Key Financials Of Gsk

Published Date: 02 Nov 2017

Reported sales for the FY 2012 were £ 26.4 bn which is down by 1% in compare to the previous year but were flat adjusting for the disposal of non-core OTC Consumer Healthcare brands. Overall, strong performances in EMAP and other growth businesses largely offset declines in USA and Europe.This reflects continued strong performance from their ‘growth’ businesses in the emerging markets helping to offset pressure in western markets, especially weaker than expected performance inEurope. The company expects to deliver sales growth sales of around 1% CER into 2013. The segment wise performance for the FY 2012 was recorded as:

Turnover by segment £bn

US Pharmaceuticals and Vaccines 7.0

Europe Pharmaceuticals and Vaccines 5.0

EMAP Pharmaceuticals and Vaccines 4.7

Japan Pharmaceuticals and Vaccines 2.0

ViiV Healthcare 1.4

Other trading 1.2

Consumer Healthcare 5.1

The sales in emerging market was recorded 26% of the business which increased by 10% in compare to last year. GSKs move towards emerging market is a strategic balance for its long term growth. The sales of Japan market was fall by 6%, USA by 2% but it has improved since last to last year and the business of Europe was down by 7%.

Total sales of new products were £1.4 billion, grew 34% in the year and represented 7% of Pharmaceutical and Vaccines turnover. 2012 was impacted by the roll-off of products more than five years old.This measure shows the delivery of sales from products launched in the prior fiveyears and creates incentives for improved R&D performance.

Overall the sale of pharmaceuticals and vaccine is decreasing in compare to the previous two years data. Consumer health care is also decrease in compare to last year. However the company’s strategy to cover the emerging market is good enough to maintain its overall growth.

Operating Performance:

During the FY free cash flow was £2.0 billion. Excluding legal settlements, adjusted free cash flow was £4.7 billion.This measure shows the cash generated by the company and that is available to return to shareholders or reinvested in the business, as well as the managements’ effectiveness in converting earnings to cash through effective working capital control and investment discipline. The company has a particular focus was on its working capital and in 2012 the management made significant progress. They reduced the working capital cash conversion cycle from 202 to 194 days. It was also reflected that they have made progress on payables and receivables and were focused on addressing the Group’s inventory position in a sustainable and secure way.

Core operating profit was £8,330 million, a 3% decrease in CERterms on a turnover decline of 1% CER. During the FY 2012 the core operating margin declined by 0.6 percentage points to 31.5%, of which 0.3 percentage points was due to the expected impact of the Human Genome Sciences(HGS) acquisition. The remaining 0.3 percentage points was due primarily to the impact of maintaining flat SG&A on lower turnover, partially mitigated by lower R&D expenditure. The management remained focused on managing cost base more effectively. The company has started their Operational Excellence programmesince 2008 and has now delivered annual savings of £2.5 billion. This is a remarkable achievement.The company has also launched a new change programme to deliver further annual savings of £1 billion by 2016.

Total operating profit was £7.4 billion. Total operating margin declined 0.5 percentage points to 28.0%, of which 0.3 percentage points was due to the expected impact of the acquisition of Human Genome Sciences.

Return:

During 2012, GSK returned £6.3 billion toShareholders via dividends and share buy- backs.In 2012, the significant progress in improving GSK’s financial efficiency, together with their reinitiated share buyback programme, enabled the company to maintain flat core EPS compared with 2011 (on a CER basis), despite the decline in sales. EPS shows the portion of company’s profit allocated to each share. It is a key indicator of corporate performance and the returns they are generating. The managementcontinues to focus on delivering dividend growth and returning free cash flow to shareholders through share buy-backs where this offers a more attractive return than alternative investments.

In 2013, the management expects to deliver core EPS growth of 3-4% CER, based on the IAS 19 (Revised) adjusted EPS for 2012 of 111.4p.

Effective cost control and delivery of financial efficiencies enabled the Group to deliver core EPS of 112.7p for the current year. Core earnings per share of 112.7 pence were flat in CER terms anddown 2% at actual rates. The currency impact reflected thestrengthening of Sterling against the Euro and a number of othercurrencies, partially offset by the weakening of Sterling against theUS dollar and the Japanese Yen.

The total cost of GSK’s property, plant and equipment at 31 December2012 was £18,742 million, with a net book value of £8,776 million.

The dividend per share for the year 2012 was recorded at 74 pence.

R&D Operations:

GSK is focusing on research and developing the quality of drugs especially in the area of respiratory, oncology, diabetes and HIV.In 2012, GSK invested £3.5 billion in core research and development of new medicines, vaccines and consumer products, and were currently evaluating around 50 investigational medicines for diseases such as cancer, diabetes, heart disease and respiratory illnesses. Over the next three years, the company has the potential to bring around 15 new medicines to patients. This can be considered as strength of the business. It also support that the company is involving into innovation in medicine business.

During 2012, new vaccines were approved for flu, meningitis and meningitis-Hib. GSK received two significant new indications for existing medicines treating cancer and hepatitis. It also filed six key new products for approval with regulators, including treatments for respiratory disease, cancer, HIV and diabetes. This is an unprecedented level of late-stage pipeline delivery for the company. Overall, the return on R&D investment has been increasing and the management is confident that the company can reach their long-term goal of 14%.

