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GlaxoSmithKline PLC (GSK)

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GlaxoSmithKline Plc (GSK)

Q4 2016 Earnings Call

February 08, 2017 9:30 am ET

Executives

Andrew P. Witty - GlaxoSmithKline Plc

Simon Dingemans - GlaxoSmithKline Plc

Analysts

Graham Parry - Bank of America Merrill Lynch

Andrew S. Baum - Citigroup Global Markets Ltd.

James Daniel Gordon - JPMorgan Securities Plc

Richard Parkes - Deutsche Bank AG

Jo Walton - Credit Suisse Securities (Europe) Ltd.

Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC

Kerry Holford - Exane BNP Paribas

Seamus Fernandez - Leerink Partners LLC

Michael Leuchten - UBS Ltd.

Keyur Parekh - Goldman Sachs International

Presentation

Andrew P. Witty - GlaxoSmithKline Plc

Thank you very much. Good afternoon and welcome to this call for GSK's Full Year 2016 Results. I'm pleased to report that sales and profits were up in all three of our businesses, Pharmaceutical, Vaccine, and Consumer Healthcare. Total group sales were £27.9 billion, up 6% CER. And core EPS was at £1.024, up 12% CER. This was towards the top end of our financial guidance. which as you know we increased during the year.

In sterling terms core EPS was up was 35%, reflecting a significant movement in the currency in 2016. And if sterling rates were to remain in line with January average rate for the rest of 2017, we would expect a 9% benefit to core EPS during the year.

Total EPS for the group was £0.188, down on last year primarily as a consequence of the comparative to the £9.2 billion gain in the Novartis transaction during 2015.

We've declared a dividend £0.23 for the quarter, bringing a total dividend of £0.80 for 2016. And we continue to expect to pay a dividend of £0.80 for 2017.

The positive momentum we saw in 2016 delivered Pharmaceutical sales of £16.1 billion, up 3%; Vaccine sales of £4.6 billion, up 14%; and Consumer Healthcare of £7.2 billion, up 9%. On a pro forma basis sales growth was respectively +4%, +12%, and +5%. On a geographic basis U.S. accounted for £10 billion, Europe £7.5 billion, and international, £10 billion.

Operating margins also improved in all three businesses, reflecting good cost control and delivery of organic and transaction related savings with a group core profit margin of 27.9%, up 3.9 points on last year.

These performances reflect the investments we've made to build scale and sustainability in the group and to deliver new products. Sales of the 11 Pharmaceutical and Vaccine products that we have launched in the last four years more than doubled to £4.5 billion in 2016. And in the fourth quarter alone sales were £1.4 billion. In Pharmaceuticals new products in the fourth quarter accounted for 27% of sales.

This new sales growth has been driven by products for treatment of HIV, Tivicay and Triumeq; respiratory disease, Relvar/Breo, Anoro, Incruse, and Nucala; and Vaccines to prevent meningitis, Bexsero and Menveo. We're very focused on ensuring that the sales momentum of these new products continues. And we expect to bolster this portfolio with several new arrivals in 2017 and 2018.

This follows good progress last year to file a number of new product opportunities, including Shingrix, a potential new vaccine to prevent shingles, and closed triple, potentially the first ever three-in-one treatment for COPD. We expect regulatory decisions on these before the end of the year.

Last year we also initiated a number of Phase III trials for assets in HIV, respiratory, and anemia. And started Phase II trials for five new assets. Over the course of 2017/2018 we expect important data for between 20 to 30 assets in clinical development to read out.

Product innovation is also important for our Consumer business and accounted for 13% of sales in 2016. Today in the U.S. we're launching Sensimist, our second allergy prescription product to be switched to over-the-counter status in the last three years. And we're very optimistic that we can follow the huge success of Flonase.

All of this bodes well for GSK going forward. And reflects our strategy to create a group that can both access growth opportunities from new innovation and navigate changes both in our portfolio and the challenges we face in today's operating environment.

We continue to be confident in the financial outlooks to 2020 that we first laid out to investors in May 2015. For 2017 we do face some uncertainty as to the level of our earnings performance, given the possibility of a substitutable generic competition to Advair in the U.S. And this is reflected in the guidance we've issued you today. This event is something we've anticipated and prepared for and is consistent with the assumptions we provided back in 2015. Given our new product portfolio and the innovation we have in our pipeline, we fully expect to maintain our leadership in Respiratory.

In summary, the group has performed positively in 2016 with momentum set to continue this year. I've been working closely with Emma [Walmsley] as she transitions into the CEO role and as we enter a new period of leadership for the company. And I believe GSK is well positioned to deliver long-term performance for its shareholders.

With that I'd like to hand over to Simon to give you more details.

Simon Dingemans - GlaxoSmithKline Plc

Thanks, Andrew. The results that we've reported today demonstrate the progress we've made in delivering on our strategy, as well as the financial goals we set out in our financial architecture. All three of our businesses are contributing to the delivery of more broadly based revenue growth. Our continued focus on the execution of our integration and restructuring programs has accelerated the delivery of the targeted benefits, allowing us to improve our margins and operating leverage, while still making substantial investments behind our new products, supply chain improvements, as well as progressing the R&D pipeline.

We've also maintained our focus on financial efficiency in the P&L and in the allocation of our capital, allowing us to deliver core EPS growth ahead of sales and at the top end of our EPS guidance as well as a significant improvement in our cash generation and a dividend of £0.80 per share.

We expect continued progress from the business in 2017 with all three businesses continuing to benefit from recent new product launches and other investments, including supply chain capacity as well as the completion of the integration and restructuring programs.

The guidance we've given today for core EPS performance in 2017 reflects that momentum, but also takes account of the possibility that a substitutable generic alternative to Advair may be launched in the U.S. this year. This is a situation that is bound to evolve during the year. And we will update our guidance as and when there is more certainty on the competitive position. Given that this will depend on a number of variables, including pricing and supply availability of any generic, it seems unlikely that we'll have any greater clarity before the middle of the year. I'll come back to details of the guidance shortly.

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