# EDGAR Filing Document

**Accession Number:** 0001900304
**File Stem:** 0001558370-23-004170
**Filing Date:** 2023-3
**Character Count:** 509103
**Document Hash:** d68f9a62b9ff94ef2dc0d808af5165ba
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001558370-23-004170.hdr.sgml**: 20230320

**ACCESSION NUMBER**: 0001558370-23-004170

**CONFORMED SUBMISSION TYPE**: 6-K

**PUBLIC DOCUMENT COUNT**: 2

**CONFORMED PERIOD OF REPORT**: 20230320

**FILED AS OF DATE**: 20230320

**DATE AS OF CHANGE**: 20230320

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Haleon plc
- **CENTRAL INDEX KEY:** 0001900304
- **STANDARD INDUSTRIAL CLASSIFICATION:** PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844]
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** X0
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 6-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-41411
- **FILM NUMBER:** 23745299

**BUSINESS ADDRESS:**
- **STREET 1:** BUILDING 5, FIRST FLOOR
- **STREET 2:** THE HEIGHTS
- **CITY:** WEYBRIDGE
- **STATE:** X0
- **ZIP:** KT13 0NY
- **BUSINESS PHONE:** 44 1932 822000

**MAIL ADDRESS:**
- **STREET 1:** BUILDING 5, FIRST FLOOR
- **STREET 2:** THE HEIGHTS
- **CITY:** WEYBRIDGE
- **STATE:** X0
- **ZIP:** KT13 0NY

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** DRVW 2022 Ltd
- **DATE OF NAME CHANGE:** 20211217

------

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 6-K**

**REPORT OF FOREIGN PRIVATE ISSUER**

**PURSUANT TO RULE 13a-16 OR 15d-16 UNDER<br>THE SECURITIES EXCHANGE ACT OF 1934**

**For the month of March 2023**

**Commission File Number: 001-41411**

**Haleon plc**

(Translation of registrant's name into English)

**Building 5, First Floor, The Heights,** 

**Weybridge, Surrey, KT13 0NY**

**United Kingdom**

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F <u>a</u> &nbsp;&nbsp;&nbsp;&nbsp; Form 40-F __

------

**INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K**

On 20 March 2023, Haleon plc sent its annual report for fiscal year 2022 to its shareholders, which is attached hereto as Exhibit 99.1.

**Exhibit List**

---

| | | |
|:---|:---|:---|
| **Exhibit No.** |  | **Description** |
| 99.1 |  | [Annual Report for the year ended 31 December 2022](tmb-20230320xex99d1.pdf) |

---

------

#### SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | |
|:---|:---|:---|
|  |  | **Haleon PLC** |
|  |  | (Registrant) |
| Date: March 20, 2023 | By: | /s/ Amanda Mellor |
|  |  | Name: Amanda Mellor |
|  |  | Title: Company Secretary |

---

------

### Attached PDF Documents

**Attachment 1:** `tmb-20230320xex99d1.pdf`

# HALON

## Annual Report and Form 20-F 2022

![img-0.jpeg](img-0.jpeg)

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.

![img-1.jpeg](img-1.jpeg)

![img-2.jpeg](img-2.jpeg)

![img-3.jpeg](img-3.jpeg)

![img-4.jpeg](img-4.jpeg)

![img-5.jpeg](img-5.jpeg)

![img-6.jpeg](img-6.jpeg)

![img-7.jpeg](img-7.jpeg)

![img-8.jpeg](img-8.jpeg)

![img-9.jpeg](img-9.jpeg)

Packs shown are representative portfolio examples. Packaging will vary by country for linguistic, legal and regulatory reasons.

Strategic Report

Corporate Governance

Financial Statements

Other Information

# Our key stakeholders

Consumers

Customers

Employees

Governments and industry regulators

Health Professionals

Investors

Suppliers

>> See page 14

![img-10.jpeg](img-10.jpeg)

# Our cover

Thank you to our featured Haleon employees: Sophie, Stephanie, Bongue, Jose and Adefunke.

