Gsk Plc · LSE:GSK
Gsk — GlaxoSmithKline — Q2 2010 Earnings Presentation
33 slides from Gsk's earnings presentation, Jul 21, 2010
Slide 1: Q2 Results 2010 Presentation to Investors & Analysts
Q2 Results 2010 Presentation to Investors & Analysts 21st July 2010 1
Slide 2: Julian Heslop, Chief Financial Officer
Julian Heslop Chief Financial Officer 2
Slide 3: Financial summary
Financial summary Before Restructuring costs Q2 10 H1 10 £m £m 7,025 14,382 Turnover 0% +7% 641 3,036 Operating profit* -80% -34% 2.6p 33.3p EPS -99% -46% 1,477 3,204 Free cash flow +55%** +42%** * Reported growth of operating profit and EPS is impacted by higher legal costs in ‘10 and higher other
Slide 4: Q2 Turnover analysis
Q2 Turnover analysis: £7.0bn (0%) Consumer £1.3bn (+3%) ViiV US £0.4bn (+1%) Pharma £1.9bn (-13%) ROW £0.3bn (+37%) AP/Japan £0.7bn (+9%) Emerging Europe Markets Pharma £0.8bn (+17%) £1.6bn (+1%) CER growth rates 4
Slide 5: Q2 Pharmaceutical turnover analysis
Q2 Pharmaceutical turnover analysis % Change CER Q2 10 Q2 09 £ million £ million Q2 10 H1 10 Core* 4,984 4,672 +3% +7% Influenza** 283 105 >100% >100% Avandia 152 198 -26% -18% Products impacted 354 603 -43% -40% by generics*** Total 5,773 5,578 0% +7% * Core includes ~£90m CER growth related to net
Slide 6: Core pharmaceutical analysis
Core pharmaceutical analysis Q2 2010 H1 2010 Turnover % Change % Change Advair £1,286m 0% +4% Vaccines* £664m (-9%) +4% Avodart £157m +14% +17% Epzicom £140m +8% +3% Lovaza £138m +29% +19% Ventolin £134m +16% +9% Arixtra £79m +28% +27% Veramyst £57m +19% +32% Tykerb £56m +32% +45% Subtotal £2,711m +
Slide 7: Q2 Consumer Healthcare
Q2 Consumer Healthcare: £1,252m +3%* Regional turnover Category turnover USA £263m Oral Care International (0%) £410m £496m OTC Medicines (+9%) (+11%) £593m (-2%*) Europe £493m Nutritional (-2%*) Healthcare £249m (+6%) * Excluding alli in Europe, growth was +6% overall; +5% in Europe and +5% in OTC
Slide 8: US + Europe small molecule portion of turnover
US + Europe small molecule portion of turnover falls from 31% in Q2 09 to 26% in Q2 10 US + Europe Rx small molecule ~26%* * Excludes impact of pandemic sales; Including pandemic = ~25% 8
Slide 9: H1 2010 operating margins
H1 2010 operating margins Before Restructuring costs H1 10 Full Year Actual Guidance Cost of sales 24.7% ~26% SG&A excluding legal 30.3% ~29% R&D 13.4% ~14% broadly similar to Adjusted operating margin* 33.5% 2009 (~33.7%) * Guidance for operating margin adjusted to exclude legal and Q4 09 ViiV one-
Slide 10: H1 2010 SG&A analysis excl. legal
H1 2010 SG&A analysis excl. legal Before Restructuring costs SG&A (excluding legal) as % of turnover +1.4% -1.2% -0.9% +1.1% -1.3% 31.2% 30.3% H1 09 OE Savings Investment Stiefel / ViiV Exchange Other H1 10 markets* Gains / Losses * Represents increase in investment in strategic areas including Cons
Slide 11: Q2 Operating profit analysis
Q2 Operating profit analysis Before Restructuring costs Q2 10 Q2 09 % Change £m £m CER £ Trading profit before legal 2,138 2,061 (5) 4 Legal (1,578) (85) Other operating income 81 405 Operating profit 641 2,381 (80) (73) 11
Slide 12: Q2 Performance summary
Q2 Performance summary Before Restructuring costs 2010 2009 % Change £m £m CER £ Operating profit 641 2,381 (80) (73) Interest (169) (148) Profit before tax 494 2,250 (86) (78) Tax rate 63.2% 29.0% EPS 2.6p 31.0p (99) (92) EPS analysis (p) Tax analysis EPS before legal 29.3 Tax rate before legal 25.
