depositary for payments made or services provided on behalf of Haleon.
Haleon
Annual Report and Form 20-F 2022
213
Group information
Group information
continued
Articles of Association
The Articles of Association of the Company (Articles), which
were adopted on 31 May 2022, contain (amongst others)
provisions to the following effect. Any amendment to the
Articles requires the approval of shareholders by a special
resolution at a general meeting of the Company.
Unrestricted objects
The Company’s objects are unrestricted.
Directors
The Board has the authority to manage the business of the
Company, for example, through powers to issue and repurchase
its shares, subject where required to shareholder resolutions.
Subject to certain exceptions, the Directors do not have power
to vote at Board meetings on matters in which they have a
material interest.
The Company by ordinary resolution, or the Board, may appoint,
any person who is willing to act to be a Director, and is permitted
by law to do so. In addition to any power of removal conferred
by legislation, the Company may by special resolution remove
any director before the expiration of their period of office and
may (subject to the Articles) by ordinary resolution appoint
another person who is willing to act to be a Director in their place.
All Directors must retire from office at the AGM each year and
may offer themselves for re-appointment.
Rights and restrictions
The liability of shareholders is limited to the amount, if any,
unpaid on the ordinary shares held by them.
Subject to any rights attached to existing ordinary shares and
non-voting preference shares, the Company may (i) issue shares
with such rights and restrictions as the Company may by ordinary
resolution decide, or (if there is no such resolution or so far as it
does not make specific provision) as the Board may decide and (ii)
issue redeemable shares and the Board may determine the terms
and conditions and the manner of redemption of any redeemable
shares so issued. Such rights, restrictions, terms and conditions
apply to the relevant shares as if they were set out in the Articles.
Shareholders are entitled to vote at a general meeting or class
meeting on a poll. Under the Articles, any resolution put to a
vote at a general meeting of the Company shall be decided on a
poll. The Companies Act and the Articles provide that on a poll
every shareholder has one vote per ordinary share held by them
and a shareholder may vote in person or by one or more proxies.
Where a shareholder appoints more than one proxy, the proxies
appointed by them taken together have the same voting rights
as the shareholder could exercise in person. In the case of joint
holders of an ordinary share the vote of the senior who tenders a
vote, whether in person or by proxy, is accepted to the exclusion
of the votes of the other joint holders and, for this purpose,
seniority is determined by the order in which the names stand in
the register in respect of the joint holding. Non-voting preference
shares do not confer any right to vote at a general meeting. Non-
voting preference shareholders are, however, entitled to vote in
respect of their non-voting preference shares at any class meeting
of non-voting preference shareholders.
A shareholder is not entitled to vote at any general meeting or
class meeting in respect of any share held by them if any call or
other sum then payable by them in respect of that share remains
unpaid or if that shareholder has been served with a restriction
notice (as defined in the Articles) after failure to provide the
Company with information concerning interests in those shares
required to be provided under the Companies Act.
Dividends
The Company may by ordinary resolution from time to time
declare dividends not exceeding the amount recommended by
the Board. Subject to the Companies Act, the Board may pay
dividends whenever the financial position of the Company, in the
opinion of the Board, justifies its payment.
The non-voting preference shares rank pari passu with all other
non-voting preference shares and have preferential dividend
rights ahead of the ordinary shares, entitling non-voting
preference shareholders to quarterly cumulative dividends at a
fixed rate of 9.5% per annum for a period of five years from the
date of the issue of the non-voting preference shares, following
which the rate shall be reset for each subsequent period of
five consecutive years at the rate which is equal to the Bank
of England base rate prevailing at the time of reset plus 7.5%.
Dividends on the non-voting preference shares which have
become due and payable in accordance with the Articles are
required to be approved and paid in full before any repurchases
or distributions can be made with respect to the ordinary shares.
Dividends may be declared or paid in any currency. The Board
may, if authorised by an ordinary resolution of the Company,
offer shareholders (excluding any shareholder holding shares
as treasury shares) in respect of any dividend the right to elect
to receive shares by way of scrip dividend instead of cash.
Any dividend unclaimed after a period of six years from the date
when it was declared or became due for payment is forfeited and
reverts to the Company unless the Board decides otherwise.
The Board may decide on the way dividends or other money
payable in cash relating to a share are paid, including deciding
on different methods of payment for different shareholders
or groups of shareholders. If shareholders fail to provide the
necessary details to enable payment of the dividend or other
amount payable to them or if payment cannot be made using
the details provided by the shareholder, the dividend or other
amount payable will be treated as unclaimed.
Haleon
Annual Report and Form 20-F 2022
214
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Rights on a winding up
The non-voting preference shares carry preferential rights to
participate in a distribution of capital in the event of insolvency
(including on a winding-up) up to an amount equal to their
nominal value plus accrued dividend and any arrears or deficiency
in amount of the cumulative dividend.
The ordinary shares do not carry any rights to participate in a
capital distribution (including on a liquidation) other than those
that exist as a matter of law. Under the Companies Act, upon a
liquidation, after the claims of creditors have been satisfied and
subject to any special rights attaching to any other class of shares
in the Company (including the non-voting preference shares),
surplus assets (if any) are distributed among the shareholders
in proportion to the number and nominal amounts of their
ordinary shares.
Redemption of non-voting preference shares
Each non-voting preference share is redeemable in whole at
the option of the Company or redeemable at the option of each
relevant non-voting preference shareholder in respect of its
entire holding of such shares on any date falling not less than five
years after the date on which that share was issued or, if earlier,
on the Company undergoing a change of control.
General meetings
The Articles rely on the Companies Act provisions for calling
general meetings (including AGMs) and as such the Company
is required to give at least 21 days’ notice of a general meeting
unless a special resolution reducing the period to not less than
14 days has been passed at the immediately preceding AGM.
The Board may decide to allow persons entitled to attend
and participate in a general meeting to do so by simultaneous
attendance and participation by means of an electronic facility
with no member necessarily in physical attendance at the
electronic meeting, and to permit directors or others to attend
and speak, and the chair of the meeting to preside, by electronic
means. Shareholders present in person or by proxy by means of
such electronic facility will be counted in the quorum for, and
entitled to participate in, the relevant general meeting.
Restrictions in respect of designated persons
The Articles contain provisions empowering the Company to
apply certain restrictions and to take certain actions in relation
to ordinary shares and non-voting preference shares where
the Company believes the holder of such shares is or may
be designated as a sanctioned person by certain authorities
(including, but not limited to, the US, EU, UK or any respective
governmental institutions) or where it would be unlawful by
virtue of any sanctions law applicable to the Company.
Exchange controls and restrictions on
payment of dividends
Other than certain economic sanctions, which may be in force
from time to time, there are no governmental laws, decrees or
regulations in the UK restricting the import or export of capital or
affecting the remittance of dividends, interest or other payments
to non-resident holders of ordinary shares or ADRs. There are no
limitations under English law or the Articles on the right of non-
resident or foreign owners to be the registered holders of, or to
exercise voting rights in relation to, ordinary shares or ADRs.
Material modifications to the rights of
shareholders
On 3 August 2022, following the approval of the High Court of
Justice in England in Wales, the Company undertook a reduction
of capital in accordance with Section 641(1)(b) of the Companies
Act pursuant to which the Company: cancelled and extinguished
£1.24 of the nominal value of each Haleon ordinary share of £1.25
each to £0.01 each; and cancelled and extinguished all amounts
standing to the credit of the Company’s share premium account,
with all amounts so reduced being credited to the Company’s
profit and loss reserve.
Haleon
Annual Report and Form 20-F 2022
215
Group information
The contracts listed below have been entered into by the
Company or a member of the Group within the two years
immediately preceding the date of this Annual Report and are
material to the Company or any member of the Group (other
than contracts entered into in the ordinary course of business)
or were subsisting during this period of review and are contracts
of significance with a controlling shareholder in accordance with
Listing Rule 9.8.4R(10).
Pfizer Stock and Asset Purchase Agreement
Pursuant to a stock and asset purchase agreement dated 19
December 2018 and amended and restated on 31 July 2019
(the Pfizer SAPA), GSK, Pfizer and GlaxoSmithKline Consumer
Healthcare Holdings (No.2) Limited (CH JVCo, as the holding
company for the Group prior to separation) agreed to form a new
global consumer healthcare joint venture (the GSK/Pfizer JV),
through: (i) the acquisition by CH JVCo of the Pfizer Contributed
CH Business (as defined below) from Pfizer and (ii) the transfer
by GSK to CH JVCo of those parts of the GSK Contributed CH
Business (as defined below) not already owned by GSKCHH
(the former holding company of the Group). Completion of the
transaction (Pfizer Completion) took place on 31 July 2019.
Following the Demerger, the Group has assumed the obligations
of CH JVCo under each of the contracts disclosed in this section.