# Contents

# 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 |

# 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

Contents

Haleon Annual Report and Form 20-F 2022

1

# 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.

## 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.

### World-class portfolio

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.

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 3

### Attractive geographic footprint

#### 2022 revenue

![img-11.jpeg](img-11.jpeg)

>> See page 11

● Developed markets 67%
● Emerging markets 33%

#### Regional footprint

North America 38%
EMEA & LatAm 39%
APAC 23%

### 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.

>> See page 8

### Competitive capabilities

We use technical and scientific talent, combined with data-driven consumer insights and expert engagement.

>> See page 10

![img-12.jpeg](img-12.jpeg)

Combination of deep human understanding and trusted science.

+

![img-13.jpeg](img-13.jpeg)

Strong brand building, innovation and digital capabilities combined with a leading route-to-market.

### Strategy to outperform

Our strategy is designed to leverage our portfolio and capabilities and has four key pillars.

>> See page 18

Increase household penetration

1

Capitalise on new and emerging opportunities

2

Maintain strong execution and financial discipline

3

Run a responsible business

4

### 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 growth1

Sustainable
moderate margin
expansion2

High cash
conversion1

Disciplined
capital allocation

1 Definitions and calculations of non-IFRS measures can be found on page 46.

2

Haleon Annual Report and Form 20-F 2022

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Strategic Report

Corporate Governance

Financial Statements

Other Information

# 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% | SENSODYNE parodontax POLIDENT |
|  | Vitamins, Minerals and Supplements (VMS) Our extensive range of vitamins, minerals and supplements is designed to improve people's everyday health and wellness. | 15% | Centrum Emergen-C Caltrate |
| 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% | Pulvador Advil Voltaren |
|  | 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% | Ofrivin THERAFLU FLONASE |
|  | 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% | TUMS PREPARATION II ENO |
|  |  | 58% |  |

Haleon at a glance

Haleon Annual Report and Form 20-F 2022

3

# 2022 highlights and achievements

Revenue

£10.9bn

(2021: £9.5bn)

Revenue growth

13.8%

(2021: (3.5)%)

Organic revenue growth1

9.0%

(2021: 3.8%)

Operating profit

£1.8bn

(2021: £1.6bn)

Adjusted operating profit1

£2.5bn

(2021: £2.2bn)

Operating profit margin

16.8%

(2021: 17.2%)

Adjusted operating profit margin1

22.8%

(2021: 22.8%)

Diluted earnings per share

11.5p

(2021: 15.1p)

Adjusted diluted earnings per share1

18.4p

(2021: 17.9p)

Final dividend per ordinary share

2.4p

Net cash inflow from operating activities

£2.1bn

(2021: £1.4bn)

Free cash flow1

£1.6bn

(2021: £1.2bn)

Net debt/Adjusted EBITDA1

3.6x

(as at 31 December 2022)

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

4

Haleon Annual Report and Form 20-F 2022

Strategic Report

Strategic Report

Corporate Governance

Financial Statements

Other Information

![img-14.jpeg](img-14.jpeg)

## 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.

![img-15.jpeg](img-15.jpeg)

### 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

![img-16.jpeg](img-16.jpeg)

### Increased channel penetration

**9%**

of total sales from e-commerce.

>> See page 20

![img-17.jpeg](img-17.jpeg)

### Successful innovation

**52**

product launches including new products, line extensions and upgrades.

>> See page 19

![img-18.jpeg](img-18.jpeg)

## 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

![img-19.jpeg](img-19.jpeg)

## 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

![img-20.jpeg](img-20.jpeg)

## 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

![img-21.jpeg](img-21.jpeg)

## 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

2022 highlights and achievements

Haleon Annual Report and Form 20-F 2022

5

# Chair's statement

## I'm pleased to present Haleon's first Annual Report and Form 20-F

![img-22.jpeg](img-22.jpeg)

**Sir Dave Lewis**
Chair

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.

6

Haleon Annual Report and Form 20-F 2022

Strategic Report

Strategic Report

Corporate Governance

Financial Statements

Other Information

# Chief Executive Officer's review

## A milestone year

![img-23.jpeg](img-23.jpeg)

**Brian McNamara**
Chief Executive Officer

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

Haleon Annual Report and Form 20-F 2022

7

# Industry overview and competitive landscape

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.