Slide 13: Exchange impact on EPS
Exchange impact on EPS Before Restructuring costs Q2 10 H1 10 US dollar +1% -1% Euro -1% -1% Yen +2% 0% Canadian and Australian dollar +2% +1% Other countries +2% +2% Exchange gains and losses +1% +3% Total +7% +4% If exchange rates hold at Q2 period end levels for rest of 2010, the estimated positi
Slide 14: Q2 Results after restructuring
Q2 Results after restructuring Q2 2010 Q2 2009 Results before Total Total restructuring Restructuring results results £m £m £m £m Turnover 7,025 - 7,025 6,747 Operating 641 (590) 51 2,195 profit EPS 2.6p (8.6)p (6.0)p 28.3p Results before restructuring exclude charges relating to the Operational Exc
Slide 15: Free cash flow
Free cash flow H1 10 H1 09 £m £m Total operating profit 2,145 3,907 Depreciation & other non-cash items 928 767 Decrease in working capital 464 228 Increase / (decr.) in other net liabilities 1,525 (488) Cash generated from operations 5,062 4,414 Taxation paid (824) (915) Capital expenditure: Fixed
Slide 16: Free cash flow to net debt reconciliation
Free cash flow to net debt reconciliation H1 10 H1 09 £m £m Free cash flow 3,204 2,252 Dividends (1,682) (1,586) Purchase of businesses / equities (310) (717) Sale of intangibles / equities 44 533 Employee share option exercises 27 19 Exchange 29 1,337 Other (370) (281) Decrease in net debt 942 1,55
Slide 17: Conclusion
Conclusion • H1 2010 underlying turnover growth (i.e, excluding pandemic related sales) of +1%. • Significant progress made in settling historical litigation. • H1 2010 Free Cash Flow up 42% to £3.2bn (£2.3bn in H1 2009). • Q2 dividend of 15p (+7%). 17
Slide 18: Andrew Witty, Chief Executive Officer
Andrew Witty Chief Executive Officer 18
Slide 19: GSK's strategic priorities
GSK’s strategic priorities 1. Grow a diversified global business 2. Deliver more products of value 3. Simplify the operating model 19
Slide 20: Portfolio of growth businesses with optionality on R&D upside
Portfolio of growth businesses with optionality on R&D upside 20
Slide 21: Portfolio of growth businesses with optionality on R&D upside
Portfolio of growth businesses with optionality on R&D upside 21
Slide 22: Investment businesses reaching significant scale and delivering sustained growth
Investment businesses reaching significant scale and delivering sustained growth 29% of GSK sales generated from expansion markets Derm: 4% of GSK +5% in 1H’10 Vx: 10% of GSK +3% in 1H’10 Resp: 25% of GSK +2% in 2009 Cx: 18% of GSK +4% in 1H’10 +6% in 1H’10 +5% in 2009 +7% in 2009 CER growth rates %
Slide 23: Rescaling core pharma business to be competitive in new environment
Rescaling core pharma business to be competitive in new environment Evolving customer base Increased role of payor Rational pricing model More productive, flexible sales forces 23
Slide 24: Organic capital allocation and bolt-on strategy reshaping GSK
Organic capital allocation and bolt-on strategy are fundamentally reshaping GSK Employees by division SG&A by division Sept 2007 vs June 2010 FY 2007 vs 1H 2010 EM, AP/Japan, US, EU Cx, Vx, Stiefel, ViiV R&D, Mfg, Corp +9,900 -13,700 64% 50% 36% 50% 2007 2010 2007 2010 SG&A excludes legal 24
Slide 25: Bolt-on investments are on track to deliver target ROI
Bolt-on investments are on track to deliver target ROI £7.8bn of deals assessed 96% of deals on/ahead of track 8000 8000 Terminated Mktd products Under delivering licensing 7000 7000 6000 6000 On track but early 5000 Acquisitions/JVs 5000 4000 4000 3000 3000 2000 2000 On track/ahead CAPEX 1000 1000
Slide 26: R&D is becoming more efficient
R&D is becoming more efficient through better resource allocation and improving output ~25% decrease in Pharma R&D headcount since 2006 >15% decrease in m2 since 2009 Reduced from >30 global CROs and >100 providers to 2 (2010) > 5-fold increase in Biopharm spend since 2006 Late-stage Pharma spend in
Slide 27: Creating a broader portfolio of potential high value assets
Creating a broader portfolio of potential high value assets as generic exposure declines £4.2bn 4,500 (18% of turnover) 4,000 3,500 3,000 2,500 2,000 1,500 £0.8bn 1,000 (3% of turnover) 500 0 2006 2009 GSK US turnover for Wellbutrin, Lamictal, Coreg, Zofran, Imitrex, Paxil, Flonase, Requip. 27
Slide 28: Positive performance and dividend progression through the patent cliff
Positive performance and dividend progression through the patent cliff Turnover EPS +3% 140 +2% 120 -9% +19% +10% -3% 100 +9% +2% 80 60 40 20 0 2005 2006 2007 2008 2009 Free cash flow generation Progressive Dividend 6,000 5,000 4,000 3,000 2,000 1,000 0 2005 2006 2007 2008 2009 Dividend CER growth 2
Slide 29: Diverse geographic and business mix
Diverse geographic and business mix Reducing product concentration R&D pipeline optionality Focus on cost reduction Reducing legal exposure Strong cash generation Progressive dividend 29
Slide 30: GlaxoSmithKline
GlaxoSmithKline
Slide 31: Background on new launches
Background on new launches £127m 1H 2010 1Q10 launch in Japan • Japan launched ahead of Gardasil (£15m 1H10) 1Q10 launch in US • US launch slowed by delay in VFC funding (£8m 1H10) 3Q07 launch in EU • Now approved in 70 countries + 32 submitted £83m 1H 2010 • 68% competitive tenders won (by volume)
Slide 32: Background on 5 assets to progress to Phase III
Background on 5 assets to progress to Phase III Each addressing important unmet need PRO051 (‘968)1 • DMD affects 1 in 3500 boys (Duchenne Muscular Dystrophy) • Current treatments are only symptomatic • 1 in 4 will suffer from shingles in their lifetime Zoster vaccine • 1 in 5 shingles patients deve
Slide 33: Currency movements vs £
Currency movements vs £ EURO / £ Month-end exchange rates $ / £ Month-end exchange rates 1.30 1.70 1.20 1.60 2010 2010 2009 1.10 1.50 2009 1.00 1.40 ov ov ug ug pr pr p p ec ec l l ct ct n n n n b b ar ar ay ay Ju Ju Se Se Ja Ja Ju Ju Fe Fe O O A A M M N D N D A A M M YEN / £ Month-end exchange rate