Asset Perimeter: GSK Contributed CH Business
The “GSK Contributed CH Business” has the meaning given to
“Purchaser Business” in the Pfizer SAPA, which was defined as
follows: (i) the worldwide business of researching, developing,
manufacturing, marketing, commercialising, distributing and
selling the products sold under the brand names listed for GSK
in an annex to the Pfizer SAPA as conducted by GSK (directly
and indirectly) as of the date of the Pfizer SAPA and as of
immediately prior to Pfizer Completion; (ii) the business reflected
in certain specified financial statements of the GSK Contributed
CH Business, including the assets, rights, properties, activities,
operations and liabilities that comprised such business; (iii) the
business of marketing, commercialising, distributing and selling
any over-the-counter healthcare or medicine products, wellness
products and other personal care, oral care, nutrition, skin
health, cosmetic and related products (the Consumer Healthcare
Products) as conducted by GlaxoSmithKline Asia Private Limited
(including pursuant to the Consignment Selling Agreement)
as of the date of the Pfizer SAPA and as of immediately prior
to Pfizer Completion; and (iv) to the extent not otherwise
reflected in the financial statements referred to in (ii) above,
the research and development of any Consumer Healthcare
Products, as conducted by GSK (directly and indirectly) through
its consumer healthcare business (directly or indirectly pursuant
to a contractual arrangement with any other GSK business, to the
extent of the GSK consumer healthcare business’ right pursuant
to such contractual arrangement), as of the date of the Pfizer
SAPA and as of immediately prior to Pfizer Completion, but
excluded: the worldwide business of researching, developing,
manufacturing, marketing, commercialising, distributing and
selling pharmaceutical products to the extent such business
and the economic benefit attached to such business was not
reflected in the financial statements referred to in (ii) above; and
the excluded assets listed for GSK in an annex to the Pfizer SAPA,
namely: (i) the assets within the scope of (and proceeds of) GSK’s
divestment of the Horlicks brand and other consumer healthcare
nutrition products in India to Unilever N.V. (which completed on
1 April 2020); (ii) GlaxoSmithKline Consumer Healthcare Limited
(GSK’s listed subsidiary in India); (iii) GlaxoSmithKline Bangladesh;
(iii) GlaxoSmithKline Consumer Nigeria plc; (iv) Imitrex and
Ventolin; and (v) certain manufacturing sites in Argentina, Brazil,
Indonesia, India and Nigeria.
The parties subsequently agreed to transfer manufacturing sites
in Indonesia, Argentina and Brazil into the Group.
Asset Perimeter: Pfizer Contributed CH Business
The “Pfizer Contributed CH Business” has the meaning given
to “Business” in the Pfizer SAPA, which was defined as the
worldwide business of researching, developing, manufacturing,
marketing, commercialising, distributing and selling: the products
sold under the brand names listed for Pfizer in an annex to the
Pfizer SAPA, as conducted by Pfizer (directly and indirectly) as of
the date of the Pfizer SAPA and as of immediately prior to Pfizer
Completion; and any over-the-counter consumer healthcare or
medicine products, wellness products and other personal care,
oral care, nutrition, skin health, cosmetic and related products,
as conducted by Pfizer (directly and indirectly) through its Pfizer
consumer healthcare business unit (directly or indirectly pursuant
to a contractual arrangement with any other Pfizer business unit,
to the extent of the Pfizer consumer healthcare business unit’s
rights pursuant to such contractual arrangement) as of the date of
the Pfizer SAPA and as of immediately prior to Pfizer Completion,
but excluded: (i) any product marketed, commercialised,
distributed or sold under the brands Diflucan One, Feldene
Gel or Ponstan (or any other products containing the same or
similar compounds as such products) in any jurisdiction; (ii)
any pharmaceutical products or pharmaceutical products that
have become or may in the future become, in whole or in part,
over-the-counter products (other than the products included
in the definition of “Business”); and (iii) any product containing
any of the following compounds (or marketed, commercialised,
distributed or sold under any of the following brands) in any
jurisdiction: (a) Sildenafil citrate (Viagra); (b) Celecoxib (Celebrex);
(c) Varenicline (Chantix/Champix); (d) Atorvastatin (Lipitor); (e)
Gabapentin (Neutontin); and (f) Fesoterodine (Toviaz).
Indemnities
Under the Pfizer SAPA, GSK and Pfizer each agreed to indemnify
each other and the Group in respect of losses (other than losses
relating to tax, which were subject to a separate regime – see
below) relating to certain liabilities that the parties agreed would
be retained by GSK or Pfizer, respectively, relating to, among
other things: (i) the assets that were excluded from the GSK
Contributed CH Business or the Pfizer Contributed CH Business
respectively (as described above); (ii) liabilities under any pension
or other employee benefit plans not sponsored by GSKCHH or
another member of the Group, subject to certain exceptions; and
(iii) any liabilities arising from any third party claim in respect of
products containing talc or asbestos distributed or sold by GSK or
Pfizer at any time before Pfizer Completion.
The Group is required to indemnify GSK and Pfizer in respect
of “Purchaser Liabilities” and “Assumed Liabilities”, which were
defined as follows: “Purchaser Liabilities” means any and all
liabilities (other than certain specified exceptions – including
those liabilities GSK agreed to indemnify the Group in respect
of, as summarised above) of GSK or any of its affiliates, whether
arising prior to, on or after Pfizer Completion, to the extent
resulting from or arising out of the past, present or future
ownership, operation, use or conduct of the Purchaser Business,
where “Purchaser Business” has the meaning described above
under the section entitled “Pfizer Stock and Asset Purchase
Agreement—Asset Perimeter: GSK Contributed CH Business”; and
“Assumed Liabilities” means any and all liabilities (other than
certain specified exceptions – including those liabilities Pfizer
Group information
continued
Material contracts
Haleon
Annual Report and Form 20-F 2022
216
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
agreed to indemnify the Group in respect of, as summarised
above) of Pfizer or any of its affiliates, whether arising prior to,
on or after Pfizer Completion, to the extent resulting from or
arising out of the past, present or future ownership, operation,
use or conduct of the Business, where “Business” has the
meaning described above under “Pfizer Stock and Asset Purchase
Agreement—Asset Perimeter: Pfizer Contributed CH Business”.
The Pfizer SAPA Amendment Agreement also extends the Group’s
indemnification obligations in favour of GSK and Pfizer to include,
among other things, all losses (other than losses relating to tax,
which were subject to a separate regime (see below)) relating
to liabilities to the extent resulting from or arising out of the
past, present or future ownership, operation, use or conduct
of the consumer healthcare business since Pfizer Completion,
subject to certain exceptions (see Pfizer SAPA Amendment
Agreement below).
In respect of tax, each of GSK and Pfizer provided an indemnity,
subject to customary exclusions and limitations, to the Group
in respect of, among other things, tax liabilities of the companies
contributed to the GSK/Pfizer JV arising up to the point of
Pfizer Completion.
The indemnities provided by each of GSK, Pfizer and the Group
under the Pfizer SAPA survived completion of the Demerger
and Separation.
Pfizer SAPA Amendment Agreement
On 1 June 2022, GSK, Pfizer, CH JVCo and the Company entered
into the second amendment agreement to the Pfizer SAPA (the
Pfizer SAPA Amendment Agreement) to implement certain
amendments, including: (i) amendments to the Pfizer SAPA
that were deemed appropriate as a result of the Group being
an independent, separate business from GSK and Pfizer from
Separation; (ii) amendments that were deemed appropriate as a
result of an overlap with certain other ancillary agreements that
are currently being entered into as part of the Separation; and (iii)
to include the Company in the Pfizer SAPA indemnity framework
by way of a guarantee given by the Company of CH JVCo’s
indemnification obligations under the Pfizer SAPA.
Pursuant to the Pfizer SAPA Amendment Agreement: (i) the
Group’s indemnification obligations under the Pfizer SAPA (as
described under Pfizer Stock and Asset Purchase Agreement—
Indemnities on the page opposite), were extended to include,
among other things, all losses (other than losses relating to tax,
which were subject to a separate regime) relating to liabilities
to the extent resulting from or arising out of the past, present
or future ownership, operation, use or conduct of the consumer
healthcare business since Pfizer Completion, subject to certain
exceptions primarily related to liabilities retained by each of
Pfizer and GSK, respectively, under the Pfizer SAPA; and (ii) the
Company, which is deemed a ‘Purchaser Indemnified Party’ under
the Pfizer SAPA and has the benefit of the indemnities given
to CH JVCo under the Pfizer SAPA, has provided a guarantee
of CH JVCo’s indemnity obligations under the Pfizer SAPA (as
described under Pfizer Stock and Asset Purchase Agreement—
Indemnities on the page opposite), as amended by the Pfizer
SAPA Amendment Agreement.
The Pfizer SAPA Amendment Agreement also includes provisions
related to the release of guarantees given by Pfizer for the benefit
of companies in the Group (or vice versa).
Pfizer Shareholders’ Agreement
The shareholders’ agreement, as amended or supplemented from
time to time, in relation to the GSK/Pfizer JV was entered into on
31 July 2019 among Pfizer, GSK and CH JVCo, among others (the
Pfizer SHA). The Pfizer SHA governed the relationship between
the shareholders of CH JVCo and its ongoing management and
operation before Admission. The Pfizer SHA was terminated in its
entirety with effect from Admission.
