GSK delivers strong Q2 performance with underlying sales growth* of 5%, increased pipeline visibility and dividend of 16p, up 7%
Q2 reported sales -2%; EPS before major restructuring* 25p
Summary
? Underlying sales growth across Pharmaceuticals, Vaccines and
Consumer:
– Underlying Group sales +5%. Underlying Pharmaceuticals and
Vaccines sales growth in Emerging
Markets (+20%), Japan (+12%) and USA (+3%), offsets decline in
Europe (-1%)
– Consumer Healthcare sales +4%; sales excluding brands
proposed for divestment +6%
– Underlying Group sales outside USA and Europe now
£2.4 billion (+15%), representing 37% of
underlying turnover
– Reported sales -2% due to loss of £472 million sales
of pandemic products, Avandia and Valtrex
? Further cost reduction and new opportunities for financial
efficiencies:
– Existing restructuring programme to deliver additional
savings of approximately £300 million, bringing
total savings to £2.5 billion by 2012. Charges relating to
the programme remain unchanged
– Operating margin expectations for 2011 unchanged; margin
expected to begin to improve in 2012
– New opportunities identified to drive financial efficiency,
including reduction in effective interest rate
and a 2 percentage point improvement to the tax rate by 2014
? Enhancing returns to shareholders:
– Q2 dividend up 7% to 16p
– £892 million of share repurchases in H1
? Increased pipeline visibility:
– New approvals: Benlysta for lupus (EU), Potiga for epilepsy
(USA), Rotarix for prevention of rotavirus
(Japan); Votrient filed for sarcoma (USA and EU)
– Positive Phase III data for Promacta (Hep C) and Relovair
(6 month data in COPD) in the quarter
– More than 30 further Phase III read-outs on 14 assets
expected by end of 2012
GSK’s strategic priorities
GSK has focused its business around the delivery of three strategic
priorities, which aim to increase growth,
reduce risk and improve GSK’s long-term financial
performance:
• Grow a diversified global business
• Deliver more products of value
• Simplify GSK’s operating model
Chief Executive Officer’s review
We have had a strong second quarter, with continued underlying
sales growth, new product delivery,
pipeline visibility and cash generation. This progress is very much
in line with our expectations and
it is clear that our strategy is delivering.
As we go forward sales trends improvements together with
operational leverage, financial
efficiencies and cash conversion provide the basis for improving
returns to shareholders through
enhanced EPS and cash generation.
Underlying sales growth across Pharmaceuticals, Vaccines and
Consumer
Reported sales were down 2% reflecting the loss of £472
million of sales of pandemic products, Avandia and
Valtrex compared with a year ago. As we have previously indicated,
however, the drag from these three
factors is now set to decline significantly. We therefore continue
to expect underlying sales growth to
translate into sustainable reported sales growth as we move into
2012.
Underlying sales grew 5% in the quarter, and have grown at an
average of 4.5% over the last six quarters.
In our Pharmaceuticals and Vaccines businesses, sales benefited
from strong underlying performances in
Emerging Markets and Japan. Our US business also grew 3% on an
underlying basis in the quarter, helped
by favourable Advair stocking patterns, as well as encouraging
performances across the portfolio including
newly launched products.
Underlying sales in Europe declined 1% in the quarter. This was
a creditable performance given price
reductions enacted by governments, which adversely impacted sales
growth by approximately six
percentage points. Given current economic circumstances, further
pricing pressure in Europe cannot be
ruled out.
Sales of Vaccines were up 19% on an underlying basis, following
the successful launches of Synflorix in
Emerging Markets and Cervarix in Japan.
Consumer Healthcare sales grew 4% led by strong growth in emerging
markets. The divestment of non-core
OTC assets in the USA and Europe will further aid our strategy to
accelerate growth and increase the focus
of our Consumer Healthcare business. We are making progress to
divest these products by late 2011,
subject to realising appropriate value for shareholders, and we
continue to expect to use the net proceeds to
fund increased returns to shareholders.
In Q2 2011, 37% of GSK’s underlying sales were generated
in markets outside the USA and Europe, and
grew at 15% on an underlying basis. This rebalancing of the
Group’s sales profile is a direct result of
investments and restructuring we have undertaken in the last three
years. The Group’s ability to distribute
pharmaceuticals, vaccines and consumer healthcare products in these
rapidly growing emerging economies
provides GSK with significant competitive advantage and synergies
to access markets and customers.
CEO review Group performance Divisional performance Research
& development Financial information
Issued: Tuesday, 26th July 2011, London, U.K 3
Further cost reduction and new opportunities for financial
efficiencies
Alongside our objective of delivering sustainable reported sales
growth, we are also focused on how we can
deliver improving EPS and returns to shareholders through
operational leverage, financial efficiencies and
improved cash conversion.
Our ongoing restructuring programme is near to completion but with
savings delivery higher than originally
forecast. Following a review we now expect to deliver additional
annual savings of approximately
£300 million, bringing the total annual savings expected from
the programme to £2.5 billion a year by 2012.
These incremental savings will be generated with no increase to the
previously disclosed restructuring
charges of £4.5 billion, the majority of which have already
been taken.
In 2012, with our programme of major restructuring coming to an
end, we intend to stop separately disclosing
restructuring charges in a ‘middle column’.
