GSK reforms on track as first quarter profit falls by 26%

Wednesday 24 April 2013 17.08
GSK Q1 net profit dropped from £1.3 billion sterling to £961m
GSK Q1 net profit dropped from £1.3 billion sterling to £961m

Pharmaceutical company GlaxoSmithKline has reported a 26% drop in profits in the first quarter compared to a year ago.

The drop came as it restructures its manufacturing and research and development divisions.

Its net profit dropped from £1.3 billion sterling to £961m, while sales eased 2% to £6.4 billion.

The company blamed some of the profit dip on its divestment of a number of brands, including Vesicare product.

Meanwhile chief executive Andrew Witty said the initial phase of its major change programme was "progressing well," and it remains "on track" to deliver total annual savings of at least £1 billion by 2016.

Witty said 2013 will be a key year for delivery on research and development, with an upcoming US regulatory decision on the Breo Ellipta inhaler.

Breo is a combination of two respiratory drugs which help open lung air passages and reduce swelling.

The company decided to close its financial services support centre in Cork with the loss of 94 jobs earlier this year.

GSK to see Lucozade and Ribena brands

GSK also announced that it is to sell soft drink brands Lucozade and Ribena, which analysts believe will raise over £1 billion (€1.17 billion) and focus its consumer health business on global products.

The company launched a strategic review of the two drink brands earlier this year, ruling nothing in or out for their future. Most analysts had focused on the idea of a sale, which is likely to attract interest from private equity and trade buyers.

Witty told reporters there had been significant interest in the products, though the decision to pursue a sale was "subject to appropriate value realisation".

Japan's Suntory Holdings has been tipped as a possible buyer after previously buying soft drinks maker Orangina Schweppes for more than 300 billion yen ($3 billion) and New Zealand's No 2 beverage firm Funcor Group in 2009.

A Suntory spokeswoman declined to comment on the company's potential interest but, when asked about a recent report that it was in talks with banks about assembling a knockout bid, said: "We don't acknowledge this report as factual."

Private equity firms are also hungry for deals and the strong cashflows generated by Lucozade and Ribena could attract the likes of Blackstone, BC Partners, PAI, Lion Capital, Bain Capital, CVC Capital Partners and KKR.

Officials at the private equity houses declined to comment.

Lucozade and Ribena no longer fit well in GSK's portfolio, since the company is focusing its consumer health operations increasingly on emerging markets, where both brands are relatively weak.

Although GSK does not break out detailed sales for the two products, they bring in nearly £600 million a year, with much of that generated in Britain.

Both are veteran products - Lucozade was launched in 1927 and Ribena introduced just 10 years later - but remain popular.

Assuming potential buyers are prepared to pay two times sales, that would point to a valuation of some £1.2 billion.

Analysts at Deutsche Bank said they believed the two brands should bring in more than £1.5 billion.