GSK plc — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; filed March 12, 2021. This is an annual report, not a standalone Q4 filing, and the supplied text does not provide a clear set of Q4-only results. GSK reports under IFRS as issued by the IASB.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Turnover | £34.1bn; +1% reported, +3% CER | £33.8bn |
| Operating profit, total | £7.8bn; 22.8% of turnover | £7.0bn; 20.6% |
| Operating profit, adjusted | £8.9bn; adjusted margin 26.1% | £9.0bn |
| Profit before tax | £7.0bn | £6.2bn |
| Profit after tax | £6.4bn | £5.3bn |
| Profit attributable to shareholders | £5.7bn | £4.6bn |
| EPS, total / adjusted | 115.5p / 115.9p | 93.9p / 123.9p |
| Operating cash flow / free cash flow | £8.4bn / £5.4bn | £8.0bn / £5.1bn |
| Net debt at year-end | £20.8bn | £25.2bn |
Adjusted results are non-IFRS measures that exclude specified amortisation, impairments, restructuring, transaction, disposal, legal and separation items. GSK cautions that adjusted results should be considered alongside, not instead of, total results. Total gross profit was £22.4bn, equivalent to a 65.7% gross margin, versus £21.9bn and approximately 64.9% in 2019. Net finance costs were £848m, compared with £814m. The total effective tax rate was 8.3%; the adjusted rate was 16.0%.
Turnover by business was Pharmaceuticals £17.1bn (−1% CER), Vaccines £7.0bn (−1% CER), and Consumer Healthcare £10.0bn (+14% CER). Respiratory and Oncology grew strongly, while Established Pharmaceuticals declined 15% CER. Consumer Healthcare growth was substantially affected by inclusion of Pfizer’s portfolio in the joint venture.
Material changes and significant items
- Adjusted operating profit fell 1% at actual exchange rates but rose 2% CER; adjusted EPS declined 6% AER and 4% CER. Higher R&D investment, vaccine disruption, pricing pressure and increased promotion weighed on adjusted earnings.
- Total operating profit and EPS increased, principally reflecting disposal gains, including a £2.8bn profit on disposal of Horlicks and other Consumer Healthcare brands, partly offset by a £476m loss on sale of Hindustan Unilever shares and higher fair-value charges on contingent consideration.
- Major restructuring charges were £1.5bn, up from £1.1bn; separation costs were £68m. The adjusted operating margin was 26.1%, down 0.5 percentage points AER and 0.2 points CER from 2019.
- Operating cash flow rose to £8.4bn and free cash flow to £5.4bn. Net debt declined, mainly due to free cash flow and disposal proceeds, partly offset by £4.0bn of shareholder dividends and other outflows.
- The Shionogi/ViiV contingent-consideration liability stood at £5.36bn; its 2020 remeasurement generated a £1.11bn charge. GSK paid £858m to Shionogi during the year.
Liquidity, debt and shareholder returns
Year-end cash and liquid investments were £6.37bn and gross debt was approximately £27.2bn. Short-term borrowings were £3.73bn and long-term borrowings £23.43bn. Cash and operating cash flow supported liquidity; management stated that it expected operating cash generation over the long term to fund routine operating, debt-service, investment and other obligations. Total contractual obligations and commitments were £49.6bn, including £26.2bn of loans and £12.3bn of potential intangible-asset milestone commitments; the latter includes amounts payable only if milestones are achieved.
The annual dividend was 80p per share, unchanged from 2019. The Board intended to maintain 80p for 2021, subject to material changes in conditions or expectations. GSK anticipated lower aggregate distributions under a new policy to apply to dividends paid in respect of 2022.
Outlook, risks and management commentary
- For 2021, GSK forecast Pharmaceuticals revenue growth from flat to low-single digits, Consumer Healthcare growth in the low-to-mid single digits excluding brands divested or under review, and Vaccines growth from flat to low-single digits. It expected a mid-to-high-single-digit decline in adjusted EPS at CER.
- The outlook assumed healthcare systems and consumer trends would approach normality in the second half of 2021. Vaccines were expected to face further first-half disruption as governments prioritized COVID-19 vaccination, with expected recovery and Shingrix contribution in the second half.
- GSK warned that the pandemic’s duration and effects remained uncertain, including impacts on demand, clinical trials, supply continuity and employees. Vaccination access constraints had already affected vaccine demand in 2020.
- The planned separation of Consumer Healthcare into a standalone company was subject to market, financing, legal and regulatory conditions. Failure or delay could affect GSK’s strategy, leverage reduction and ability to fund investment; separation could also leave both businesses smaller and less diversified.
- Other principal risks include patient safety, product quality, research and data integrity, intellectual property and generic competition, pricing and commercial compliance, bribery and corruption, privacy and cybersecurity, supply continuity, tax disputes, and litigation or government investigations. The filing notes that potential losses in some disputes cannot be reliably estimated.
- Management planned continued pipeline investment and separation readiness. The 2020 accounts include substantial restructuring and transaction adjustments, contingent-consideration valuation estimates and significant US returns-and-rebates accruals. Deloitte identified these, together with intangible-asset valuations and uncertain tax positions, as critical audit matters.
Key facts for investors to verify
- Review the incorporated annual-report financial statements and notes, particularly the reconciliation of total and adjusted results and the cash-flow and net-debt calculations.
- Assess the quality and sustainability of the £2.8bn disposal-related gain and the assumptions behind the £5.36bn ViiV/Shionogi liability and its future cash payments.
- Verify US returns-and-rebates estimates: the combined US Pharmaceuticals and Vaccines year-end accrual was £4.686bn in the financial review; the audit discussion reports a US-dollar equivalent of $6.394bn.
- Track whether 2021 revenue and adjusted EPS guidance, vaccine recovery expectations, and restructuring and separation savings are achieved.
- Review the timing, financing, costs and terms of the proposed Consumer Healthcare separation, as well as the dividend policy change expected for 2022.
- Examine legal, tax, product-quality and supply contingencies in the referenced notes. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.