Separation Co-operation and Implementation
Agreement
The Separation Co-operation and Implementation Agreement
(the SCIA) was entered into on 1 June 2022 among GSK, Pfizer,
CH JVCo and the Company, among others, and details certain
actions that were to be taken and arrangements that were to be
implemented to effect completion of, or which otherwise relate
to, the Separation. The SCIA records the obligations of the parties
relating to such matters and contains certain terms on which
relations between the parties are governed following completion
of the Separation.
The SCIA also sets out certain other rights and obligations of
the parties relating to, among other things, information rights
and confidentiality. Pursuant to the terms of the SCIA, Pfizer has
certain rights to certain information regarding the Company and
the Group. Subject to certain exceptions, those rights will not
apply if and when Pfizer and members of Pfizer’s group cease
to hold, in aggregate, Haleon ordinary shares or Haleon ADSs in
respect of such Haleon shares representing at least 10% of the
Haleon Shares in issue (or the ordinary shares of any ultimate
holding company thereof from time to time).
Tax Covenant
In accordance with the SCIA, the Company, GSK and Pfizer, among
others, entered into a tax covenant on 1 June 2022, which has
been effective from the time of the Demerger (the Tax Covenant).
Subject to certain financial and other customary limitations, the
Tax Covenant contains certain indemnities in respect of taxation
given from GSK and Pfizer to the Company (and vice versa) where
it has been agreed that such taxes are properly allocable to the
indemnifying party. Amongst other things, GSK and Pfizer have
provided the Company with indemnities for tax arising (if any)
pursuant to certain pre-demerger reorganisation steps within
the Group and the steps which comprised the Separation. As is
customary for demerger transactions, the Company has provided
a more limited set of tax indemnities to GSK and Pfizer.
The Tax Covenant also imposes certain restrictions on the
Company for a number of years. For example, there are
restrictions on certain asset disposals as well as on certain
internal restructuring transactions (including liquidations or the
issuance or redemption of stock or debt of certain subsidiaries
of the Company). Although the Company does not currently
anticipate that these restrictions would have a material adverse
impact on the Company, these restrictions may reduce the
Company’s ability to engage in certain business transactions
that otherwise might be advantageous.
Exchange Agreements
Subject to and shortly after completion of the demerger, a
series of share-for-share exchanges occurred pursuant to
certain share exchange agreements in order to rationalise the
Company’s shareholding structure such that GSK, the Scottish
Limited Partnerships (SLPs) and Pfizer hold their remaining
interests in the consumer healthcare business by holding
shares in the Company, as the listed parent company.
Haleon
Annual Report and Form 20-F 2022
217
Group information
Pfizer Exchange Agreement
On 1 June 2022, Pfizer and the Company, among others, entered
into an exchange agreement pursuant to which Pfizer transferred
all of its interests in the company that held 32% of the ordinary
shares in the Group prior to separation to the Company in
exchange for the issuance by the Company of Haleon ordinary
shares to Pfizer and J.P. Morgan Chase Bank N.A., as depositary
on behalf of Pfizer), representing in aggregate 32% of the issued
and outstanding Haleon ordinary shares immediately following
separation (to the nearest whole Haleon ordinary share), and 25
million non-voting preference shares.
Following completion of these transactions, the Company
indirectly owned 100% of the Group.
Pfizer Relationship Agreement
The relationship agreement between the Company and Pfizer was
entered into as a deed on 1 June 2022 (the Pfizer Relationship
Agreement). The principal purpose of the Pfizer Relationship
Agreement is to regulate the continuing relationship between the
Company and Pfizer after Admission. References to aggregate
interests in Haleon ordinary shares in the Pfizer Relationship
Agreement include both direct holdings of Haleon ordinary
shares and interests in Haleon ordinary shares held indirectly
through holdings of Haleon ADSs.
Pursuant to the Pfizer Relationship Agreement, Pfizer has
undertaken, that, for so long as Pfizer is a controlling shareholder
(as defined in Appendix I to the Listing Rules), it shall (and shall
procure that its associates (as defined in Appendix I of the
Listing Rules) shall): (i) conduct all transactions and arrangements
with the Company and the Group at arm’s length and on normal
commercial terms; (ii) not take any action that would have
the effect of preventing the Company from complying with its
obligations under the Listing Rules; and (iii) not propose or
procure the proposal of a shareholder resolution of the Company
which is intended or appears to be intended to circumvent the
proper application of the Listing Rules. For so long as Pfizer is a
controlling shareholder, it shall (and shall, so far as it is legally
able to do so, procure that its associates shall) not take any action
which precludes the Company or any other member of the Group
from carrying on an independent business as its main activity.
Under the Pfizer Relationship Agreement, Pfizer is granted the
right to nominate two persons to be appointed to the Board as
representative directors for so long as it and its affiliates together
continue to hold 20% or more of the Haleon Shares in issue and
a right to nominate one person to be appointed to the Board
as a representative director for so long as it and its affiliates
together continue to hold less than 20% but at least 10% of the
Haleon ordinary shares in issue. Pfizer is subject to customary
standstill provisions, subject to certain exceptions, and the
Pfizer Relationship Agreement imposes certain obligations
on the Company in connection with seeking shareholder
authority to carry out share repurchases to ensure that no
such repurchases result in a requirement for Pfizer to make a
general offer for Haleon Shares in accordance with Rule 9 of the
City Code (provided that Pfizer has not itself entered into any
disqualifying transactions).
Under the Pfizer Relationship Agreement, Pfizer agrees to procure
that any member of its group that held an interest in Haleon
ordinary shares on Admission shall, for such time as that member
of Pfizer’s group holds an interest in Haleon ordinary shares,
comply with the provisions of the Pfizer Relationship Agreement
as if that member of Pfizer’s group were a party to the Pfizer
Relationship Agreement with the same obligations as Pfizer.
The Pfizer Relationship Agreement will terminate on the date that
Pfizer and its affiliates cease to hold at least 10% of the Haleon
ordinary shares in issue.
Registration Rights Agreement
The Registration Rights Agreement (the Registration Rights
Agreement) was entered into on 1 June 2022 among the
Company, Pfizer, GSK and the SLPs. GSK, Pfizer and the SLPs,
together with their respective affiliates, successors or permitted
assigns, to the extent they are holders or beneficial owners
of the Company’s registrable securities, are referred to in the
Registration Rights Agreement as “Holders”. The Company’s
registrable securities include all shares and ADSs held by the
Holders in the Company after Separation and equity securities
issued in exchange or replacement thereof.
The Registration Rights Agreement provides for certain demand
and piggyback registration rights to the Holders. The Company
filed a shelf registration statement on Form F-1 (the Shelf
Registration Agreement) on 28 July 2022 in partial satisfaction
of the demand registration rights. Additionally, pursuant to the
demand registration rights: (i) following the expiration of the
lock-up restrictions in the Lock-up Deed, each Holder now has the
right to sell any part of its registrable securities in an underwritten
offering pursuant to the Shelf Registration Statement (the Shelf
Underwriting) by delivering a written request to the Company.
The Company shall give notice of such request to the Holders of
other registrable securities registered on the Shelf Registration
Statement, and, subject to certain limitations, include in the Shelf
Underwriting the registrable securities of the other requesting
Holders; (ii) if the Shelf Registration Statement is not available for
use by the Holders, each Holder may require the Company to file
one or more registration statements covering all or any part of its
registrable securities, subject to certain limitations. The Company
shall use its reasonable best efforts to file or confidentially
submit with the SEC such registration statement no later than 60
days from receipt of request from the Holder if the registration
is on Form F-1 or Form S-1 (or 30 days if the registration is on
Form F-3 or Form S-3); and (iii) the Registration Rights Agreement
includes customary provisions that permit the Company to
postpone filing or confidentially submitting a registration
statement, or if a registration statement has been filed or
confidentially submitted, suspend use of, or withdraw, such
registration statement for a limited duration to avoid disclosing
material non-public information in certain circumstances.
The Holders also have certain ‘piggyback’ registration rights,
pursuant to which they will be entitled to register the resale
of their registrable securities alongside certain offerings of
securities that the Company may undertake, subject to “cutback”
in certain such cases.
The Registration Rights Agreement contains customary
indemnification obligations on the part of the Company and,
in certain circumstances, the Holders.
The Company is obligated to pay all expenses associated with
the registration of the registrable securities under the Registration
Rights Agreement, except for transfer taxes and commissions
payable in an underwritten offering (payable by the Holders).
The Registration Rights Agreement terminates with regards
to the Holders affiliated with GSK and the Holders affiliated
with Pfizer when they, respectively, cease to hold registrable
securities representing more than 1% of Haleon’s outstanding
ordinary shares.
