Nervous GlaxoSmith-Kline pulls cash out of eurozone to avoid crisis
Some of the withdrawn money is being used to pay dividends to shareholders, which rose by 8% to 70p a share
guardian.co.uk, Tuesday 7 February 2012 20.36 GMT
GlaxoSmithKline has been pulling cash out of some eurozone countries in case the debt crisis takes a turn for the worse.
Speaking at the drugmaker’s annual results presentation in London, the recently knighted chief executive Sir Andrew Witty said in the past year the company had been withdrawing “tens of millions of pounds” from “most of the eurozone” – excluding Germany.
“You don’t have money in banks you’re nervous about,” he explained. Some of that money is being used to pay dividends to shareholders, which rose more than expected, by 8% to 70p a share (plus 5p related to the sale of the North American over-the-counter brands).
GSK has also “raised the ante” on collecting debts from eurozone governments, especially in southern Europe. GSK sells many of its drugs to wholesalers but also sells some directly to hospitals. “We’ve been able to reduce our debts in southern Europe” leaving GSK with a figure that is “not scary,” said Witty. He welcomed the European Central Bank’s efforts to pump money into the banking system in the past six months, saying they’d had a “very positive effect on banking liquidity and confidence”.
He added: “My biggest concern vis-a-vis the eurozone is continued uncertainty. In many cases the uncertainty is worse than many of the if’s.” Witty said the crisis had sapped consumers’ confidence.
Asked about GSK’s contingency plans should the banking system freeze, he recalled an emerging markets crisis where the “general manager took bags of money to people’s [GSK staff’s] houses”.His comments came as the pharmaceutical company reported annual profits before tax of £7.7bn, up from £3.2bn in 2010, reflecting cost cutting. Turnover dropped 3% to £27.4bn. Sales were boosted by growth in Japan, driven by the cervical cancer vaccine Cervarix, and emerging markets. This was offset by a 4% fall in Europe and a flat US performance.
Witty has masterminded a radical overhaul of the business, reorganising GSK’s research operations into smaller units of 5-70 scientists, each focused on a particular disease. This is starting to yield results: the company expects up to 30 new drugs to make it into late-stage development in the next three years. “We’ve dealt with our patent cliff and have come out the other side, and we’re no longer dependent on one single market,” said Witty. Less than a quarter of GSK’s sales now come from what he calls “white pills in western markets”.
Unlike AstraZeneca, which last week announced 7,350 fresh job losses, GSK is hiring more staff and moving manufacturing and service centres back to Britain.
But, GSK shares ended the day down by nearly 1%, missing City expectations.
Deutsche Bank analysts Mark Clark and Tim Race said: “The sales miss was driven by a weak performance in vaccines, slowing emerging markets growth and EU pricing pressure. In what will likely be viewed as a disappointing launch, lupus drug Benlysta reported sales of £7m, just up from the third quarter’s £6m. Sales of vaccines missed Deutsche Bank expectations by 8%, reflecting phasing of emerging market tenders and flu shipments, plus EU price cuts. Consumer Health was also light, with diet drug alli continuing to hamper sales.”
Emmanuel Papadakis at Collins Stewart was more positive. “While the results were superficially slightly disappointing, the fourth quarter’s underlying picture is positive and reinforces our view that GSK’s structural recovery is on track. 2012’s performance is likely to be buoyed by growing generalist appeal and positive R&D newsflow.”