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GSK's split year performance

RESULTS: GlaxoSmithKline's diversification strategy is starting to pay-off as second-half sales growth returned to positive territory
February 7, 2012

Without the complication of legal charges, GlaxoSmithKline's (GSK) reported profits returned to something resembling normality, which perhaps gave traders an excuse to lock-in profits on the sizeable share price gains seen in recent months. Moreover, shareholders can expect a further £1bn-£2bn of share buy-backs this year - as well as a 5p special dividend, from selling peripheral over-the-counter products.

IC TIP: Buy at 1,406p

Indeed, and despite uncertainties over whether Relovair will make much difference - the company's replacement for top-selling asthma drug, Advair - GSK delivered positive second-half sales growth. That followed a 6 per cent first-half sales slide after being hit by such factors as a fall in 'flu pandemic product sales, the withdrawal of diabetes drug Avandia, and the patent expiry for genital herpes product, Valtrex.

Chief executive Andrew Witty is convinced that diversifying GSK's core business is essential to avoid a sales slump when drugs lose patent protection. Consequently, the proportion of sales generated by 'white pills' in developed markets has fallen from 40 per cent in 2007 to 22 per cent now, while the best revenue growth came from emerging markets - up 5 per cent to £5.32bn. In fact, emerging market growth helped overall pharmaceutical sales rise 2 per cent to £18.7bn. Developed market sales, meanwhile, remain sluggish. US revenue was flat at £8.69bn and European sales fell 4 per cent to £8.27bn after governments forced down medicine prices. In contrast, consumer healthcare continued its steady progress with underlying sales growth of 8 per cent to £1.12bn.

Research & development spending was flat at £3.92bn - reflecting efficiency savings and fewer intangible impairment charges. Still, GSK is investing more in its late-stage pipeline and now has at least three products ready to file with regulators and a further six that are expected to complete their Phase III trials this year.

Prior to these figures, Citigroup was expecting pre-tax profit of £8.29bn for 2012, giving EPS of 120.7p.

GLAXOSMITHKLINE (GSK)

ORD PRICE:1,406pMARKET VALUE:£71bn
TOUCH:1,406-1,409p12-MONTH HIGH:1,500pLOW: 1,127p
DIVIDEND YIELD:5.0%†PE RATIO:13
NET ASSET VALUE:159p*NET DEBT:102%

Year to 31 DecTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
200722.77.4594.453.0
200824.46.6688.657.0
200928.47.8910961.0
201028.43.1632.165.0
201127.47.7010570.0†
% change-4+144+227+8

Ex-div: 15 Feb

Payment: 12 Apr

*Includes intangible assets of £11.5bn, or 229p a share

†Excludes 5p special dividend