Group information
continued
Material contracts
continued
Haleon
Annual Report and Form 20-F 2022
218
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Shareholder information
Tax information for shareholders
A summary of certain UK tax and US federal income tax
consequences for holders of shares and ADSs who are citizens
of the UK or the US is set out below. It is not a complete analysis
of all the possible tax consequences of the purchase, ownership
or sale of these securities. It is intended only as a general guide.
Holders are advised to consult their advisers with respect to the
tax consequences of the purchase, ownership or sale of their
shares or ADSs and the consequences under state and local
tax laws in the US and the implications of the current UK/US
tax conventions.
US holders of ADSs generally will be treated as the owners of the
underlying shares for the purposes of the current UK/US double
taxation conventions relating to income and gains (Income
Tax Convention), estate and gift taxes (Estate and Gift Tax
Convention), and for the purposes of the Internal Revenue Code
of 1986, as amended.
UK shareholders
This summary only applies to a UK resident shareholder that
holds shares as capital assets.
Taxation of dividends
For the 2022/23 UK tax year, UK resident individuals are entitled
to a dividend tax allowance of up to £2,000, so that the first
£2,000 of dividends received in a tax year will be free of tax.
Dividends in excess of this allowance will be taxed at 8.75% for
basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35%
for additional rate taxpayers. Note that from April 2022 tax on
dividend income increased by 1.25% to help support the NHS and
social care.
UK resident shareholders that are corporation taxpayers should
note that dividends payable on ordinary shares are generally
entitled to exemption from corporation tax provided certain
conditions are met.
Taxation of capital gains
UK resident shareholders may be liable for UK tax on gains on the
disposal of shares or ADSs.
For disposals by individuals in the 2022/2023 UK tax year, a
taxable capital gain accruing on a disposal of shares or ADSs
will be taxed at 10% for basic rate taxpayers, or 20% if, after all
allowable deductions, the individual’s taxable income for the year
exceeds the basic rate income tax banding. Note this is following
the use of any exemptions available to the individual taxpayer
such as the annual exempt amount.
A disposal by corporation taxpayers may give rise to a chargeable
gain for the purposes of UK corporation tax, depending on the
circumstances and subject to any available exemption or relief.
Corporation tax is charged on gains at the rate of corporation tax
applicable to that company.
Inheritance tax
Individual (UK-domiciled or otherwise) shareholders may be
liable to UK inheritance tax on the transfer of shares or ADSs.
Tax may be charged on the amount by which the value of the
shareholder’s estate is reduced as a result of any transfer by way
of lifetime gift or other disposal at less than full market value. In
the case of a bequest on death, tax may be charged on the value
of the shares at the date of the shareholder’s death. If such a gift
or other disposal were subject to both UK inheritance tax and
US estate or gift tax, the Estate and Gift Tax Convention would
generally provide for tax paid in the US to be credited against tax
payable in the UK.
Stamp duty and stamp duty reserve tax
UK stamp duty and/or stamp duty reserve tax (SDRT) will, subject
to certain exemptions, be payable on the transfer of shares at
a rate of 0.5% (rounded up to the nearest £5 in the case of stamp
duty) of the consideration for the transfer. Notwithstanding
this, provided that an instrument is executed in pursuance
of the agreement that gave rise to the charge to SDRT and
that instrument is stamped within six years of the agreement
(including being stamped as exempt) any SDRT charge should
be cancelled and any SDRT which has already been paid will
be repaid.
UK stamp duty and/or SDRT will, subject to certain exemptions,
be payable on any transfer of shares to the ADS custodian or
depository at a rate of 1.5% of the amount of any consideration
provided (if transferred on sale), or their value (if transferred for
no consideration). However, no stamp duty or SDRT should be
payable on the transfer of, or agreement to transfer, an ADS.
US shareholders
This section describes the material US federal income tax
consequences to a US holder (as defined below) of owning shares
or ADSs. It applies to you only if you hold your shares or ADSs
as capital assets for tax purposes. This discussion addresses
only US federal income taxation and does not discuss all of
the tax consequences that may be relevant to you in light of
your individual circumstances, including foreign, state or local
tax consequences, estate and gift tax consequences, and tax
consequences arising under the Medicare contribution tax on net
investment income or the alternative minimum tax. This section
does not apply to you if you are a member of a special class of
holders subject to special rules, including: a dealer in securities,
a trader in securities that elects to use a mark-to-market method
of accounting for securities holdings, a tax-exempt organisation,
a life insurance company, a person that actually or constructively
owns 10% or more of the combined voting power of our voting
stock or of the total value of our stock, a person that holds
shares or ADSs as part of a straddle or a hedging or conversion
transaction, a person that purchases or sells shares or ADSs
as part of a wash sale for tax purposes, or a person whose
functional currency is not the US dollar. This section is based on
the Internal Revenue Code of 1986, as amended, its legislative
history, existing and proposed regulations, published rulings
and court decisions, all as currently in effect, as well as on the
Convention Between the US and the UK (the Treaty). These
authorities are subject to change, possibly on a retroactive basis.
In addition, this section is based in part upon the representations
of the Depositary and the assumption that each obligation in the
Deposit Agreement and any related agreement will be performed
in accordance with its terms.
Haleon
Annual Report and Form 20-F 2022
219
Shareholder information
You are a US holder if you are a beneficial owner of shares or
ADSs and you are, for US federal income tax purposes: a citizen
or resident of the US, a domestic corporation, an estate whose
income is subject to US federal income tax regardless of its
source, or a trust if a US court can exercise primary supervision
over the trust’s administration and one or more US persons are
authorised to control all substantial decisions of the trust.
If an entity or arrangement that is treated as a partnership for
US federal income tax purposes holds the shares or ADSs, the
US federal income tax treatment of a partner will generally
depend on the status of the partner and the tax treatment of
the partnership.
You should consult your own tax advisor regarding the US federal,
state and local tax consequences of owning and disposing of
shares and ADSs in your particular circumstances.
In general, and taking into account the earlier assumptions, for US
federal income tax purposes, if you hold ADRs evidencing ADSs,
you will be treated as the owner of the shares represented by
those ADRs. Exchanges of shares for ADRs, and ADRs for shares,
generally will not be subject to US federal income tax.
Distributions
Under the US federal income tax laws, the gross amount of any
distribution we pay out of our current or accumulated earnings
and profits (as determined for US federal income tax purposes),
other than certain pro-rata distributions of our shares that are
generally not taxable, will be treated as a dividend that is subject
to US federal income taxation. If you are a noncorporate US
holder, dividends that constitute qualified dividend income will
be taxable to you at the preferential rates applicable to long-
term capital gains provided that you hold the shares or ADSs
for more than 60 days during the 121-day period beginning 60
days before the ex-dividend date and meet other holding period
requirements. Dividends we pay with respect to the shares or
ADSs generally will be qualified dividend income provided that,
in the year that you receive the dividend, the shares or ADSs are
readily tradable on an established securities market in the US
or we are eligible for the benefits of the Treaty. Our ADSs are
listed on the NYSE and we therefore expect that dividends on the
ADSs will be qualified dividend income. In addition, we believe
that we are currently eligible for the benefits of the Treaty and
that dividends on the shares and ADS will be qualified dividend
income on that basis, but there can be no assurance that we will
continue to be eligible for the benefits of the Treaty. Dividends
will generally be income from sources outside the US and will
generally be “passive” income for purposes of computing the
foreign tax credit allowable to you.
The dividend is taxable to you when you, in the case of shares,
or the Depositary, in the case of ADSs, receive the dividend,
actually or constructively. The dividend will not be eligible
for the dividends-received deduction generally allowed to US
corporations in respect of dividends received from other US
corporations. The amount of the dividend distribution that you
must include in your income will be the US dollar value of the
Sterling payments made, determined at the spot Sterling/US
dollar rate on the date the dividend is distributed, regardless
of whether the payment is in fact converted into US dollars.
Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the dividend is
distributed to the date you convert the payment into US dollars
will be treated as ordinary income or loss and will not be
eligible for the special tax rate applicable to qualified dividend
income. The gain or loss generally will be income or loss from
sources within the US for foreign tax credit limitation purposes.
Distributions in excess of current and accumulated earnings
and profits, as determined for US federal income tax purposes,
will be treated as a non-taxable return of capital to the extent
of your basis in the shares or ADSs and thereafter as capital gain.
However, we do not expect to calculate earnings and profits in
accordance with US federal income tax principles. Accordingly,
you should expect to generally treat distributions we make
as dividends.
Sales or dispositions
If you sell or otherwise dispose of your shares or ADSs, you will
recognise capital gain or loss for US federal income tax purposes
equal to the difference between the US dollar value of the
amount that you realise and your tax basis, determined in US
dollars, in your shares or ADSs. Capital gain of a noncorporate US
holder is generally taxed at preferential rates where the property
is held for more than one year. The gain or loss will generally be
income or loss from sources within the US for foreign tax credit
limitation purposes.