Consumer healthcare market 2017-2021 (£bn)

![img-24.jpeg](img-24.jpeg)

Global consumer health (retail value share 2021)

![img-25.jpeg](img-25.jpeg)

Source: Euromonitor

## Formation of Haleon

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

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.

![img-26.jpeg](img-26.jpeg)

8

Haleon Annual Report and Form 20-F 2022

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Other Information

# Market drivers

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.

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

invasion of Ukraine. This has resulted in inflation, commodity and input cost increases, as well as the cost of living, and disrupted supply chains.

| 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. |

## How we are responding

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

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.

Market drivers

Haleon Annual Report and Form 20-F 2022

9

# 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.

Enables us to:

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.

A sustainable model driving investment for growth delivering attractive returns

![img-0.jpeg](img-0.jpeg)

1. Over the medium term.

2. Adjusted operating margin in the medium term at CER.

3. Definitions and calculations of non-1935 measures can be found from page 4.6.

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## How we invest for the future and deliver value to our shareholders.

### Revenue

Consumers have confidence in our world-class portfolio of brands designed to improve everyday health and wellbeing.

**£10.9bn**

(2021: £9.5bn)

### By geography

![img-1.jpeg](img-1.jpeg)

| ● North America | £4.1bn | 38% |
| --- | --- | --- |
| ● EMEA & LatAm | £4.3bn | 39% |
| ● APAC | £2.5bn | 23% |

### By market category

![img-2.jpeg](img-2.jpeg)

| ● 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% |

### Adjusted cost of sales1

Consisting of materials, conversion costs, costs related to quality operations, operating in a Good Manufacturing Practice (GMP) environment along with supply chain costs.

**£4.1bn**

(2021: £3.5bn)

### Adjusted gross profit1

**£6.8bn**

(2021: £6.0bn)

### Adjusted gross margin1

**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**

Adjusted operating profit1

**£2.5bn**

(2021: £2.2bn)

Adjusted operating profit margin1

**22.8%**

(2021: 22.8%)

Net cash inflow from operating activities

**£2.1bn**

(2021: £1.4bn)

Free cash flow1

**£1.6bn**

(2021: £1.2bn)

## How we used our cash

### Reinvest in business

Focused reinvestment to drive sustainable growth.

Net capital expenditure: **£292m1**

(2.7% of revenue)

### 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).

### 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.

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.

Our business model

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# Key performance indicators (KPIs)

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.

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

1 Increasing household penetration
2 New and emerging opportunities
3 Strong execution and financial discipline
4 Responsible business

Key

● Annual Incentive Plan
◆ Performance Share Plan
>> See the Directors Remuneration Report from page 82.
>> See also Forward-looking statements on page 228.

Adjusted operating profit1

![img-3.jpeg](img-3.jpeg)

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.

Financial

Organic revenue growth %1

![img-4.jpeg](img-4.jpeg)

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.

Net debt/Adjusted EBITDA1

3.6x (at 31 December 2022)

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 20243 through strong cash generation, Adjusted EBITDA growth and disciplined capital allocation.

>> See page 45.

Free cash flow1

![img-5.jpeg](img-5.jpeg)

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.

Business gained or maintained share

2/3

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.

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# Responsible business

# Carbon reduction5

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.

# Gender diversity

43.7%

Percentage of women in employee or fixed-term contract leadership roles6.

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.

# Recycle-ready packaging6

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.

# Employee engagement

80%

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.

# 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.

# Performance Share Plan

![img-6.jpeg](img-6.jpeg)

- 50% linked to net debt/Adjusted EBITDA
- 50% linked to cumulative free cash flow

# 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%).

# Annual Incentive Plan

![img-7.jpeg](img-7.jpeg)

- 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.

Key performance indicators (KPIs)

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# Stakeholder engagement

Engaging with and understanding our key stakeholders and their priorities is fundamental to the performance and success of our strategy.

Key

- What matters to our stakeholders
- Why they matter to Haleon

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.

