Haleon updated its medium-term guidance at its capital markets day.
Medium-term underlying operating profit growth guidance has been nudged up to high-single digits starting from 2026, while the 4-6% annual organic revenue growth target is unchanged.
The improved profit outlook is supported by an expected £800mn of productivity savings, spread evenly over a five-year period.
Capital expenditure is expected to be around 4% of revenue on average, over the next 3-5 years.
There were no changes to guidance for 2025. Organic revenue growth of 4-6% is expected, with higher growth expected in organic operating profit.
The shares rose 4% following the announcement.
Our view
Haleon’s capital markets day had a strong focus on plans to make its sales more profitable, with improved medium-term guidance pleasing investors on the day. The upgraded outlook is driven by £800mn in planned savings over five years, mainly from supply chain optimisation.
For this year however, reliance on pricing actions so far means that guidance for a step up in growth in the second half is at risk if macroeconomic conditions deteriorate further.
Improving profitability should support increases in marketing spending to support its well-recognised brands. These include several household names such as Sensodyne toothpaste, Otrivin nasal spray, Panadol painkillers, and Centrum multivitamins. Continued investment in innovation and marketing is, in our view, essential to maintaining Haleon's leading brand positions. But that may also limit scope to drive margins further.
Customers tend to happily stomach a higher price when it comes to medicines they trust. We must caution that volumes could still start to dip if price hikes are taken too far, or the economic outlook deteriorates. But so far, we're impressed with Haleon's delivery of new and improved products which we view as key to growing market share and maintaining brand loyalty. Successful innovations of note include the introduction of new delivery systems for painkiller Voltaren (patches) and the Otrivin decongestant (nasal mist).
Haleon’s global sales raise the prospect of a hit to financial performance if tariffs escalate. However, this is likely to be mitigated through local production in the US and limited sourcing from China.
Despite the headway being made on debt levels and shareholder distributions, the dividend is still lagging most of the peer group. A relatively strong outlook means we should see further progress towards its revised net debt to cash profit target of 2.5 times.
Offloading some of its brands is one lever the group is pulling on to get there. If attractive prices can be obtained, we’re not averse to selling a handful of non-core names. But pulling too hard on this lever could be at the expense of organic growth and margin expansion in the future.
Strengthening the balance sheet should help free up some wiggle room to bridge the dividend yield gap with its competitors. The promising start to the year adds optimism, but with relatively high earnings multiples, the market expects successful growth execution, leaving little room for disappointment if second-half acceleration fails to materialise.
Haleon key facts
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