GSK

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 30 June 2021
Issued Date: 28 July 2021

GSK reported strong Q2 sales growth driven by commercial execution and favorable prior-year comparisons. The company continues to advance its strategy to separate into two standalone companies: a biopharma entity (New GSK) and a Consumer Healthcare company, with the demerger confirmed for mid-2022.

Key Financial Metrics

Note: Growth rates are provided in the text as Actual Exchange Rate (AER) and Constant Exchange Rate (CER). Q2 Turnover grew 6% AER / 15% CER. H1 Turnover declined 7% AER / 1% CER.

Material Changes vs. Prior Period

• Revenue Drivers: Q2 Pharmaceuticals grew 3% AER (12% CER) driven by New and Specialty products (+25% CER). Vaccines surged 39% AER (49% CER) due to pandemic adjuvant sales (£258m) and strong Meningitis demand. Consumer Healthcare declined 4% AER but grew 3% CER, excluding divestments.
• Profitability Impact: Total Operating Profit and EPS declined significantly year-over-year due to an unfavorable comparison with Q2 2020, which included a £2.3 billion net profit on the disposal of Horlicks and other Consumer brands. Adjusted metrics, excluding these one-off items, showed strong growth (Adjusted EPS +46% AER).
• One-off Items: Q2 2021 included a £325 million tax credit from the revaluation of deferred tax assets following the UK corporation tax rate increase to 25% (effective 2023).
• Cash Flow: Free cash flow decreased sharply compared to Q2 2020, primarily due to the completion of the Consumer Brands Disposal programme (reduced proceeds) and adverse timing of returns/rebates.

Guidance, Outlook, and Risks

• 2021 Guidance: Reconfirmed guidance for a mid-to-high single-digit percentage decline in Adjusted EPS at CER, excluding COVID-19 solutions. Management expects to deliver towards the better end of this range.
• 2022 Outlook: Expects meaningful improvements in revenues and margins driven by the Vaccines and Specialty Medicines portfolio. A progressive dividend policy (40-60% payout ratio) will be implemented for New GSK starting in 2022.
• Dividends: Declared Q2 dividend of 19p/share. Full-year 2021 dividend expected to be 80p/share. Full-year 2022 aggregate dividend expected to be 55p/share (44p from New GSK, 11p from Consumer Healthcare).
• Risks & Contingencies:
  • COVID-19 Impact: Ongoing uncertainty regarding the pace of mass immunization and its impact on routine adult vaccinations (specifically Shingrix). COVID-19 solutions are expected to contribute 4-6% to Adjusted EPS growth in 2021.
  • Legal Matters: Plaintiffs filed a notice to appeal the summary judgment in the Zofran Multidistrict Litigation (MDL) on 1 July 2021.
  • Transformation: Risks associated with the successful separation of the Consumer Healthcare business in mid-2022.

Investor Verification Checklist

• Adjusted vs. Total Results: Verify the reconciliation between Total and Adjusted results, noting the significant impact of the prior-year Horlicks disposal profit and the current-year UK tax credit.
• Shingrix Recovery: Monitor the recovery of Shingrix sales in the US and ex-US markets as COVID-19 vaccination priorities shift, as this is a key growth driver for the Vaccines segment.
• Consumer Healthcare Separation: Track progress on the mid-2022 demerger and the valuation of the new standalone Consumer Healthcare company.
• Contingent Consideration: Review the £5.2 billion liability related to ViiV Healthcare (Shionogi), which is subject to re-measurement based on sales forecasts and exchange rates.
• Free Cash Flow Conversion: Assess the low free cash flow conversion (23% in Q2) against the backdrop of completed divestments and working capital timing.