![img-8.jpeg](img-8.jpeg)

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| 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.

Stakeholder Engagement

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# 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.

![img-9.jpeg](img-9.jpeg)

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**

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.

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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

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 worked1 and there were no fatalities.

1 For period 1 December 2021-30 November 2022.

Our culture and behaviours

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# 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.

| Increase household penetration 1 Maximise significant growth opportunities across our categories by applying our proven approach to penetration-led growth. | Capitalise on new and emerging opportunities 2 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 3 Focus on driving efficiency, effectiveness, and agility to make every investment count. | Run a responsible business 4 Make everyday health more inclusive. Protect the environment and address social sustainability barriers to everyday health. Embed strong governance and ethical business behaviours. |
| --- | --- | --- | --- |

>> See page 19 >> See page 20 >> See page 21 >> See pages 22-25</td></tr></table>

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# 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.

![img-0.jpeg](img-0.jpeg)

### 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.

### 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.

Progress against our strategy

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# 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.

![img-1.jpeg](img-1.jpeg)

### 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.

### 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 market1 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.

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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.

![img-2.jpeg](img-2.jpeg)

# 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.

# 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.

Progress against our strategy

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# 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.

![img-3.jpeg](img-3.jpeg)

### 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.

![img-4.jpeg](img-4.jpeg)

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## 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.

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.

![img-5.jpeg](img-5.jpeg)

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.

Progress against our strategy

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# Progress against our strategy continued

## Run a responsible business continued

### Environment

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.

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.

>> This page should be read in conjunction with our TCFD and SECR disclosures.

![img-6.jpeg](img-6.jpeg)

#### Tackling carbon emissions

- We have set emissions reductions targets aligned to the Intergovernmental Panel on Climate Change (IPCC) pathway to 1.5°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 tCO2e, 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.

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## 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

![img-7.jpeg](img-7.jpeg)

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.

Progress against our strategy

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# Our people

People at Haleon are motivated by and engaged with their new company, its exceptional brands and strong purpose.

![img-8.jpeg](img-8.jpeg)

![img-9.jpeg](img-9.jpeg)

Our people comprise permanent and fixed-term direct employees. Our business is also supported by third-party contingent workers and contractors.

## 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 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.

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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.

### 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.

### 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.

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.

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.

Our people

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# Task Force on Climate-related Financial Disclosures (TCFD)

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.

## 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(B), 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

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 overuses 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.

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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

### Responsible Business governance structure

Cross-functional steering committees help deliver our strategies and action plans and embed responsibility into our business and investment decisions.

![img-0.jpeg](img-0.jpeg)

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

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- 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.

## Climate-related risks and opportunities

| 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. | 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. |
| Risk | Sites with the highest potential exposure |  |
| Flood | TSKF (China), Dungarvan (Ireland), Nyon (Switzerland), Suzhou (China) | 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. |
| 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. |  |  |
| 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. |  |  |

### Key Risks' financial impact

Low risk
£10m-£40m
Medium risk
£40m-£80m
High risk
>£80m
Opportunity

### Time horizon for impact

Short-term
0-20 years
Medium-term
20-50 years
Long-term
50-80 years

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| 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. |

**Key Risks' financial impact**

Low risk
£10m-£40m

Medium risk
£40m-£80m

High risk
>£80m

Opportunity

**Time horizon for impact**

Short-term
0-20 years

Medium-term
20-50 years

Long-term
50-80 years

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## Climate-related risks and opportunities continued

| 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 |  |  |

### Key Risks' financial impact

Low risk
£10m-£40m
Medium risk
£40m-£80m
High risk
>£80m
Opportunity

### Time horizon for impact

Short-term
0-20 years
Medium-term
20-50 years
Long-term
50-80 years

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## 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.

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## 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.