More than 12,500 people work across GSK R&D organization, with many of thesebased in their large R&D centers in the UK,USA, Belgium and China.

Contribution to the society:

GSK’s primary contribution is todevelop new products that improvepeople’s health, they also create valueas a global company by making directand indirect economic and socialcontributions in the countries in whichthey operate.GSK fulfill all the legal and environment requirements of the nation in which it operates its operation.

GSK is working to make their medicinesand healthcare products available andaffordable to as many people who needthem as possible. Company aims to do this whilealso generating the returns they need tosustain their business and invest in R&D.

Through GSK’s Developing Countriesand Market Access (DCMA) unit the company has created a business groupdedicated to increasing patient accessto GSK medicines in the world’s poorest countries. In these countries they invest20% of the profits made there back intocommunity programmes to strengthenlocal healthcare infrastructure. Thisinvestment – in resources like clinics,hospitals, doctors, nurses, and trainingprogrammes – increases the numberof people who can get much-neededhealthcare and medicines.

The 20% reinvestment programme isdelivered through company’s partnership withthree non-governmental organisations(NGOs) with regional expertise. GSK workwith Save the Children in West Africa,AMREF in East and Southern Africa, andCARE International in Asia.

GSK is committed to reporting the resultsof their clinical research, irrespective ofwhether the outcomes are perceived tobe positive or negative for their medicines.To further increase this transparency,The Company announced plans in 2012 to enableresearchers to access anonymisedpatientleveldata from published clinical trialsof their medicines. Requests for data willbe reviewed by an independent panel ofexperts to evaluate the scientific meritof each proposal.

The company played a vital role during Olympic 2012, GSK did more than 6000 doping test for fair playing.

Environmental sustainability is a priorityfor GSK. The company focus is to reduce carbon,water and waste.It also manages a rangeof other important environmental issues.One is ‘green chemistry’ which aims toreplace the use of hazardous chemicals

and processes with those that have alower environmental impact. In 2012 GSK created a Green Chemistry PerformanceUnit to put green chemistry theoriesinto practice. The unit has published 12internal guides that help employees makebetter chemical choices when designingor developing new products.

Employee:

GSK wants to be an employer of choice. Their ability to attract, retain and motivatethe best people is essential to achievingthier objectives and executing company’s strategy. Their employment practices are designed to help them create the right workplace culturein which all employees feel valued,respected, empowered and inspired.

GSK is committed to supportingemployees to perform to their best and they ensure that appropriate programmesand mechanisms are in place to deliveroverall performance. Individuals meet90% of their development needsthrough challenging on-the-job projects,mentoring and coaching, with 10%derived from formal development such as

trainingprogrammes.In 2012 the company employed 52 apprentices andrecruited 317 graduates.

In 2012 GSK maintained a rate of 85% ofemployees saying they are proud to workfor GSK based on a 72% participation ratein our global employee survey.

Risk Management:

The company has diversified its operation in various part of the globe and also diversifies its business line to reduce risk.GSK has diverse and balanced portfolio for sustainable growth.It has reshaped its business in developed market and invested more in emerging markets for long term growth of the business.

Key financials of GSK:

Price Earning Ration (E) X 14.16

Dividend Yield (E)

%

4.73

Price Earning Growth (E)

f

0.69

Return on Capital Employed

%

43.48

Operating Margin

%

25.12

EPS Growth (E)

%

20.45

Enterprise value/EBITDA

x

11.16

Net Gearing

%

243.00

Net Tangible Asset Value Per Share

p

-177.66

Price to Tangible Book Value

x

-9.45

Price/Cash Flow

x

22.45

Price/Sales

x

3.12

Net Tangible Asset Value Per Share

p

-177.66

Profitability

Operating Margin

%

25.12

Profit Margin

%

25.23

ROE

%

42.77

ROCE

%

43.48

Financial Health

Net Gearing

%

243.00

Gross Gearing

%

315.01

Dividend Cover

x

1.26

Quick Ratio

r

0.70

Current Ratio

r

0.99

Growth

DPS Growth

%

7.46

Norm EPS Growth

%

-2.85

Reported EPS Growth

%

-11.34

Cash Flow

Cash Flow Per Share

p

74.76

CAPEX PS

p

8.06

(E)=Estimate (A)=Actual or achieved result (en) (p)=Pence (m)=Million (f)=Factor (r)=Ratio (x)=Multiple

ROCE, Operating profit margined and EPS are considered as a progressive sign for the company’s overall performance. However gearing ratio, book value and net tangible assets per share is in minus which is considering as a negative sigh of the company. Management of the GSK should take care of such red signals.

Conclusion:

The operatingenvironment of GSK remains challenging, but on the other hand it has opportunity to grow in emerging markets. The company is equipped to deliverinnovation and act with responsibility.The Board has every confidence in their members and employees. It is good for the company that it has Sir Andrew in his senior management team so that they can get his experience and knowledge for future growth.The Group is taking all thenecessary steps to build a stronger GSKthat can generate sustainable value forshareholders and society.Despite a challenging environment, I believe 2012 marked anotheryear of progress for GSK. For long term growth and risk minimization the company should focus on emerging market and try to maintain its share in developed countries.