Full year revenue rose 5% to £34.1bn, excluding the impact of currency movements. This was driven by double-digit growth in Pharmaceuticals and a smaller increase in Vaccine sales. Consumer Healthcare income was flat, reflecting the impact of asset sales.
Underlying operating profit, which strips out the impact of asset sales, rose 9% to £8.8bn, helped by pandemic-related tailwinds and the benefits of cost control. This offset a 7% rise research and development spend.
GlaxoSmithKline declared a fourth quarter dividend of 23p per share, bringing the total for the year to 80p.
The Consumer Healthcare spin-off is on track to complete in mid-2022 and more details on the stand-alone company will be available on 28 February. New GSK will remain, and management expects to see sales growth of 5-7% in 2022 and a 12-14% increase in underlying operating profits.
The shares were unmoved following the announcement.
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Our view
As we nudge closer to GSK's massive restructuring, the business is starting to look a bit more orderly.
GSK's on track to separate its Consumer Healthcare business in a demerger in mid-2022 that will hand existing GSK investors shares in the new Consumer company. New GSK is what's left behind and will house the Pharmaceutical and Vaccines businesses. It will retain a stake in the newly listed Consumer company, but this will eventually be sold off to help shore up the balance sheet.
A considerable quantity of GSK's sizeable debt pile will be passed on to the new consumer business. The consumer business will start life with a net debt to cash profits (EBITDA) ratio of up to 4.0, compared to the 2.0 times planned for New GSK. That makes sense - the consumer business is capital light and revenues should be relatively stable over the long term, unlike pharmaceuticals, allowing it to service a larger debt pile. Nonetheless the balance sheet set up means the Consumer business will probably start life with a pressing need to cut debt.
It's this need to clear up the balance sheet that's led to a 31% cut in the forecast dividend in 2022. And with the New GSK dividend expected to tick along at a lower level from 2023, and the Consumer business likely to be cutting debt at least initially, it could take years for the overall dividend to return to its current level. As with any dividend there are no guarantees.
There is, however, slightly better news on guidance for New GSK over the next five years. Operating profit growth is expected to average around 10% a year, driven by growth in Vaccines and Speciality Medicines - while more mature treatments are expected to be broadly stable over the period.
Management plans to exceed that target in 2022. The group's been helped by the moderation of Seretide/Advair sales declines, and is looking to capitalise on recently approved HIV treatments, a growing pipeline of oncology drugs and a strong vaccines business.
GSK seems to be getting its ducks in a row ahead of the break up. Free cash at the combined business exceeded dividend payments this year and that allowed the group to shave £1bn off its debt pile. Still, a dividend cut in the future and a number of asset sales ahead of the spin off don't make for a promising long-term strategy. The ambitious growth targets for the future are predicated on successful trial results, but drugs fall at the final hurdle all too often. We're pleased to see progress at GSK, but uncertainty is clouding the long-term investment case.
GlaxoSmithKline's key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Full Year Results (figures given at constant currency)
Revenue in Pharmaceuticals rose 10% to £17.7bn, helped by nearly £1bn in sales for the Covid-19 monoclonal antibody treatment Xevudy. Sales in the US and International divisions rose 21% and 4% respectively, while Europe saw a decline of 2% as generic competition weighed. Strong growth in New and Specialty products and ongoing cost control fed into a 15% rise in operating profits to £8.2bn.
Vaccines sales rose 2% to £6.8bn, driven by pandemic adjuvant sales. Excluding the impact of pandemic vaccines, sales declined 5% driven by lower demand for routine adult vaccinations. Operating profits fell 11% to £2.3bn, due to research and development spend and increased supply chain costs.
Declines in both the US and Europe meant Consumer Healthcare sales were flat at £9.6bn. This was largely due to the sale of some businesses, but the historically low cold and flu season also weighed on Respiratory health sales. Operating profits rose 9% to £2.2bn, reflecting the benefits of price and volume increases and the benefits of a one-time legal settlement. Free cash flow declined 18% to £4.4bn, primarily reflecting unfavourable exchange rate movements. Net debt fell by £1bn to £19.8bn.
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