PFIC classification
We believe that we should not be currently classified as a
PFIC for US federal income tax purposes and we do not expect
to become a PFIC in the foreseeable future. However, this
conclusion is a factual determination that is made annually and
thus may be subject to change. It is therefore possible that we
could become a PFIC in a future taxable year. The discussion
above in this section assumes that we are not classified as a PFIC
for US federal income tax purposes.
If we were to be treated as a PFIC, any gain realised on the sale
or other disposition of your shares or ADSs would in general
not be treated as capital gain. Instead, you would generally
be treated as if you had realised any gain and certain “excess
distributions” ratably over your holding period for the shares or
ADSs. Amounts allocated to the current year and any year before
we were a PFIC would be taxed as ordinary income and amounts
allocated to other years would be taxed at the highest tax rate
in effect for each such year, and would be subject to an interest
charge in respect of the tax attributable to each such year. In
addition, dividends that you receive from us would not be eligible
for the preferential tax rate if we were a PFIC (or treated as a PFIC
with respect to you) either in the taxable year of the distribution
or the preceding taxable year, but instead would be taxable at
rates applicable to ordinary income. If you own our shares or
ADSs during any year that we are a PFIC with respect to you, you
may be required to file IRS Form 8621.
Shareholder information
continued
Tax information for shareholders
continued
Haleon
Annual Report and Form 20-F 2022
220
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
The Group’s statement of compliance with the UK Corporate
Governance Code issued in July 2018 by the Financial Reporting
Council (the Code) is set out on page 106.
The Company’s ADSs are listed on the NYSE and we are subject to
the reporting and other requirements of the SEC applicable to US
foreign private issuers. We are required to disclose any significant
ways in which our corporate governance practices differ from
those followed by US companies under the Listing Standards of
the NYSE.
The significant differences between Haleon’s corporate
governance practices as a UK company and those required by
NYSE standards for US companies are as follows.
Independence
The Code’s principles recommend that at least half the Board,
excluding the Chair, should consist of independent non-executive
directors. As at 13 March 2022, the Board consisted of the Chair,
independent at the time of his appointment, two Executive
Directors, six Independent Non-Executive Directors and two Non-
Executive Directors who were nominated to the Board by Pfizer.
The Pfizer-nominated Directors are not considered independent.
NYSE listing rules applicable to US companies state that
companies must have a majority of independent directors. The
NYSE has set out six bright line tests for director independence.
The Board’s judgement is that, with the exception of the Pfizer-
nominated Non-Executive Directors, the Non-Executive Directors
are independent and, as such, independent Non-Executive
Directors make up a majority of the Board. However, it did not
explicitly take into consideration the NYSE’s tests in reaching
this determination.
Purchases of equity securities by the Company and affiliated purchasers
During the financial year ended 31 December 2022, the following ordinary shares (including ordinary shares held indirectly through
Haleon ADSs) were purchased by the Company’s Employee Benefit Trusts. No shares were repurchased by the Company.
Period
Total number of shares (or
units) purchased
1
Average price paid per
share (or unit) (£)
Total number of shares (or
units) purchased as part of
publicly announced plans
or programmes
Maximum number of
shares (or units) that may
yet be purchased under
the plans or programmes
Month 1
Nil
Nil
Nil
n/a
Month 2
Nil
Nil
Nil
n/a
Month 3
Nil
Nil
Nil
n/a
Month 4
Nil
Nil
Nil
n/a
Month 5
Nil
Nil
Nil
n/a
Month 6
Nil
Nil
Nil
n/a
Month 7
Nil
Nil
Nil
n/a
Month 8
Nil
Nil
Nil
n/a
Month 9
Nil
Nil
Nil
n/a
Month 10
Nil
Nil
Nil
n/a
Month 11
Nil
Nil
Nil
n/a
Month 12
249,038
3.16
Nil
n/a
1
Shares purchased on the open market in the UK and US.
Summary of significant corporate governance
differences from NYSE listing standards
Committees
The Company has a number of Board Committees which are
similar in purpose and constitution to those required for domestic
companies under NYSE rules. The NYSE requires US companies to
have audit, remuneration and nominating/corporate governance
committees composed entirely of independent directors, as
defined under the NYSE rules. The Company’s Nominations &
Governance, Audit & Risk, and Remuneration Committees consist
entirely of Non-Executive Directors who are independent under
the standards of the Code, which may not necessarily be the
same as the NYSE independence standards. The nominating/
governance committee is responsible for identifying individuals
qualified to become Board members and to recommend to
the Board a set of corporate governance principles. As the
Company is subject to the Code, the Company’s Nominations
& Governance Committee is responsible for nominating, for
approval by the Board, candidates for appointment to the Board
and its Committees. The Company’s Nominations & Governance
Committee consists of the Chair and independent Non-Executive
Directors. The Chair of the Company is not a member of either
the Remuneration or Audit & Risk Committees. As set out on page
74, the Audit & Risk Committee is chaired by Deirdre Mahlan, an
independent Non-Executive Director, who, in the Board’s view,
has the experience and qualifications to satisfy the criterion
under US rules for an ‘audit committee financial expert’.
Shareholder approval of equity compensation plans
The NYSE rules for US companies require that shareholders must
be given the opportunity to vote on all equity-compensation
plans and material revisions to those plans. Haleon complies with
UK requirements that are similar to the NYSE rules. The Board,
however, does not explicitly take into consideration the NYSE’s
detailed definition of what are considered ‘material revisions’.
Haleon
Annual Report and Form 20-F 2022
221
Shareholder information
Dividend history
The table below sets out the dividends declared following separation and demerger in respect of the Company’s ordinary shares
for the financial year ending 31 December 2022. Information about dividends paid prior to separation and demerger can be found
in Note 10 to the Financial Statements on page 139.
Interim
Final
Total
£
$
£
$
2022
–
–
0.024
N/A
1
0.024
1
The US Dollar equivalent of the final dividend will be set based on the actual foreign exchange rate achieved by the Company prior to payment.
Shareholder profiles
Analysis of shareholdings as at 31 December 2022
Holding of shares
Number of accounts
% of total accounts
% of total shares
Number of shares
Up to 1,000
46,426
72.03
0.16
15,183,736
1,001 – 5,000
13,788
21.39
0.33
29,994,066
5,001 – 100,000
3,398
5.27
0.57
52,932,423
100,001 to 1,000,000
500
0.78
1.96
180,830,622
Over 1,000,000
338
0.53
96.98
8,955,632,984
Totals
64,450
100
100
9,234,573,831
Held by
Institutional and Corporate holders
62,662
97.23%
33.91%
3,131,732,389
Individuals and other corporate bodies
1,787
2.77%
49.55%
4,575,834,622
Guaranty Nominees Limited
1
0.00%
16.54%
1,527,006,820
J.P. Morgan Chase Bank, N.A. is the Depositary for the Company’s ADR programme. The Company’s ADSs are listed on the NYSE.
Ordinary shares representing the Company’s ADR programme, which is managed by the Depositary, are registered in the name
of Guaranty Nominees Limited.
As at 10 March 2023 (being the latest practicable date prior to publication of this Annual Report) Guaranty Nominees Limited
held 1,531,048,334 ordinary shares representing 16.58% of the Company’s issued share capital. As at 10 March 2023, the number
of holders of Ordinary shares in the US was 862 with holdings of 899,289 ordinary shares, and the number of registered holders
of ADSs was 16,739 with holdings of 765,524,167 ADSs. Certain of these ordinary shares and ADSs were held by brokers or other
nominees. As a result, the number of holders of record or registered holders in the US is not representative of the number of
beneficial holders or of the residence of beneficial holders.
Shareholder information
continued
Haleon
Annual Report and Form 20-F 2022
222
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Impact of regulation
The Group’s activities are subject to regulation on a local
and international level that impact the Group’s activities.
The majority of the Group’s products can be categorised
according to four principal regulatory classifications, namely
(i) OTC medicines; (ii) medical devices; (iii) foods; and (iv)
cosmetics. Each is subject to regulatory regimes that restrict
research, development, manufacturing, testing, marketing and
sale of our products, and the process of obtaining regulatory
approvals and ongoing compliance with applicable laws,
regulations and other requirements require the expenditure of
substantial time and financial resources, which can increase the
cost and complexity of our business (see for example The Group
may not be able to develop and commercialise new products
effectively on page 203).
The FDA is our principal US regulator and we must also
comply with regulations promulgated by other federal and
state authorities. In the EU, the regulatory system is based on
a network of national competent authorities in the European
Economic Area, working together with the European Medicines
Agency and the European Commission. In China, the National
Medical Products Administration (and affiliated institutions)
is the primary regulator supervising and regulating drugs,
medical devices and cosmetics.
OTC medicines:
OTC medicines are regulated according to
guidelines and standards published by the International
Council for Harmonisation of Technical Requirements for
Pharmaceuticals for Human Use. The requirements govern,
among other things, pre-clinical and clinical testing, pre- and
post-marketing approval, production, distribution, import,
export, and advertising. Failure to comply can result in recalls,
seizures, injunctions, refusal or withdrawal of approval of
products, fines or criminal prosecution.
