Haleon Pakistan Limited (formerly known as GlaxoSmithKline) was incorporated in Pakistan as a public limited company in 2015. The principal activity of the company is the manufacturing, marketing, and sales of consumer healthcare and over-the-counter health products. The company is a subsidiary of “Haleon Netherlands B.V.’ while Haleon plc is the ultimate parent company.

Pattern of Shareholding

As of June 30, 2023, HALEON has a total of 117.055 million shares outstanding which are held by 4366 shareholders. Haleon Netherlands B.V. holds the majority stake of 85.79 percent in the company followed by local general public accounting for 5.62 percent shares of the company. Insurance companies hold 3.16 percent shares of HALEON while Modarabas & Mutual Funds hold 3.19 percent shares. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-23)

HALEON’s topline rode an upward trajectory over the period under consideration. Conversely, its bottom line posted a decline in 2022. The company’s margins slightly ticked up in 2019 followed by a drop in 2020. The margins bounced back in 2021, however, they fell to their lowest level in 2022. In 2023, HALEON’s margins considerably recovered in 2023. The detailed performance review of the period under consideration is given below.

In 2019, HALEON’s topline grew by 9.69 percent year-on-year. Except for respiratory health and toll manufacturing business, all other segments, which included oral healthcare, skin health, nutrition & digestive health as well as pain management registered sound growth in 2019. Despite a 10 percent depreciation in the value of local currency, HALEON was able to drive its GP margin from 29.6 percent in 2018 to 30.6 percent in 2019 due to the implementation of price increases twice during the year. Distribution expense multiplied by 12.24 percent in 2019 mainly due to a higher budget allocated for advertising & promotion. Administrative expenses slid by 1.88 percent in 2019 primarily due to lower legal & professional charges incurred during the year. Other income fell by 49.30 percent in 2019 due to a massive plunge in insurance claim recoveries and income on savings & deposit accounts. Other expenses surged by 12.10 percent in 2019 due to increased provisioning for WWF, WPPF, and CRF. Operating profit posted a 12 percent year-on-year rise in 2019 with OP margin picking up from 11.4 percent in 2018 to 11.6 percent in 2019. Despite the high discount rate, HALEON was able to cut down its finance cost by 14.81 percent in 2019 by keeping a check on its outstanding borrowings. Net profit improved by 17 percent to clock in at Rs.1257.52 million in 2019 with EPS of Rs.10.74 versus EPS of Rs.9.18 recorded in 2018. NP margin ticked up from 7.2 percent in 2018 to 7.7 percent in 2019.

HALEON’s net sales grew by 21.63 percent in 2020. This was on account of an upsurge in local demand particularly in pain, nutrition, and oral healthcare categories. Export sales declined during the year due to COVID-19-related restrictions which created supply chain impediments. Massive depreciation in the value of the Pak Rupee resulted in a 28.13 percent year-on-year spike in the cost of sales. Gross profit inched up by 6.85 percent in 2020, however, GP margin fell down to 26.8 percent. The decline in GP margin would’ve been much intense, had the mandated price increase not been implemented during 4QFY20. Distribution expenses escalated by 13.10 percent in 2020 mainly on the back of the superior advertising & promotion budget allocated for the year. Administrative expenses inched up by 2.26 percent in 2020 on account of higher payroll expenses and depreciation which were partially offset by lower legal & professional charges and curtailed traveling & entertainment expenses incurred during the year. Lower gain recorded on the disposal of operating assets coupled with no insurance claim and insurance commission recorded during the year resulted in a 34.53 percent decline in other income in 2020. Other expenses grew by 8.2 percent in 2020 due to higher provisioning done for WWF, WPPF, and CRF. Operating profit ticked down by 3.16 percent in 2020 with OP margin slipping to 9.2 percent. Finance cost shrank by 69.84 percent in 2020 due to improved cash position and a downtick in discount rate during 4QFY20. Net profit grew by a paltry 0.36 percent in 2020 to clock in at Rs.1262.009 million with EPS of Rs.10.78 and NP margin of 6.4 percent.

HALEON recorded a 21.75 percent year-on-year rise in its net sales in 2021. The growth was backed by an increase in demand in all the segments. The growth in local demand was partially offset by lower export sales made during the year. Besides inflationary pressure, the closure of a major Chinese supplier of Paracetamol led to a 20.39 percent upsurge in the cost of sales in 2021. The company was able to drive its gross profit up by 25.48 percent in 2021 with GP margin climbing up to 27.7 percent by exercising cost control measures. The relatively stable value of the Pak Rupee during the year also helped HALEON attain a better GP margin in 2021. Distribution expense inched up by 8.24 percent in 2021 on account of elevated advertising and freight charges incurred during the year. Administrative expenses surged by 12.19 percent in 2021 on account of higher payroll charges incurred during the year despite a rationalized headcount of 459 employees versus 492 employees in 2020. One-off legal & professional charges incurred during the year also contributed in driving up administrative expenses in 2021. 627.58 percent higher other income registered by HALEON in 2021 was on account of improved income on saving accounts and recovery of expenses from group entities. Other expenses surged by 58.48 percent in 2021 which was in line with higher statutory charges (WWF, WPPF, and CRF). HALEON posted a 69.37 percent improved operating profit in 2021 with an OP margin of 12.8 percent – the highest during the period under consideration. Finance cost spiked by 50.55 percent in 2021 mainly on account of greater exchange loss incurred during the year. Net profit strengthened by 69.12 percent to clock in at Rs.2134.33 million in 2021 with EPS of Rs.18.23 and NP margin of 8.8 percent – the highest level achieved during the period under consideration.

