GLAXOSMITHKLINE is emptying out tens of millions of euro each day from its bank accounts in Europe’s more fragile countries to minimise the risk of exposure to a regional banking or financial crisis.
GSK chief executive Sir Andrew Witty said that since early last year the UK pharmaceutical group had been conducting “a daily sweep” to remove all cash from most euro zone countries and deposit it in banks “we think are robust and secure”.
He stressed that the euro zone crisis had “settled down” and that GSK’s own debts in the Mediterranean countries had fallen over the past year, but he had no plans to stop the practice “just in case”.
“I just don’t think we are one step away from the end of the world. The European Central Bank has had a very positive effect,” he said, as he posted 2011 earnings, which tripled to 104.6p a share despite sales being down 4 per cent to £27.3 billion (€32.3 billion), reflecting a recovery after high one-off charges in 2010.
Sir Andrew said GSK’s action followed “a very comprehensive review” during 2011 of the risks of exposure to the European financial crisis, and that some euro zone banks – notably those in Germany – were allowed to retain cash.
Total European sales last year were down 4 per cent to £8.2 billion.
Much of the rest of the company’s euro sales were converted into sterling, which he said was logical given the substantial cost base in the UK and the fact that it pays a sterling dividend.
Bernstein Research wrote in a note: “The company has a comparatively robust revenue and earnings-per-share profile through 2015 . . . but its valuation seems to reflect this already.”
GSK raised the 2011 dividend 8 per cent to 75p, including a 5p additional amount agreed following the sale of over-the-counter brands in North America.
It said proceeds of other brand sales would be paid out to shareholders in the same way. It also pledged share buybacks of £1 billion to £2 billion this year.
As other companies have cut investment, Sir Andrew said GSK would increase its domestic UK workforce of about 16,000 over the next five years, including in research, manufacturing and some global service centres.
GSK said the return on investment from its research and development pipeline had risen to 12 per cent from 11 per cent two years ago, and it was on track for a “long-term” target of 14 per cent with 10 new drugs that could be filed for regulatory approval this year and up to 30 to enter late-stage development in the coming three years.
In a first three-year review of its 38 small and entrepreneurial “discovery performance units” designed to boost innovation in its drug pipeline, it added four new ones, closed three, increased investment in six and reduced it in five. – (Copyright The Financial Times Limited 2012)