GlaxoSmithKline's CEO Discusses Q1 2012 Results - Earnings Call Transcript

GlaxoSmithKline (GSK)

Q1 2012 Earnings Call

April 25, 2012 8:30 am ET

Executives

Andrew Witty - Chief Executive Officer, Executive Director, Member of Corporate Administration & Transactions Committee and Member of Finance Committee

Simon Dingemans - Chief Financial Officer, Executive Director, Member of Corporate Administration & Transactions Committee and Member of Finance Committee

Analysts

Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division

Andrew S. Baum - Citigroup Inc, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Brian Bourdot - Barclays Capital, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

Jo Walton - Crédit Suisse AG, Research Division

Kyle Rasbach

Florent Cespedes - Exane BNP Paribas, Research Division

Mark Clark

Naresh Chouhan - Liberum Capital Limited, Research Division

James D. Gordon - JP Morgan Chase & Co, Research Division

Jeffrey Holford - Jefferies & Company, Inc., Research Division

Nick Turner - Mirabaud Securities Limited, Research Division

Presentation

Andrew Witty

Thank you very much, and thank you for joining me on this call. I'm here with Simon Dingemans. And what I'll do is make a few introductory comments and ask Simon to make a few comments, and then we'll open up to Q&A, as we normally do.

I'm very pleased with the first quarter performance, which provides more evidence of the sustainable business that we're building here at GSK. And importantly, we are delivering exactly what we said we would. We reported sales growth, gradual operating leverage, good cash generation, enhanced returns to shareholders and continued positive R&D asset progression. You will see we are now reporting core earnings for the first time and this gives a better indication of the operating performance of the business. It also brings us into line with our peers.

On this basis, sales grew 2% and EPS grew 7% in the quarter. In terms of the 2% sales growth, it really demonstrates a resilient performance, given the continued economic pressures and challenging political environment we face in many markets. As it's always the case in any quarter, there were some one-off factors which affected reported performance, and this was particularly acute in the emerging market region where sales grew 2% and were impacted by ongoing instability in the Middle East and the phase-in of some vaccine tenders. There was also an unfavorable comparison to the first quarter of last year, which you remember was a very strong one where we grew around 20%. Looking forward, however, we remain very bullish on our prospects in emerging markets and continue to invest behind our objective to grow ahead of the market in this region, which we think at the moment is running at about an 11% growth rate.

Elsewhere, we are seeing continuing progress in the pro-innovation markets of the U.S. and Japan. And I'm also pleased with the performance of our Consumer Healthcare business, sales of which grew 7%, excluding the non-core OTC brands we have identified for disposal.

GSK's momentum is being fundamentally underpinned by excellent late-stage asset progression. Since the last update in February, we have received positive Phase III data on 3 assets: our HIV integrase inhibitor, albiglutide for diabetes and our BRAF inhibitor for treatment of melanoma cancer. We also filed our quadrivalent flu vaccine in the U.S. and Europe during the quarter. And we now have 4 products with sufficient data in-house to file in 2012 and another 4 products which we expect to complete Phase III registration studies for this year.

Visibility of GSK's pipeline will continue with data on multiple assets planned to be presented at key medical conferences throughout the year. We were also clearly setting out our strategy in terms of an increased focus on delivering enhanced returns to shareholders. Today, we confirmed another 6% rise in the dividend to 17p per share and increased our expectation for share repurchases for the year to the range of GBP 2 billion to GBP 2.5 billion.

All in all, I'm pleased with the progress we've made this quarter. Our strategy is on track. And despite the external pressures we face, we remain confident in our outlook for 2012.

With that, I'd like to hand over to Simon to give you a little bit more detail.

Simon Dingemans

Thanks, Andrew.

2012 marks the beginning of a very different phase for GSK, one that's largely clear of the headwinds of the last few years and one where we believe the changes and investments we've made to shift the shape of the group will really start to deliver much more visibly against our objectives of delivering sustainable sales growth, improved operating leverage and stronger free cash flow. And our performance this quarter is very much in line with these objectives. And this is despite a number of expected pressures, including continued European austerity measures and tough year-on-year comparisons this quarter particularly in EMAP and Vaccines and also for Japan and our consumer business.

Additionally, in the quarter, we also saw our Middle East business down 6%, affected by the ongoing instability in the region. And remember, this is a sizable business for us with over GBP 250 million of sales this quarter. Inevitably, there were also a number of specific factors that impacted revenue in the quarter both positively and negatively. But together, these largely offset each other, leaving the 2% reported sales growth reflective of the growth of the underlying business over the quarter.

Turning to the results in a bit more detail. All of my comments will focus on growth rates at constant exchange rates and will now also focus on core earnings measures.

Overall growth at -- of 2% for the group reflects a broad base of contributions from pharma, up 2%; Vaccines, up 1%; and consumer, up 1%. Although, excluding the OTC assets identified for disposal, the consumer business delivered over 7% growth in the quarter. These performances were largely driven by strong contributions from new products and innovation growth in newer geographies which more than offset the macro pressures in Europe and the Middle East.

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