In 2022, HALEON’s topline improved by 13.84 percent driven by growth in all the segments. New launches in Paradontax and Sensodyne were well received by the market. Cost of sales magnified by 30 percent in 2022 due to a sharp spike in the price of Paracetamol which was further exacerbated by depreciation of Pak Rupee. The price adjustment provided by the government couldn’t absorb the massive cost pressure, resulting in a 28.42 percent year-on-year decline in gross profit with GP margin slipping to its lowest level of 17.4 percent. Distribution expenses dipped by 2.78 percent in 2022 due to a controlled advertising budget. Administrative expenses mounted by 42 percent in 2022 due to higher payroll expenses as number of employees grew to 478. Higher legal & professional charges also contributed to pushing up the administrative expenses in 2022. Other income fell by 5.89 percent in 2022 due to a liquidity crunch during 1HFY22. Other expenses tumbled by 67 percent in 2022 due to lower provisioning done for WWF, WPPF, and CRF. HALEON registered a 58.13 percent lower operating profit in 2022 with an OP margin of 4.7 percent. Finance cost amplified by 251 percent in 2022 mainly on account of higher exchange losses incurred on the revaluation and resettlement of foreign liabilities. Net profit dwindled by 84.75 percent to clock in at Rs.325.41 million in 2022 with EPS of Rs.2.78 and NP margin of 1.2 percent – the lowest during the period under consideration.

HALEON’s topline picked up by 14.91 percent in 2023 driven by growth in OTC and FMCG portfolios by 29 percent and 13 percent respectively. Oral care and pain management appeared to be the star categories in 2023. The cost of sales grew by 10.74 percent on account of a spike in the prices of major APIs besides inflation and Pak Rupee depreciation. Gross profit magnified by 34.76 percent in 2023 with GP margin climbing up to 20.4 percent. 28.25 percent higher distribution expense incurred in 2023 was the result of higher fuel prices. Administrative expenses also surged by 37.79 percent in 2023 due to higher payroll expenses and higher registered office expenses incurred during the year. Other income strengthened by 86.13 percent in 2023 on the back of improved liquidity which in turn resulted in higher income from treasury bills and saving accounts. Other expenses surged by 95.49 percent in 2023 on the back of higher statutory provisioning. HALEON posted 60.24 percent higher operating profit in 2023 with an OP margin of 6.6 percent. Despite the tight monetary stance undertaken by the central bank, the company was able to squeeze its finance cost by 23 percent in 2023 which was the result of relatively lower exchange loss incurred during the year. Net profit grew by 205.95 percent to clock in at Rs.995.586 million in 2023 with EPS of Rs.8.51 and NP margin of 3.1 percent.

Recent Performance (9MFY24)

During 9MFY24, HALEON’s net sales registered a skimpy growth of 1.7 percent. The FMCG portfolio registered 10 percent year-on-year growth in 9MFY24 while the OTC portfolio remained stagnant during the period. During 1QFY24, the government also deregulated the price adjustments of medicines falling under the non-essential category. The cost of sales slid by 6.52 percent during 9MFY24 due to an appreciation in the value of the local currency and dedicated cost-control measures put in place by the company. As a consequence, gross profit grew by 32.39 percent in 9MFY24 with GP margin clocking in at 27.5 percent versus GP margin of 21.1 percent recorded during the same period last year. Distribution expense inched up by 5.47 percent during 9MFY24 driven by the elevated advertising & promotion budget allocated for the period. Administrative expenses spiked by 16.8 percent during 9MFY24 supposedly due to higher payroll expenses. Other income strengthened by 13.48 percent on account of higher income from financial assets owing to higher discount rates. Other income was partially offset by 133.82 percent higher other expenses incurred during the period owing to higher provisioning done for WWF, WPPF, and CRF. Operating profit climbed up by 60.39 percent during 9MFY24 with OP margin clocking in at 14.2 percent versus OP margin of 9 percent recorded during 9MFY23. Finance cost dropped by 96.29 percent during 9MFY24 possibly due to lower exchange loss as Pak Rupee showed great resilience during the period. Net profit grew by 114.19 percent during 9MFY24 to clock in at Rs.649.29 million with EPS of Rs.5.55 versus EPS of Rs.2.59 recorded during the same period last year. NP margin showed considerable improvement from 3.9 percent in 9MFY23 to 8.2 percent in 9MFY24.

Future Outlook

The company is aiming to achieve economies of scale by expanding its production lines. This will not only control the cost but will also ensure smooth availability in the local market besides fostering growth in exports. Deregulation of the prices of non-essential medicines is also a good omen for the industry and will allow the companies to share the cost shocks with their consumers.