Going forward we continue to apply sustained pressure to
GSK’s cost base to realise further savings,
through improvements in areas such as support functions, supply
chain and procurement efficiency.
Cost savings, together with improving sales growth and reduced
re-investment requirements, mean we will
have the opportunity to drive operational leverage and we expect
the Group operating margin (excluding
legal charges and other operating income) to begin to improve from
2012 onwards. Clearly, the rate of this
improvement will be determined by further pipeline delivery and new
product launches.
We have also identified new opportunities to realise financial
efficiencies through changes to our funding and
tax strategies. These will be executed whilst continuing to target
a short-term credit rating of A-1/P-1. We
believe this rating profile offers an effective balance between
optimal access to the capital markets and
delivery of returns to shareholders.
In particular, we will be seeking to improve the efficiency of our
funding mix. It is our intention to reduce our
average annual effective net funding rates by reducing our gross
cash balances and improving the funding
profile of the Group as net debt increases over the next two years.
By 2013 we expect to reduce average
effective annual net funding rates by approximately 200 basis
points from 2010 levels.
In addition, we are implementing a more proactive approach to
managing our global tax affairs, aligning them
more closely to the changing shape of our business and our
long-term investment strategy. We have
identified a number of measures that are expected to reduce the
Group’s overall tax rate by around two
percentage points by 2014.
Enhancing cash conversion is also a key priority. While we have
made some progress improving our
working capital position, there is clearly more we can do. This is
a significant focus area for us, particularly
in inventory management where we are targeting a number of
fundamental changes to the management of
our supply chain to improve inventory turn as well as reduce
costs.
Enhancing returns to shareholders
Returns have been delivered through continued growth in the
dividend which rose 7% to 16p in the quarter
and the repurchase of £0.9 billion of shares in the first
half. We continue to expect repurchases for 2011 to
be at top end of our previously disclosed range of £1-2
billion.
Our priorities for use of free cash flow continue to be directed
towards supporting increasing dividends, share
repurchases or, where returns are more attractive, re-investment in
the business including bolt-on
acquisitions.
To ensure shareholders have clearer visibility of our anticipated
progress in 2012 and beyond, we will be
moving to reporting core earnings next year. This will bring our
reporting into line with the majority of our
peer group. This core earnings metric will better illustrate the
underlying earnings delivery of GSK by
excluding items such as amortisation and write-offs of intangible
assets, legal charges and profits on
disposal of assets. These changes to reporting will be accompanied
by other metrics demonstrating cash
generation/conversion performance, working capital progress and
returns on investments.
CEO review Group performance Divisional performance Research
& development Financial information
Issued: Tuesday, 26th July 2011, London, U.K 4
Increased pipeline visibility
We are seeing sustained delivery from the late stage pipeline, with
FDA approval for Potiga for epilepsy,
European approval for Benlysta for lupus and the approval of
Rotarix for the prevention of rotavirus in Japan
since the last quarterly announcement.
Additionally, we filed Votrient for sarcoma in the USA and Europe
and received data from two Phase III 6
month Relovair studies which support ongoing development in COPD.
Today we are also announcing that
we have received positive data from the first of two Phase III
studies assessing the use of Promacta in
relation to treatment of hepatitis C.
Overall, as we highlighted in February, we expect data on 15 Phase
III assets to read-out by the end of 2012.
We have now reported data on 5 of these, 4 of which have been
positive. By the end of 2012 we expect
more than 30 further Phase III read-outs (on 14 of these 15
assets).
We are continuing to drive further efficiencies and focus R&D
investment on areas where we believe we
have the greatest potential to deliver improved returns on
investment. Today, we are introducing additional
disclosures on R&D spending to illustrate more clearly how GSK
manages investment allocation between
Discovery and Development activities and across Pharmaceuticals,
Vaccines and Consumer Healthcare
R&D.
Regarding our early stage pipeline, performance and funding reviews
are now being conducted across all
programmes by our Drug Discovery Investment Board. This follows
completion of the first 3 year business
cycles by the Discovery Performance Units (specialist research
units comprising 5 to 70 scientists). These
reviews, which will be completed by the end of the year, will
inform subsequent allocation of capital to
discovery activities.
It is essential with the scale and breadth of our late stage
pipeline that sufficient focus is maintained to deliver
maximum returns from every asset. Our commercial organisation is
focused primarily on driving value
across our 7 key therapy areas: Respiratory, Oncology, Neuro and
immuno-inflammation, Infectious
Diseases, Cardiovascular and Metabolic Diseases, Dermatology and
Vaccines.
Outside of this core, where necessary we have created focused
delivery units around specific disease areas
such as HIV (ViiV Healthcare) and Rare Diseases. I am delighted
with the progress of these units and they
serve as a model for future opportunities outside our core
therapeutic areas.
Summary
We are well on track in the delivery of our strategy. As much of
the major restructuring which has taken
place over recent years comes to an end, and the shape of the
re-balanced Group becomes clear, I want to
recognise the sustained commitment of our employees and thank them
for their efforts in helping to deliver
this change. I believe GSK’s outlook is very positive and we
will continue to seek to deliver improved
outcomes for patients and enhanced returns for shareholders.
Andrew Witty
Chief Executive Officer
For full release link here:
Posted: July 2011
