GlaxoSmithKline plc Ordinary 25p (GSK)

Company overview

GlaxoSmithKline plc (GSK) is a global healthcare group, engaged in the creation and discovery, development, manufacture and marketing of pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products. Its principal pharmaceutical products include medicines in the therapeutic areas, such as respiratory, anti-virals, central nervous system, cardiovascular and urogenital, metabolic, anti-bacterials, oncology and emesis, dermatalogicals and vaccines. The Company's segments include Pharmaceuticals and Consumer Healthcare.

HL Comment (7 February 2012)

The group's fourth quarter results again saw progress being reported, with overall underlying sales growth of 4%. Adjusted sales growth across all three of its business divisions was recorded, with Pharmaceuticals up 2%, Vaccines up 11% and Consumer Healthcare up 5%. Operating profit before major restructuring costs for the full year 2011 came in at £8.39 billion, a 65% increase in constant currency terms over 2010, as a result of lower legal costs in 2011. Furthermore, while overall 2011 headline or reported sales declined by 3%, the second half of 2011 saw growth of 1% reported as headwinds diminished. Sales of new products totalled £2.5 billion, an increase of 47% over the prior year.

Negative Points:

• Fourth quarter results missed consensus analyst forecasts. During the quarter, sales in the US proved to be flat, whilst sales in Europe declined by 4%.
• Product pricing pressures were seen across a number of the group's markets.
• The company's Research & Development efforts are yet to yield what management itself sees as an acceptable return.
• The cost of sales increased to 26.5% of turnover compared to 26.1% during 2010. This reflected the impact of the reduction of higher margin sales of pandemic related products.
• Management previously highlighted almost universal global pressure on Government health spending budgets.
• Currency movements provide a potential headwind to earnings.

Positive Points:

• Adjusted underlying sales growth of 4% was recorded. Group sales growth was driven by Emerging Markets (+15%), Japan (+28%) and Asia Pacific (+10%).
• Additional restructuring savings of £300 million have been identified by management, bringing total annual benefits of £2.8 billion by 2014.
• Management highlighted increasing R&D returns and pipeline progress. Data was received for 9 of its 15 Phase III assets highlighted at start of 2011 during the year.
• Investor returns remain a focus. £2.2 billion of shares were bought back as part of the company's long term programme during the year.
• The dividend policy remains progressive. Total 2011 dividends of 75 pence have been announced, including an ordinary dividend of 70p, an increase of 8%.
• Sales outside of its former core US and European markets continue to be expanded.
• Management is implementing a more proactive approach to managing the group's global tax affairs, aligning them more closely to the changing shape of its business and its long-term investment strategy. Management has previously identified a number of measures that are expected to reduce the group's overall tax rate by around two percentage points by 2014.

Consensus:

On balance, market consensus indicates a cautious buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
31-12-2011	27,387.00	7,698.00	104.60	12.90	0.10	112.00	70.00	4.80
31-12-2010	28,392.00	3,157.00	32.10	23.00	n/a	(56.00)	65.00	5.20
31-12-2009	28,368.00	7,891.00	109.10	10.90	0.70	16.00	61.00	4.60
31-12-2008	24,352.00	6,659.00	88.60	12.30	2.00	6.00	57.00	4.40
31-12-2007	22,716.00	7,452.00	94.40	12.90	3.20	4.00	53.00	4.10