Business Context and Reporting Period
Company: GSK plc
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter (Q2) and First Half (H1) ended June 30, 2023
Announcement Date: July 26, 2023
GSK reported strong performance driven by key growth drivers in Vaccines and Specialty Medicines (specifically HIV), alongside General Medicines. The company upgraded its full-year 2023 guidance following a strong first half, citing momentum in the R&D pipeline and the approval of Arexvy, the world's first RSV vaccine for older adults.
Key Financial Metrics (Q2 2023)
| Metric | Q2 2023 (£m) | Growth (AER%) | Growth (CER%) |
|---|---|---|---|
| Turnover | 7,178 | 4% | 4% |
| Turnover ex COVID-19 | 7,137 | 10% | 11% |
| Total Operating Profit | 2,141 | 98% | >100% |
| Adjusted Operating Profit | 2,170 | 8% | 11% |
| Adjusted Operating Margin | 30.2% | +1.3 ppts | +2.0 ppts |
| Total Continuing EPS | 40.1p | >100% | >100% |
| Adjusted EPS | 38.8p | 12% | 16% |
| Cash Generated from Operations | 1,620 | 3% | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total turnover grew 4% at CER. Excluding COVID-19 solutions, turnover grew 11% at CER.
- Vaccines: Sales +18% (CER), driven by Shingrix (+20%) and Meningitis (+13%).
- Specialty Medicines: Sales -7% (CER) due to the decline of Xevudy (COVID-19). Excluding COVID-19, sales grew 12% (CER), led by HIV (+12%) and Respiratory/Immunology (+16%).
- General Medicines: Sales +8% (CER), driven by Trelegy (+30%).
- Profitability: Total operating profit surged over 100% at CER, primarily due to favorable movements in contingent consideration liabilities (a £189m credit in Q2 vs. a £699m charge in Q2 2022). Adjusted operating profit grew 11% at CER, reflecting strong sales and higher royalty income offset by increased R&D and launch investments.
- Costs: R&D investment increased 7% at CER, reflecting investment in early-stage research and HIV portfolio. SG&A increased 9% at CER due to launch investments in HIV and Vaccines.
Guidance, Outlook, and Risks
Upgraded 2023 Guidance (CER, ex COVID-19)
- Turnover: 8-10% growth (previously 6-8%).
- Adjusted Operating Profit: 11-13% growth (previously 10-12%).
- Adjusted EPS: 14-17% growth (previously 12-15%).
Management expects continued strong performance in H2 2023, though growth rates may be lower due to tough comparisons in HIV and General Medicines. Investment growth is expected to reduce in H2, particularly in Q4.
Dividends
Declared a second interim dividend of 14p per share. Full-year 2023 dividend expected to be 56.5p per share.
Risks and Contingencies
- Legal Matters: Identified as a new principal risk. Significant developments include a confidential settlement in the first Zantac trial (Goetz case) and an appeal granted regarding the Zejula royalty dispute with AstraZeneca.
- COVID-19 Impact: Lower sales of COVID-19 solutions (Xevudy and pandemic vaccines) are expected to impact full-year 2023 turnover growth by approximately 8% and Adjusted Operating Profit growth by 4-5%.
- Contingent Consideration: Significant volatility in Total results due to fair value remeasurement of liabilities related to ViiV Healthcare (Shionogi) and Novartis Vaccines.
Investor Verification Checklist
- Adjusted vs. Total Results: Verify the reconciliation between Total and Adjusted results, noting the £189m credit in Q2 2023 from contingent consideration remeasurement which significantly boosted Total EPS but is excluded from Adjusted metrics.
- COVID-19 Exclusion: Confirm that all growth comparisons and guidance exclude COVID-19 solutions (Xevudy and pandemic vaccines) to understand underlying organic growth.
- Legal Provisions: Review the £0.3 billion provision for legal disputes (primarily Zantac) and monitor upcoming trial dates for Zantac cases in 2024-2025.
- Contingent Consideration Liability: Monitor the £6.2 billion contingent consideration liability, particularly the sensitivity to sales forecasts and exchange rates for ViiV Healthcare.
- Free Cash Flow: Note the shift to a free cash outflow of £341m for H1 2023 (vs. inflow in H1 2022), driven by the Bellus Health acquisition (£1.4bn net cost), dividends, and working capital changes.