Medical devices:
All medical devices must satisfy safety
and performance, quality system (some low-risk devices
may be exempt) and labelling requirements, with the degree
of regulatory scrutiny increasing with the potential risks of
the medical device. Regulatory controls on medical devices,
including pre-market authorisation requirements, may require
the provision of stringent supporting material, including (among
other things) independent external audits of the manufacturer’s
quality systems, independent external review of the technical
data and documentation of relevant clinical evidence to
support the manufacturer’s claims.
Foods:
Most food products do not require pre-market
authorisation, although specific categories (such as food
supplements, foods for special medical purposes or dietary
supplements) may require notification of sale to regulators.
In some countries, such as China, products classified as functional
health foods require a formal pre-market review and registration.
Products in this category are subject to strict quality and safety
standards, including for packaging and product composition.
Cosmetics:
Cosmetics can be classified differently by
territory: a cosmetic in one country may be classified as
a medicine, or even a medical device, in another country
(eg, fluoride toothpaste is a cosmetic in the EU and a drug
in the US). Some countries require pre-market approval
involving the provision of safety assessments, manufacturing
data and raw material functionality, while other countries
require no registration.
Additional laws, regulations and other requirements
materially relevant to the Group’s business include:
—
Claims and labelling:
The labelling and advertising for all
product classifications which the Group markets is subject to
applicable laws in markets in which the Group operates, which
may specify text format and the order of information, require
specific information and statements, and restrict misleading,
unfair or unsubstantiated claims in advertisements and on
labels. Regulatory authorities may take enforcement action
against businesses which fail to comply with relevant rules.
—
Pricing:
The Group’s activities are also subject to price
control laws and regulations in some of the markets in which
it operates. For example, in China, in respect of medicines
(both Rx and OTC) in the hospital channel, the government
regulates prices through a centralised procurement
mechanism, medical insurance reimbursement standards and
strengthened regulation of medical and pricing practices.
—
Consumer safety and quality:
The Group is subject to
vigilance regulations designed at ensuring the safety of its
products, whether in the development pipeline, already
approved, or post-launch. These regulations require the
collection, detection, assessment, monitoring and prevention
of adverse events/undesirable effects, through (among other
things) inspection by health authorities, reporting of serious
safety events, and preparation of periodic safety reports.
The Group is also subject to quality regulations that apply
to innovation, manufacturing practices, testing, marketing,
post-marketing studies and reporting by product classification.
These regulations can require pre- and post-approval
inspections of facilities to ensure Good Manufacturing
Practices compliance, and the imposition of quality
systems regulations on medical devices.
Haleon
Annual Report and Form 20-F 2022
223
Shareholder information
Exhibits
The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC, and are publicly available through
the SEC’s website.
>>
www.sec.gov and search Haleon plc under Company Filings.
Exhibit 1
*
Articles of Association of the Company dated 31 May 2022.
Exhibit 2.1
*
Form of Deposit Agreement, among the Registrant, J.P. Morgan Chase Bank, N.A., as Depositary, and all Holders
and Beneficial Owners from time to time of American Depositary Shares issued thereunder.
Exhibit 2.2
*
Form of American Depositary Receipt representing American Depositary Shares representing ordinary shares
of the Registrant (included in Exhibit 2.1).
Exhibit 2.3
*
Indenture dated as of 24 March 2022 among GSK Consumer Healthcare Capital US LLC, GSK Consumer Healthcare
Capital UK plc, GlaxoSmithKline plc. and the Registrant as guarantors and Deutsche Bank Trust Company Americas,
as trustee, registrar, paying agent, transfer agent and calculation agent.
Exhibit 2.4
Description of Securities Registered Under Section 12 of the Exchange Act.
Exhibit 4.1
*
Service Agreement between Haleon UK Services Limited and Brian McNamara dated 9 May 2022.
Exhibit 4.2
*
Service Agreement between Haleon UK Services Limited and Tobias Hestler dated 10 May 2022.
Exhibit 4.3
*
Stock and Asset Purchase Agreement between Pfizer Inc., GSK plc and GlaxoSmithKline Consumer Healthcare
Holdings Limited dated as of 19 December 2018. Certain confidential information contained in this exhibit has
been omitted from this exhibit because it is both (i) not material and (ii) would likely cause competitive harm to
the Registrant if publicly disclosed.
Exhibit 4.4
*
Amendment Agreement dated as of 31 July 2019 to the Stock and Asset Purchase Agreement by and among Pfizer
Inc., GSK plc, GlaxoSmithKline Consumer Healthcare Holdings Limited and GlaxoSmithKline Consumer Healthcare
Holdings (No. 2) Limited dated as of 19 December 2018.
Exhibit 4.5
*
Second Amendment Agreement dated as of 1 June 2022 to the Stock and Asset Purchase Agreement by and
among Pfizer Inc., GSK plc, GlaxoSmithKline Consumer Healthcare Holdings Limited and GlaxoSmithKline
Consumer Healthcare Holdings (No. 2) Limited dated as of 19 December 2018. Certain confidential information
contained in this exhibit has been omitted from this exhibit because it is both (i) not material and (ii) would likely
cause competitive harm to the Registrant if publicly disclosed.
Exhibit 4.6
*
Asset Transfer Framework Agreement dated as of 1 June 2022 between GSK plc, GlaxoSmithKline Consumer
Healthcare Holdings Limited and GlaxoSmithKline Consumer Healthcare Holdings (No. 2) Limited. Certain
confidential information contained in this exhibit has been omitted from this exhibit because it is both (i)
not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed.
Exhibit 4.7
*
Demerger Agreement dated as of 1 June 2022 between the Registrant and GSK plc.
Exhibit 4.8
*
Tax Covenant dated as of 1 June 2022 between GSK plc, Pfizer, Inc., GlaxoSmithKline Consumer Healthcare Holdings
Limited, GlaxoSmithKline Consumer Healthcare Holdings (No.2) Limited and the Registrant. Certain confidential
information contained in this exhibit has been omitted from this exhibit because it is both (i) not material and (ii)
would likely cause competitive harm to the Registrant if publicly disclosed.
Exhibit 4.9
*
Separation Co-Operation and Implementation Agreement dated as of 1 June 2022 between GSK plc, Pfizer Inc.,
the Registrant, GlaxoSmithKline Consumer Healthcare Holdings (No. 2) Limited, GlaxoSmithKline Consumer
Healthcare Holdings Limited, Anacor Pharmaceuticals, Inc. and PF Consumer Healthcare Holdings LLC
1
.
Certain confidential information contained in this exhibit has been omitted from this exhibit because it is
both (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed.
Exhibit 4.10
*
Exchange Agreement dated as of 1 June 2022 between GSK plc and the Registrant.
Exhibit 4.11
*
Exchange Agreement dated as of 1 June 2022 between GSK (No.1) Scottish Limited Partnership, GSK (No.2)
Scottish Limited Partnership, GSK (No.3) Scottish Limited Partnership and the Registrant.
Exhibit 4.12
*
Exchange Agreement dated as of 1 June 2022 between Pfizer Inc., Anacor Pharmaceuticals, Inc. and the Registrant.
*
Incorporated by reference
1
This entity was dissolved on 28 December 2022
Shareholder information
continued
Haleon
Annual Report and Form 20-F 2022
224
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Exhibit 4.13
*
Pfizer Relationship Agreement dated as of 1 June 2022 between the Registrant and Pfizer Inc.
Exhibit 4.14
*
Transition Services Agreement dated as of 1 June 2022 between GlaxoSmithKline Services Unlimited,
GlaxoSmithKline LLC, Haleon UK Services Limited and GlaxoSmithKline Consumer Healthcare Holdings (US) LLC.
Certain confidential information contained in this exhibit has been omitted from this exhibit because it is both
(i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed.
Exhibit 4.15
*
Registration Rights Agreement dated as of 1 June 2022 between the Registrant, Pfizer Inc., GSK plc, GSK (No.1)
Scottish Limited Partnership, GSK (No.2) Scottish Limited Partnership and GSK (No.3) Scottish Limited Partnership.
Exhibit 4.16
*
Trust Deed dated as of 16 March 2022 among GSK Consumer Healthcare Capital UK plc, GSK Consumer Healthcare
Capital NL B.V., GSK plc. and the Registrant as guarantors and Deutsche Trustee Company Limited as trustee for
the noteholders.
Exhibit 4.17
*
Term Loan Facility dated as of 18 February 2022 among GlaxoSmithKline Consumer Healthcare Holdings (No. 2)
Limited, Bank of America, N.A., London Branch, Banco Santander, S.A., London Branch, Barclays Bank PLC, BNP
Paribas Fortis SA/NV, BNP Paribas, Citibank, N.A., London Branch, Deutsche Bank AG, London Branch, Goldman
Sachs Bank USA, HSBC Bank plc, J.P. Morgan Chase Bank, N.A., London Branch, Mizuho Bank, Ltd., Morgan Stanley
Bank N.A. and Standard Chartered Bank (Hong Kong) Limited. Certain confidential information contained in this
exhibit has been omitted from this exhibit because it is both (i) not material and (ii) would likely cause competitive
harm to the Registrant if publicly disclosed.