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## 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/tCO2e. 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 CO2e, including on-site fuel use, fleet mileage and refrigerant losses) | 57 | 60 | 55 |
| Total Scope 2 emissions (location-based) (thousands of tonnes CO2e) | 141 | 145 | 137 |
| Total Scope 2 emissions (market-based) (thousands of tonnes CO2e) | 32 | 15 | 7 |
| Total Scope 1 & 2 emissions (location-based) (thousands of tonnes CO2e) | 198 | 205 | 192 |
| Total Scope 1 & 2 emissions (market-based) (thousands of tonnes CO2e) | 89 | 75 | 62 |
| Total Scope 3 emissions (thousands of tonnes CO2e) | 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).

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# 2022 Business review

## Chief Financial Officer's review

![img-1.jpeg](img-1.jpeg)

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.

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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.

## 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.

## 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.

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## Income statement summary

|  | 2022 £m | 2021 1 £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.

### 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.

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## 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).

## 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.

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## Geographical segment performance continued

### North America

|  | 2022 £m | 2021 £m | change (%) |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 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.

### Revenue growth

**16.8%**

### Organic revenue growth$^{1}$

**5.9%**

### Adjusted operating profit margin$^{1}$

**26.0%**

### 2022 Revenue

![img-0.jpeg](img-0.jpeg)

● North America **38%**

![img-1.jpeg](img-1.jpeg)

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## Europe, Middle East & Africa (EMEA) and Latin America (LatAm)

|  | 2022 £m | 2021 £m | change (%) |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | YoY | Constant currency 1 | Organic 1 | Price 1 | Vol/Mix 1 |
| 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.

$^{1}$ 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%

### Organic revenue growth$^{1}$

# 10.9%

### Adjusted operating profit margin$^{1}$

# 22.9%

### 2022 Revenue

![img-2.jpeg](img-2.jpeg)

● EMEA & LatAm 39%

![img-3.jpeg](img-3.jpeg)

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## Geographical segment performance continued

### Asia Pacific (APAC)

|  | 2022 £m | 2021 £m | change (%) |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | YoY | Constant currency 1 | Organic 1 | Price 1 | Vol/Mix 1 |
| 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.

### Revenue growth

# 15.4%

### Organic revenue growth$^{1}$

# 10.6%

### Adjusted operating profit margin$^{1}$

# 20.5%

### 2022 Revenue

![img-4.jpeg](img-4.jpeg)

● Asia Pacific **23%**

![img-5.jpeg](img-5.jpeg)

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# Revenue by product category

## 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.

### 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.

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.

![img-6.jpeg](img-6.jpeg)

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# 2022 Business review continued

## Revenue by product category continued

### 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.

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# Indebtedness, liquidity and financial risk management

## 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.

|  | 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.

## Bond Debt Maturity Profile (£m)

![img-7.jpeg](img-7.jpeg)

## Currency mix of net debt (including swaps)

![img-8.jpeg](img-8.jpeg)

## Currency mix of total borrowings (as issued)

![img-9.jpeg](img-9.jpeg)

2022 Business review

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45

# Use of non-IFRS measures

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.

## 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.

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## 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.

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# Use of non-IFRS measures continued

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.

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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.

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# Use of non-IFRS measures continued

## 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.

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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.

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# Use of non-IFRS measures continued

## 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.

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## 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 |

Use of non-IFRS measures

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# Use of non-IFRS measures continued

## 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

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).

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.

## 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

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.

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% |

## Net capital expenditure

Net capital expenditure includes purchases net of sales of property, plant and equipment and other intangible assets.

Net capital expenditure is used by management to measure capital invested in the operating activities of the Group's business.

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 |

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## 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

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.

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).

Use of non-IFRS measures

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# Our approach to risk

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.

## 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

## Internal Control Framework

![img-0.jpeg](img-0.jpeg)

### Three Lines of Defence

1. Risk taking and management
2. Risk oversight and business monitoring
3. Independent assurance

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.

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## 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.

### Strategy key

- 1 Increase household penetration
- 2 New and emerging opportunities

- 3 Strong execution and financial discipline
- 4 Responsible business

### Trend key

- ↑ Increasing risk
- ↓ Decreasing risk
- ↔ Unchanged

### Principal risk and link to strategy

### Growth model

Our success depends on our ability to identify and explore business opportunities to deliver organic growth.

### Description and risk development

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.

### Mitigation

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.

