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Investing.com -- Moody's Ratings has upgraded the long-term issuer rating of Haleon plc and its guaranteed subsidiaries to A3 from Baa1. The rating agency also upgraded the rating on Haleon's backed senior unsecured MTN programme and the ratings of the notes issued under the programme to (P)A3 from (P)Baa1 and to A3 from Baa1, respectively. The Prime-2 (P-2) short-term backed commercial paper ratings of Haleon UK Capital PLC and Haleon US Capital LLC have been affirmed. The outlook for all entities has been revised to stable from positive.
This rating action is a result of Haleon's strong operating performance since its separation from GSK plc. Despite the increasing geopolitical tensions, Moody's expects Haleon's cash generation to remain solid. The agency also anticipates that the company's leverage will reduce below 3x over the next 12-18 months. Haleon's financial policy is consistent with the expected lower leverage, with moderate growth in dividend distributions and limited strategic need for large-scale acquisitions. Environmental, social, and governance (ESG) considerations were a significant factor in the rating decision.
The A3 issuer rating primarily reflects Haleon's strong business profile, which includes a leading position in the consumer healthcare category, a good degree of product diversification, and scale in all key geographies globally. The company's credit profile also reflects the strength of consumer healthcare demand, characterized by steady volume growth and low price elasticity, and a more conservative financial policy compared to the levels at the time of the spin-off from GSK plc in 2022.
Haleon's market dynamics differ, particularly in the US, the UK, and Australia, where large retail chains are the main distribution channel and private label is more prevalent. This results in greater pricing pressure compared to European countries, where sales are made through independent pharmacies.
The company's organic revenue growth was 5% in 2024 compared with 8% in 2023. Power Brands saw an organic growth ahead of the group, with 6.3%, with 71% of Haleon's business either gaining or maintaining market share, according to management. Company-adjusted operating profit increased by 9.8% at constant currencies and excluding M&A. However, adverse foreign exchange movements and disposals reduced actual operating profit growth to negative 1.9%.
Moody's-adjusted gross debt stood at £10.2 billion as at 31 December 2024, up from £8.9 billion in the first half of the year. Leverage, measured in terms of Moody's-adjusted gross debt to EBITDA, was 3.8x at the end of 2024, above the 3.3x in the first half of the year. The agency expects the leverage to reduce to around 3.0x in 2025 and 2.8x in 2026.
Haleon's liquidity profile is adequate, reflecting around £2.2 billion of cash on balance sheet at 31 December 2024 excluding restricted cash and free cash flows of c. £1 billion in 2024. The company has also access to two revolving credit facilities, namely a $1,300 million facility maturing in September 2025 and a £900 million facility maturing in September 2027. These committed facilities were undrawn at 31 December 2024.
The stable outlook factors in Moody's expectations that Haleon's gross leverage will remain below 3x over the next 12-18 months, driven by EBITDA growth and debt repayments through free cash flow generation. The stable outlook is also predicated on the company continuing to organically grow its revenues at a good pace while at least maintaining stable underlying margins. The stable outlook factors in no significant M&A activity.
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