Business Context and Reporting Period
Company: GSK Plc
Filing Type: Form 6-K (Results Announcement)
Reporting Period: Full Year 2019 and Fourth Quarter (Q4) 2019
Issuance Date: February 5, 2020
GSK reported full-year 2019 sales of £33.8 billion, driven by growth in Vaccines and Consumer Healthcare, while Pharmaceuticals remained flat on a constant exchange rate (CER) basis. The company announced a strategic two-year programme to prepare for the separation of GSK into two standalone companies: a biopharma entity (New GSK) and a Consumer Healthcare leader.
Key Financial Metrics
| Metric | 2019 Full Year | 2018 Full Year | Growth (AER) | Growth (CER) |
|---|---|---|---|---|
| Turnover | £33,754m | £30,821m | +10% | +8% |
| Total Operating Profit | £6,961m | £5,483m | +27% | +23% |
| Adjusted Operating Profit | £8,972m | £8,745m | +3% | Flat |
| Total EPS | 93.9p | 73.7p | +27% | +23% |
| Adjusted EPS | 123.9p | 119.4p | +4% | +1% |
| Net Cash from Operations | £8,020m | £8,421m | -5% | N/A |
| Free Cash Flow | £5,073m | £5,692m | -11% | N/A |
| Net Debt | £25,215m | £21,621m | N/A | N/A |
Segment Performance (2019)
- Pharmaceuticals: £17.6 billion (+2% AER, flat CER). Respiratory sales grew 18% AER driven by Trelegy and Nucala; HIV sales grew 3% AER. Established Pharmaceuticals declined 7% AER due to Advair generic competition.
- Vaccines: £7.2 billion (+21% AER, +19% CER). Driven by Shingrix sales of £1.8 billion (>100% growth).
- Consumer Healthcare: £9.0 billion (+17% AER, +17% CER). Pro-forma growth was +2% CER, reflecting the inclusion of Pfizer brands.
Material Changes vs. Prior Period
- Profitability: Total operating profit increased significantly (+27% AER) primarily due to reduced re-measurement charges on contingent consideration liabilities and increased profits on disposals. However, Adjusted operating profit was flat at CER, reflecting increased R&D spending and the impact of generic Advair.
- Acquisitions: The acquisition of Tesaro (oncology) in January 2019 and the Pfizer Consumer Healthcare business in July 2019 contributed to revenue growth and increased net debt.
- Cost Structure: Adjusted operating margin decreased to 26.6% (down 2.1 percentage points CER) due to price pressure in Respiratory, increased R&D investment (particularly in Oncology), and promotional support for new launches.
- Cash Flow: Free cash flow declined 11% year-over-year due to adverse timing of rebate payments, the step-down impact from US Advair generic competition, and higher restructuring and legal payments.
Guidance, Outlook, and Risks
2020 Guidance
- Adjusted EPS: Expected to decline between -1% and -4% at CER.
- Dividend: Expected to maintain the 2019 level of 80p per share for 2020.
- Exclusions: Guidance excludes impacts from further material divestments and the potential impact of the Coronavirus outbreak.
Strategic Separation Programme
GSK initiated a two-year programme to separate into two companies. The programme targets £0.7 billion in annual savings by 2022, with total estimated costs of £2.4 billion (£1.6 billion cash). Anticipated divestment proceeds are expected to cover programme cash costs.
Risks and Contingencies
- Legal Matters: Significant legal proceedings include the Zantac (ranitidine) recall and related personal injury claims, and a UK Competition and Markets Authority fine regarding paroxetine patent settlements (appeal pending).
- Patent Expirations: Continued decline in sales of Seretide/Advair due to generic competition in the US.
- Contingent Consideration: Significant liabilities remain related to ViiV Healthcare (Shionogi) and Novartis Vaccines acquisitions, subject to re-measurement based on sales forecasts and exchange rates.
Investor Verification Checklist
- Advair Impact: Verify the trajectory of Respiratory sales as generic competition in the US matures.
- Separation Costs: Monitor the execution of the £2.4 billion separation programme and the timing of anticipated divestments to fund cash costs.
- Legal Exposure: Track developments in Zantac litigation and the final outcome of the UK paroxetine appeal.
- R&D Pipeline: Assess progress on key oncology assets (Zejula, dostarlimab, belantamab mafodotin) and their contribution to future revenue.
- Consumer Healthcare Integration: Evaluate the pro-forma performance of the new Consumer Healthcare Joint Venture with Pfizer.