Our approach to risk

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# Our approach to risk continued

Principal risk and link to strategy

3 4

People and organisation

Talent attraction and retention is pivotal towards a Haleon fit for the future.

↔

Description and risk development

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.

Mitigation

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.

Strategy key

1 Increase household penetration
2 New and emerging opportunities

3 Strong execution and financial discipline
4 Responsible business

Trend key

↑ Increasing risk
↓ Decreasing risk
↔ Unchanged

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| 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**

- **1** Increase household penetration
- **3** New and emerging opportunities
- **3** Strong execution and financial discipline
- **4** Responsible business

# **Trend key**

- **↑** Increasing risk
- **↓** Decreasing risk
- **↔** Unchanged

Our approach to risk

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# Our approach to risk continued

Principal risk and link to strategy

4

Cyber security

Haleon's operations depend on robust and secure IT systems and information management.

↑

2 3 4

Geopolitical instability

Our operations benefit from a reliable and cooperative global environment.

↑

Description and risk development

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.

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.

Mitigation

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.

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.

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# 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. |

Viability statement

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# Statement of compliance

## 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.

### 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

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Financial Statements

Other Information

# Corporate Governance

![img-0.jpeg](img-0.jpeg)

![img-1.jpeg](img-1.jpeg)

## 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 |

Corporate Governance

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# Our Board of Directors

## Board composition

![img-2.jpeg](img-2.jpeg)

- ● Chair 1
- ● Executive Directors 2
- ● Independent Non-Executive Directors 6
- ● Non-Executive Directors 2

## Gender

![img-3.jpeg](img-3.jpeg)

- ● Men 6
- ● Women 5

## Ethnicity

![img-4.jpeg](img-4.jpeg)

- ● White 9
- ● Mixed/Multiple ethnic groups 2

## Board and Committee membership key:

- ■ Committee Chair
- A Audit & Risk
- N Nominations & Governance
- R Remuneration
- E Environmental & Social Sustainability

## Chair and Executive Directors

![img-5.jpeg](img-5.jpeg)

**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)

![img-6.jpeg](img-6.jpeg)

**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)

![img-7.jpeg](img-7.jpeg)

**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

## Independent Non-Executive Directors

![img-8.jpeg](img-8.jpeg)

**Manvinder Singh (Vindi) Banga**
Senior Independent Non-Executive Director (SID)

**A N E**

**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)

![img-9.jpeg](img-9.jpeg)

**Tracy Clarke**
Independent Non-Executive Director

**A N 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)

![img-10.jpeg](img-10.jpeg)

**Deirdre Mahlan**
Independent Non-Executive Director

**A N E**

**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)

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## Independent Non-Executive Directors

![img-11.jpeg](img-11.jpeg)

**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)

![img-12.jpeg](img-12.jpeg)

**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)

![img-13.jpeg](img-13.jpeg)

**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)

## Company Secretary

![img-14.jpeg](img-14.jpeg)

**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).

## Non-Executive Directors (Nominated by Pfizer Inc.)

![img-15.jpeg](img-15.jpeg)

**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)

![img-16.jpeg](img-16.jpeg)

**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)

John Young served as Non-Executive Director nominated by Pfizer from 18 July 2022 to 28 February 2023.

## Skills and experience (excluding Executive Directors)

This table shows the number of Directors with each relevant skill/experience.

| Consumer | 7 |
| --- | --- |
| Healthcare | 5 |
| International | 9 |
| Supply chain | 3 |
| Technology | 1 |
| Digital/innovation | 2 |
| Regulatory | 3 |
| Finance | 3 |
| M&A/transformation | 7 |
| Sustainability/responsible business | 5 |
| Employee engagement | 2 |
| Governance/investor | 5 |

>> Full biographies can be found on our website at:
www.haleon.com

Board of Directors

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# Our Executive Team

## Gender

![img-17.jpeg](img-17.jpeg)

- ● Men 7
- ● Women 6

## Ethnicity

![img-18.jpeg](img-18.jpeg)

- ● White 11
- ● Mixed/Multiple ethnic groups 2

In addition to Brian McNamara and Tobias Hestler, the Executive Team comprises:

