GlaxoSmithKline 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).
Glaxo reported their interim results yesterday and much like their first quarter results (see here) made uncomfortable reading. Sales for the half-year were down 3% in constant currency and 12% reported to £11.2bn, with the US showing a 10% decline mainly due to Seretide/Advair that was down 24% in that territory.
Core operating profit at £2.9bn was down 7% in constant
currency and 22% in actual currency, reported operating profit was £2.2bn down
10% in constant currency and 27% as reported with the US proving the greatest drag on profits
Core EPS was 40.1p down 5% in
constant currency and 22% in actual currency with reported EPS at 27.1p down
33.7%.
The Board has declared a second interim dividend of 19p making 38p for
the half year, an increase of 5.6%.
Free cash flow (FCF) was down substantially at £0.7bn from £2.0bn last year; in addition to the lower operating performance, the adverse foreign exchange environment from a strong Sterling currency would have had an effect. The company reflecting on the underlying weak FCF and the sustained strength of Sterling state that "...it is likely that share repurchases over the balance of 2014 will be immaterial..." Well thank goodness for that, as I commented here "...I am not convinced by management's continued commitment to share buy-backs with a target of £1-2bn for this year. At a share price that is over 11 times book value, it will further distort the financing of the balance sheet and expose the company to eventual interest rate risk. I would judge the equity to debt cost differential for Glaxo at about 3% net of tax (GSK does have a much lower tax rate than many other large international companies)..."
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