Exhibit 4.18
*
Rules of the Haleon plc Share Value Plan 2022.
Exhibit 4.19
*
Rules of the Haleon plc Performance Share Plan 2022.
Exhibit 8
List of subsidiaries of Haleon plc as at 31 December 2022 (can be found on pages 180-185).
Exhibit 12.1
Certification of Brian McNamara filed pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 12.2
Certification of Tobias Hestler filed pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 13.1
Certification of Brian McNamara and Tobias Hestler furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 15.1
Consent of KPMG LLP.
Exhibit 15.2
Consent of Deloitte LLP.
Exhibit 15.3
Letter from KPMG LLP addressed to the SEC regarding the Change in Registrant’s Certifying Accountant disclosures
in this Annual Report on Form 20-F.
Exhibit 101.INS
Inline XBRL Instance Document.
Exhibit 101.SCH
XBRL Taxonomy Extension Schema.
Exhibit 101.CAL
XBRL Taxonomy Extension Schema Calculation Linkbase.
Exhibit 101.DEF
XBRL Taxonomy Extension Schema Definition Linkbase.
Exhibit 101.LAB
XBRL Taxonomy Extension Schema Label Linkbase.
Exhibit 101.PRE
XBRL Taxonomy Extension Schema Presentation Linkbase.
Exhibit 104
Cover Page Interactive Data File – (formatted as Inline XBRL and contained in Exhibit 101).
*
Incorporated by reference
Haleon
Annual Report and Form 20-F 2022
225
Shareholder information
Form 20-F cross reference
Item
Form 20-F caption
Location
Page
1
Identity of Directors, senior management
and advisers
Not applicable
2
Offer statistics and expected timetable
Not applicable
3
Key information
3A (Reserved)
Not applicable
3B Capitalisation and indebtedness
Not applicable
3C Reason for the offer and use of proceeds
Not applicable
3D Risk factors
Group information: Risk factors
202
4
Information on the company
4A History and development of the
Company
Strategic Report: Use of non-IFRS measures: Net capital expenditure
Consolidated Financial Statements: Note 1 Presentation of the Financial
Statements, ‘General information’
Group information: History and development of the Group
Useful Information: Investor information – Website and electronic
communication
Useful information: Contacts
54
127
201
230
231
4B Business overview
Strategic Report
Consolidated Financial Statements: Note 1 Presentation of the
Financial Statements
Consolidated Financial Statements: Note 4 Segment information
Group information: Risk factors
Group information: Impact of regulation
2
127
130
202
223
4C Organisation structure
Consolidated Financial Statements: Note 30 Subsidiaries
Group information: History and development of the Group
180
201
4D Property, plant and equipment
Strategic Report: Key performance indicators
Directors’ Report: Streamlined energy and carbon reporting
Consolidated Financial Statements: Note 12 Property, plant
and equipment
Group information: Property, plant and equipment
12
199
140
211
4A
Unresolved staff comments
Not applicable
5
Operating and financial review and prospects
5A Operating results
Strategic Report: 2022 Business Review
Strategic Report: Key performance indicators
Strategic Report: Viability statement
Consolidated Financial Statements: Foreign Currencies
Consolidated Financial Statements: Note 2 Accounting policies
Consolidated Financial Statements: Note 25 Capital and financial risk
management, ‘Foreign exchange risk management’, ‘Net investment
hedges’ and ‘Foreign exchange sensitivity’
Group information: Risks relating to changes in law and the political and
economic environment, regulation and legislation
36
12
61
128
129
165
207
5B Liquidity and capital resources
Strategic Report: 2022 Business review – ‘indebtedness, liquidity
and financial risk management’
Strategic Report: Use of non-IFRS measures
Strategic Report: Viability statement
Consolidated Financial Statements: Note 8 Net finance costs
Consolidated Financial Statements: Note 16 Trade and other receivables
Consolidated Financial Statements: Note 17 Cash and cash equivalents
Consolidated Financial Statements: Note 19 Borrowings
Consolidated Financial Statements: Note 22 Contingent liabilities
and commitments
Consolidated Financial Statements: Note 25 Capital and financial
risk management
45
46
61
136
147
149
149
159
165
5C Research and development, intellectual
property
Strategic Report: Our business model
Strategic Report: Our strategy
Strategic Report: Our progress against our strategy
Consolidated Financial Statements: Consolidated income statement
Consolidated Financial Statements: Note 14 Intangibles assets
10
18
19
122
143
5D Trend information
Strategic Report: 2022 Business review
36
5E Critical accounting estimates
Not applicable
Non-GAAP financial measures
Strategic Report: 2022 Business review
Strategic Report: Use of Non-IFRS measures
36
46
Shareholder information
continued
Haleon
Annual Report and Form 20-F 2022
226
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Item
Form 20-F caption
Location
Page
6
Directors, senior management and employees
6A Directors and senior management
Corporate Governance: Our Board of Directors
Corporate Governance: Our Executive Team
Directors’ Report: Significant shareholders
64
66
197
6B Compensation
Remuneration Committee Report
Consolidated Financial Statements: Note 7 Employees and remuneration
of key management personnel
Consolidated Financial Statements: Note 20 Pensions and other
post-employment benefits
82
135
152
6C Board practices
Corporate Governance: Our Board of Directors
Corporate Governance: Our Executive Team
Corporate Governance: Governance structure
Corporate Governance: Audit & Risk Committee Report
Corporate Governance: Nominations & Governance Report
64
66
69
74
80
6D Employees
Consolidated Financial Statements: Note 7 Employees and remuneration
of key management personnel
135
6E Share ownership
Remuneration Committee Report: Annual Report on remuneration
Consolidated Financial Statements: Note 26 Employee share scheme
Group Information: Directors’ and Executive Team shareholdings
95
176
211
7
Major shareholders and related
party transactions
Not applicable
7A Major shareholders
Directors’ Report: Significant shareholders
Shareholder information: Shareholder profiles
197
222
7B Related party transactions
Consolidated Financial Statements: Note 24 Related party transactions
Group information: Material contracts
164
216
7C Interests of experts and counsel
Not applicable
8
Financial information
8A Consolidated statements and other
financial information
Strategic Report: Use of Non-IFRS measures
Consolidated Financial Statements
Independent Auditors’ US Reports
Directors’ Report: Dividends and dividend policy
46
107
120
196
8B Significant changes
Consolidated Financial Statements: Post balance sheet events
179
9
The offer and listing
9A Offer and listing details
Useful information: Trading markets
230
9B Plan of distribution
Not applicable
9C Markets
Useful information: Trading markets
230
9D Selling shareholders
Not applicable
9E Dilution
Not applicable
9F Expenses of the issue
Not applicable
10
Additional information
10A Share capital
Not applicable
10B Memorandum and articles of
association
Group information: Articles of Association
Exhibit 1
214
224
10C Material contracts
Group information: Material contracts
216
10D Exchange controls
Group information: Exchange controls and restrictions on payment
of dividends
215
10E Taxation
Shareholder information: Tax information for shareholders
219
10F Dividends and paying agents
Not applicable
10G Statement by experts
Not applicable
10H Documents on display
Useful information: Investor information – AGM and documents on display
230
10I Subsidiary information
Not applicable
10J Annual Report to security holders
Not applicable
11
Quantitative and qualitative disclosures
about market risk
Consolidated Financial Statements: Note 25 Capital and financial
risk management
165
12
Description of securities other than equity
securities
12A Debt securities
Not applicable
12B Warrant and rights
Not applicable
12C Other securities
Not applicable
Haleon
Annual Report and Form 20-F 2022
227
Shareholder information
Item
Form 20-F caption
Location
Page
12D American depository shares
Group information: Fees and charges payable by ADR holders
213
13
Defaults, dividend arrearages
and delinquencies
Not applicable
14
Material modifications to the rights of
security holders and use of proceeds
Not applicable
15
Controls and Procedures
Not applicable
15A Disclosure controls and procedures
Group Information: Disclosure controls and procedures
211
15B Management’s annual report on
internal control over financial reporting
Not applicable
15C Attestation Report of the registered
public accounting firm
Not applicable
16
16A Audit committee financial expert
Governance: Audit & Risk Committee Report
Shareholder Information: Summary of significant corporate governance
differences from NYSE listing standards – Committees
74
221
16B Code of ethics
Directors’ Report: Code of Conduct
196
16C Principal accountant fees and services
Corporate Governance: Audit & Risk Committee Report – External audit
Corporate Governance: Audit & Risk Committee Report– Non-audit services
Group Financial Statements; Note 6 Operating profit
78
79
133
16D Exemptions from the listing
standards for audit committees
Not applicable
16E Purchase of equity securities by
the issuer and affiliated purchasers
Shareholder information: Purchases of equity securities by the Company
and affiliated purchasers
221
16F Change in registrant’s
certifying accountant
Corporate Governance: Audit & Risk Committee Report – External audit
Group information: Change in certifying accountant
78
211
16G Corporate Governance
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards
221
16H Mine safety disclosure
Not applicable
16I Disclosure regarding foreign
jurisdictions that prevent inspections
Not applicable
17
Financial statements
Not applicable
18
Financial statements
Consolidated Financial Statements
107
19
Exhibits
Other information: Exhibits
224
Forward-looking statements
This Annual Report and Form 20-F contains certain statements that are, or may be deemed to be, “forward-looking statements”
(including for purposes of the safe harbor provisions for forward-looking statements contained in Section 27A of the US Securities Act
and Section 21E of the Exchange Act). Forward-looking statements give Haleon’s current expectations and projections about future
events, including strategic initiatives and future financial condition and performance, and so Haleon’s actual results may differ materially
from what is expressed or implied by such forward-looking statements. Forward-looking statements sometimes use words such as
“expects”, “anticipates”, “believes”, “targets”, “plans” “intends”, “aims”, “projects”, “indicates”, “may”, “might”, “will”, “should”, “potential”,
“could” and words of similar meaning (or the negative thereof). All statements, other than statements of historical facts, included in
this presentation are forward-looking statements. Such forward-looking statements include, but are not limited to, statements relating
to future actions, prospective products or product approvals, delivery on strategic initiatives (including but not limited to acquisitions,
realisations of efficiencies and responsible business goals), future performance or results of current and anticipated products, sales
efforts, expenses, the outcome of contingencies such as legal proceedings, dividend payments and financial results.