![img-19.jpeg](img-19.jpeg)

**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.

![img-20.jpeg](img-20.jpeg)

**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.

![img-21.jpeg](img-21.jpeg)

**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.

![img-22.jpeg](img-22.jpeg)

**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.

![img-23.jpeg](img-23.jpeg)

**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.

![img-24.jpeg](img-24.jpeg)

**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.

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![img-25.jpeg](img-25.jpeg)

**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).

![img-26.jpeg](img-26.jpeg)

**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.

![img-27.jpeg](img-27.jpeg)

**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.

![img-28.jpeg](img-28.jpeg)

**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.

![img-29.jpeg](img-29.jpeg)

**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

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# Letter from the Chair

![img-30.jpeg](img-30.jpeg)

**Sir Dave Lewis**

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.

## 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.

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# Governance structure

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

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.

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.

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.

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.

Governance structure

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# 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.

## 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.

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## Section 172 Statement

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

| A Long term | C Business relationships | E Business conduct |
| --- | --- | --- |
| B Employees | D Community and environment | F Members of the Company |

# Sustainability

![img-0.jpeg](img-0.jpeg)

- 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

- 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

- 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

- 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

- 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.

Board activities

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# Board activities continued

![img-1.jpeg](img-1.jpeg)

**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, performance and remuneration.

## Workforce engagement

### 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.

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# 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.

Board development, effectiveness and performance

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# Audit & Risk Committee Report

![img-2.jpeg](img-2.jpeg)

**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.

## 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.

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# 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.

Audit & Risk Committee Report

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# 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 judgemental 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,

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.

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.

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## 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 infrastructure privilege access management. Where necessary, the Group has developed robust action plans and is in the process of implementing remediation actions.

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# Audit & Risk Committee Report continued

## 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.

## 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

## 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.

Receipt of written proposals.

### December 2022

Presentations to Committee Chair, members of the Committee, other Directors and members of management.

Committee recommendation submitted to the Board.

### 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.

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# 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.

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# Nominations & Governance Committee Report

![img-0.jpeg](img-0.jpeg)

**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.

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### 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.

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# Directors' Remuneration Report

![img-1.jpeg](img-1.jpeg)

**Tracy Clarke**

## 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.

## 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.

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### 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.

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# Directors' Remuneration Report continued

## 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.

## 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. |

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# Remuneration at a glance

## 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:

### CEO

![img-2.jpeg](img-2.jpeg)

● Fixed Pay
● Variable Pay

£1,336k
£1,014k

### CFO

![img-3.jpeg](img-3.jpeg)

● Fixed Pay
● Variable Pay

£481k
£518k

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# Directors' Remuneration Report continued

## Directors' Remuneration Policy

This section sets out 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. |

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## 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. |

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# Directors' Remuneration Report continued

## Directors' Remuneration Policy continued

### 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. |

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# **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. |

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# Directors' Remuneration Report continued

## Directors' Remuneration Policy continued

### 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/Adjusted EBITDA (50% weighting) |  |
|  | Net debt to Adjusted EBITDA ratio < 3x |  |  |  |
|  | Strong cash generation |  |  | Cumulative free cash flow (55% 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.

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## 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.

### CEO

| Category | Percentage | Minimum | Target | Maximum | Maximum including share price growth |
| --- | --- | --- | --- | --- | --- |
| Minimum | 100% | 100% | £1,868,000 |  |  |
| Target | 28% | 19% | 53% | £6,633,000 |  |
| Maximum | 19% | 25% | 56% | £9,993,000 |  |
| Maximum including share price growth | 15% | 19% | 44% | 22% | £12,805,000 |

### CFO

| Category | Percentage | Minimum | Target | Maximum | Maximum including share price growth |
| --- | --- | --- | --- | --- | --- |
| Minimum | 100% | 100% | £784,000 |  |  |
| Target | 26% | 23% | 51% | £3,015,000 |  |
| Maximum | 17% | 30% | 53% | £4,634,000 |  |
| Maximum including share price growth | 13% | 24% | 42% | 21% | £5,859,000 |

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.

