GlaxoSmithKline interims

A global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

GSK announced their 2nd quarter and interim results yesterday, which were somewhat overshadowed by the on-going Chinese probe into bribery and corruption by the company and its likely affect on the business.  As to the results, total Group turnover for the second quarter 2013 was £6,618m, up 2% and for the half-year was flat at £13,089m, although for the half-year adjusting for the impact of disposals, turnover grew 2%.

 

Core EPS of 53.2p decreased 1% in CER terms, although reported EPS declined 19.2% to 40.9p.  The second quarter dividend is 18p a 6% increase, making 36p for the half-year and the company stated that total share repurchases for the year are expected to be £1-2bn.

 

As was announced in mid June, the company mentioned that it has received an offer from Aspen Group for two anticoagulant products and the related manufacturing site, the additional information was the value of approximately £700m .  They mentioned that their plan to divest the drinks brands, Lucozade & Ribenna, remains on track and they expect to reach an agreement by the end of the year.

 

Free cash flow (FCF) for the six months was £2,012m 23% down on last year.  It is worth noting that FCF has declined for three straight years, although due to a weak performance in the second half of last year, this year may see the first increase since 2009.  They stated that their commitment is to use free cash flow to support increasing dividends, share repurchases or, where returns are more attractive, bolt-on acquisitions. 

In my opinion one of the strengths that GSK possesses is their "know how" in inhaled  medicines. The result of this is clear from the performance of  Advair/Seretide; patent protection was lost in the USA back in 2010 and yet it continues to grow by 8% in the USA in both the second quarter and the six months.  It seems that although, for generic companies, copying pills is complex but possible, inhaled drugs require a whole set of new skills that many of them do not have.  Next to be released in this area is Relvar/Breo Ellipta approved by the FDA in May of this year, a once a day treatment for respiratory conditions.  In contrast to this is Astra Zeneca, where their exposure to inhaled medicines is about half of GSK's and their decline in sales due to patent expiries is far more marked.
 

Finally, GSK's guidance for 2013 was reconfirmed as core EPS growth of 3-4% CER with turnover growth of around 1% CER.