Any forward-looking statements made by or on behalf of Haleon speak only as of the date they are made and are based upon the
knowledge and information available to Haleon on the date of this Annual Report and Form 20-F. These forward-looking statements
and views may be based on a number of assumptions and, by their nature, involve known and unknown risks, uncertainties and
other factors because they relate to events and depend on circumstances that may or may not occur in the future and/or are beyond
Haleon’s control or precise estimate. Such risks, uncertainties and other factors that could cause Haleon’s actual results, performance
or achievements to differ materially from those in the forward-looking statements include, but are not limited to, those discussed
under “Risk Factors” on pages 202 to 210 of this Annual Report & Form 20-F. Forward-looking statements should, therefore, be
construed in light of such risk factors and undue reliance should not be placed on forward-looking statements.
Subject to our obligations under English and US law in relation to disclosure and ongoing information (including under the Market
Abuse Regulations, the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority (“FCA”)),
we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. You should, however, consult any additional disclosures that Haleon may make in any documents
which it publishes and/or files with the SEC and take note of these disclosures, wherever you are located.
No statement in this document is or is intended to be a profit forecast or profit estimate.
Shareholder information
continued
Haleon
Annual Report and Form 20-F 2022
228
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Glossary
ADR
American Depositary Receipt
ADR depositary
J.P. Morgan Chase Bank, N.A.
ADS
American Depositary Share, listed on the New York Stock Exchange
AER
Actual exchange rates
Annual Report or Report
The Annual Report and Form 20-F
APAC
Asia Pacific region
CER
Constant currency exchange rates
CMO
Third-party contract manufacturing organisations
Companies Act
The UK Companies Act 2006, as amended
Company, Group or Haleon
Haleon Plc and its subsidiaries
Consumer Staples sector
Companies that produce and sell items considered essential for everyday use
Employee
Persons directly employed by Haleon plc or its subsidiaries
EMEA
Europe, Middle East and Africa region
EMTN
Euro Medium Term Note
ERG
Employee resource group
FCA
UK Financial Conduct Authority
FDA
The US Food and Drug Administration
FRC
UK Financial Reporting Council
Health Professional(s)
Pharmacy, dental, respiratory and dermatology, wellness professionals and related teams
IASB
International Accounting Standards Board
ISSB
International Sustainability Standards Board
LatAm
Latin America region
Leadership roles
Employees within our compensation grades 0-5. These roles include members of the Executive Team, their
direct reports (excluding administration support), heads of department and other upper management.
LSE
London Stock Exchange
MSA
Manufacturing service agreement
NYSE
New York Stock Exchange
Ordinary share
£0.01 pence each in the Company
OTC
Over-the-Counter
Parent Company
Haleon plc
Rx-to-OTC switches
Switches of products requiring a prescription to products with OTC status
SEC
US Securities and Exchange Commission
VMS
Vitamins, Minerals and Supplements
Workforce
Persons directly employed by Haleon plc or its subsidiaries
>>
For definitions of our non-IFRS measures see from page 46.
Haleon
Annual Report and Form 20-F 2022
229
Glossary
Useful information
Investor information
Website and electronic communication
Haleon is committed to reducing the cost and environmental
impact of producing and distributing printed documents
in large quantities and this Annual Report and Form 20-F
2022 has been made available to shareholders through our
website at www.haleon.com. The Company is subject to the
information requirements of the Securities Exchange Act of 1934
applicable to US foreign private issuers. In accordance with
these requirements the Company files its Annual Report and
Form 20-F and other related documents with the SEC. The SEC
maintains an internet site at www.sec.gov that contains reports
and other information regarding issuers, including Haleon, that
file electronically with the SEC.
Shareholders may electronically appoint a proxy to vote on
their behalf at the 2023 AGM. Shareholders who hold their
shares through CREST may appoint proxies through the CREST
electronic proxy appointment service, by using the procedures
described in the CREST Manual.
Ordinary share registrar
For information on a range of shareholder services, including
enquiries concerning individual shareholdings, notification
of a shareholder’s change of address and amalgamation of
shareholder accounts (in order to avoid duplicate mailing of
shareholder communications), shareholders should contact
the Company’s Registrar, Equiniti, using the contact details
on page 231.
Dividend services and bank mandate
The Company only makes dividend and other distribution
payments into a nominated bank account. You must complete
and return a direct payment instruction to the Company’s
Registrar, Equiniti, in order to ensure your payments are
received quickly and securely into your UK bank account.
Dividend reinvestment plan (DRIP)
As an alternative to receiving cash dividends you may choose
to reinvest your dividends to buy more Haleon ordinary
shares. A DRIP election form can be downloaded from
www.shareview.co.uk or requested by contacting Equiniti
using the contact details on page 231.
Overseas payment service
It is also possible for overseas shareholders to have their
dividends paid directly to their bank accounts in a local currency.
Charges are payable for this service.
Shareholder security
Many companies have become aware that their shareholders
have received unsolicited telephone calls or correspondence
concerning investment matters. These are typically from
‘brokers’ who target UK shareholders, offering to sell them
what often turn out to be worthless or high-risk shares
in US or UK investments. These operations are commonly
known as ‘boiler rooms’. More detailed information on this
or similar activity can be found at www.fca.org.uk/consumers
on the Financial Conduct Authority website. Details of any
share dealing facilities that the Company endorses will be
included in Company mailings.
American depositary receipts
The Company’s shares are listed on the NYSE in the form of
ADSs, evidenced by ADRs and traded under the ticker symbol
‘HLN’. Each ADR represents two ordinary shares. All enquiries
regarding ADR holder accounts and payment of dividends
should be directed to J.P. Morgan Chase Bank, N.A., our ADR
Depositary using the contact details on page 231).
Trading markets
The principal trading market for the Company’s ordinary shares is
the LSE. The ordinary shares are also listed on the NYSE, trading
in the form of ADSs evidenced by ADRs. Each ADS represents two
ordinary shares. The Company has a sponsored ADR facility with
J.P. Morgan Chase Bank, N.A., as ADR Depositary.
AGM and documents on display
The Company’s AGM will be held on 20 April 2023. Terms and
conditions of all Directors’ appointments will be available for
inspection at the Company’s registered office during normal
business hours and at the AGM.
Financial calendar
Event
Proposed date
2022 final dividend
— Ex-dividend date
— Record date
— Payment date
1
16 March 2023
17 March 2023
27 April 2023
2023 AGM
20 April 2023
2023 first quarter
trading statement
3 May 2023
2023 half year results
2 August 2023
Financial year end
31 December
1
Payment is subject to shareholder approval at the AGM.
Haleon
Annual Report and Form 20-F 2022
230
Other Information
Strategic Report
Corporate Governance
Financial Statements
Other Information
Contacts
Registered office
Haleon plc, Building 5, First Floor, The Heights, Weybridge, Surrey
KT13 0NY, England and Wales
Registrar
Equiniti Limited,
Aspect House, Spencer Road, Lancing, West Sussex
BN99 6DA, UK
Telephone:
+44 (0) 371 384 2227
ADR Depositary
J.P. Morgan Chase Bank, N.A.
Shareowner Services, PO Box 64504, St. Paul,
MN 55164-0504, USA
Telephone:
+1 800 990 1135 (US calls) (toll-free)
+1 651 453 2128 (non-US calls)
Enquiries:
www.shareowneronline.com under “contact us”
www.adr.com
Haleon
Annual Report and Form 20-F 2022
231
Contacts
Haleon
Annual Report and Form 20-F 2022
232
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