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### 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. |

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| 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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### 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 chairership 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. |

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# 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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### 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.

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## 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.

| Performance measures | Weighting | 2022 AIP targets |  |  | 2022 AIP outcome |  | AIP outcome (% of max per element) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | 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.

| Performance measures | AIP award |  |
| --- | --- | --- |
|  | 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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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.

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## 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:

- Adjusted operating profit (20%); and

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:

| Measure | Target ranges |  |  |
| --- | --- | --- | --- |
|  | 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%).

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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:

| Measure | Target ranges |  |  |
| --- | --- | --- | --- |
|  | 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.

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## 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. |
|  | 2021 GSK PSP award (lapsed portion) | To ensure consistency, awards will be made in the same form (ADSs) as the original GSK awards held by Mr McNamara. |
| 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:

| Name | Haleon Refill awards |  |  |  |
| --- | --- | --- | --- | --- |
|  | 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.

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### 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.

### Total shareholder return

![img-0.jpeg](img-0.jpeg)

### 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.

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## 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.

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### 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 1 | 2022 fees (£000) 2 | 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).

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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.

Directors' Remuneration Report

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# Compliance with the UK Corporate Governance Code

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

| 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 |

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Other Information

# Consolidated Financial Statements

![img-1.jpeg](img-1.jpeg)

## 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.

![img-2.jpeg](img-2.jpeg)

## 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 |

![img-3.jpeg](img-3.jpeg)

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# 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**

Chief Executive Officer
20 March 2023

**Tobias Hestler**

Chief Financial Officer
20 March 2023

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# 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.

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# 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.

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## 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. |

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# 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. |

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## 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.

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# 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: | 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 | Metric % Profit before tax adjusted for separation and admission costs 4.8% Profit before tax 6.0% 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. |

![img-0.jpeg](img-0.jpeg)

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## 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. |

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# 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.

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## 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.

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# 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.

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## 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

The Group receives revenue for supply of goods to external customers against orders received. The majority of contracts that the 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 performance obligations that are unsatisfied (or partially unsatisfied) as at the end of the reporting period.

### Research and development

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 equipment, real estate and IT assets used by the R&D function.

### 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

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# Notes to the Consolidated Financial Statements

### 3. Critical accounting judgements and key sources of estimation uncertainty

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 'Taxation' for further details about the Group's taxes.

### 4. Segment information

The Group is organised into business units based on geographical areas and has three reportable segments:

- Europe, Middle East, Africa and Latin America (EMEA and LatAm)

No operating segments have been aggregated to form the above reportable operating segments.

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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: £1189m). 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

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# 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:

## Revenue by geography

|  | 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 | 9,892 |

## 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) |

Non-current assets attributable to the country of domicile and all foreign countries with assets greater than 10% are included below:

|  | 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 |

Non-current assets by location excludes derivatives, deferred tax assets and post-retirement benefit assets.

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## 5. Other operating income

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, intellectual property rights of Horlicks and Thermacare.

## 6. Operating profit

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.

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# 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 |

## Fees payable to the Group's auditors (and their associates) included in operating profit

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.

$^{3}$ Other services provided by KPMG relate to permissible tax compliance and advisory services (£2.5m), other audit-related services (£0.3m) and other services (£0.2m).

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## 7. Employees and remuneration of key management personnel

### 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 were remunerated as Executives of GSK or Pfizer and received no remuneration in respect of their services to the Company.

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# Notes to the Consolidated Financial Statements

### 8. Net finance costs

Net finance costs comprise finance expense and finance income. Finance income includes income on cash and cash equivalents and 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 based on the effective interest method.

#### 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) | (27) |

### 9. Taxation

#### Income tax

Income tax expense represents the sum of the current and deferred taxes.

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 expense.

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## 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 post-employment benefits.

Notes to the Consolidated Financial Statements

Haleon Annual Report and Form 20-F 2022

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# Notes to the Consolidated Financial Statements continued

## Deferred tax

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying 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) | (3,045) |

138

Haleon Annual Report and Form 20-F 2022

Financial Statements

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