GSK plc (LON:GSK) has announced its Q2 results.
Highlights
Strong commercial execution across Specialty Medicines, Vaccines and General Medicines drives double-digit sales growth
· Total sales: £6.9 billion +19% AER, +13% CER, excluding COVID-19 solutions +16% AER, +10% CER
– Specialty Medicines £2.7 billion +44% AER, +35% CER; HIV +14% AER, +7% CER; Oncology +29% AER, +23% CER; Immuno-inflammation and other specialty +32% AER +24% CER; COVID-19 solutions (Xevudy) sales £0.5 billion
– Vaccines £1.7 billion +9% AER, +3% CER; Shingrix £731 million >100% AER, >100% CER
– General Medicines £2.5 billion +5% AER, +2% CER
Continued cost discipline supports delivery of improved adjusted operating margin
· Total continuing operating margin 16%. Total EPS 20.8p -40% AER, -53% CER; Total continuing EPS 17.5p -42% AER, -58% CER; primarily reflecting increased contingent consideration charges driven by exchange rates and adverse comparison due to a credit for the revaluation of deferred tax in Q2 2021
· Adjusted operating margin 29%. Adjusted operating profit growth +22% AER, +7% CER. The impact on growth from lower margin COVID-19 solutions was approximately -16% AER, -14% CER
· Adjusted EPS 34.7p +23% AER, +6% CER. The impact on growth from lower margin COVID-19 solutions was approximately -20% AER, -18% CER
· Q2 2022 continuing cash generated from operations £1.6 billion. Free cash flow £0.3 billion
Strengthening late-stage R&D pipeline with positive data read-outs and strategic business development
· US FDA approval for Priorix (MMR vaccine); Vocabria plus rilpivirine approval in Japan for HIV; Cervarix approval in China for cancer-causing human papillomavirus
· Positive phase III high-level results for respiratory syncytial virus vaccine candidate in older adults. Full results to be presented at an upcoming scientific meeting with regulatory submissions anticipated in H2 2022
· Proposed acquisition of Affinivax provides access to next-generation phase II 24-valent pneumococcal vaccine candidate and innovative MAPSTM technology
· Promising phase IIb interim data presented for bepirovirsen, a potential new treatment for chronic hepatitis B. Phase III monotherapy trial is anticipated to start in H1 2023
· Completed acquisition of Sierra Oncology on 1 July 2022. Data from momelotinib’s MOMENTUM phase III trial presented at 2022 ASCO Annual Meeting; results showed a statistically significant and clinically meaningful benefit on symptoms, splenic response, and anaemia. NDA submitted to the US FDA
· Phase III data readouts expected in H2 2022: pentavalent (MenABCWY) meningitis vaccine candidate, otilimab in rheumatoid arthritis, Jemperli in 1L endometrial cancer, and Blenrep in 3L multiple myeloma
Improving revenues and margin support confidence in full-year outlooks
· Expect 2022 sales growth of between 6% to 8% (previously 5% to 7%) and Adjusted operating profit growth of between 13% to 15% (previously 12% to 14%); both at CER. Adjusted EPS expected to grow by around 1% lower than operating profit. 2022 guidance excludes any contribution from COVID-19 solutions
· Dividend of 16.25p/share (13p before Share Consolidation) declared for Q2 2022. No change to expected dividend of 61.25p/share (49p before Share Consolidation) for FY 2022
Successful demerger and listing of Haleon on 18 July, creating a new global leader in consumer health
· Balance sheet strengthened for GSK, through dividend of more than £7 billion from Haleon
Emma Walmsley, Chief Executive Officer, GSK:
“This is GSK’s first set of results as a newly focused biopharma company, and we have delivered an excellent second quarter performance, with strong growth in Specialty Medicines, including HIV, and a record quarter for our shingles vaccine Shingrix. With this momentum in sales and operating profit growth, we have raised our full-year guidance and are confident in delivering the long-term growth outlooks we set out for shareholders last year. We continue to strengthen our pipeline, notably with very positive high-level results from our late-stage RSV vaccine candidate, together with targeted business development acquisitions of Sierra Oncology and Affinivax. These improvements in R&D and operating performance, together with a strengthened post-demerger balance sheet, create new capacity and flexibility for GSK to invest in growth and innovation for patients and shareholders.”
The Total results are presented in summary on page 2 and under ‘Financial performance’ on pages 9 and 21 and Adjusted results reconciliations are presented on pages 17, 18, 29 and 30. Adjusted results are a non-IFRS measure excluding discontinued operations that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results are defined on page 37 and £% or AER% growth, CER% growth, free cash flow and other non-IFRS measures are defined on page 68, COVID-19 solutions are also defined on page 68. GSK provides guidance on an Adjusted results basis only, for the reasons set out on page 37. All expectations, guidance and targets regarding future performance and dividend payments should be read together with ‘Guidance, assumptions and cautionary statements’ on pages 69 and 70.
(1) Earnings per share have been retrospectively adjusted to reflect the GSK Share Consolidation on 18 July 2022, see details on page 53.
(2) Consumer Healthcare is now accounted for as a discontinued operation, see details on page 20.
Q2 2022 results
| Q2 2022 | Growth | H1 2022 | Growth | ||||||||
| £m | £% | CER% | £m | £% | CER% | ||||||
| Turnover | 6,929 | 19 | 13 | 14,119 | 28 | 25 | |||||
| Total continuing operating profit* | 1,081 | (15) | (35) | 3,374 | 36 | 26 | |||||
| Total EPS | 20.8p | (40) | (53) | 65.7p | 6 | (1) | |||||
| Total continuing EPS | 17.5p | (42) | (58) | 54.8p | 9 | – | |||||
| Total discontinued EPS* | 3.3p | (27) | (24) | 10.9p | (4) | (8) | |||||
| Adjusted operating profit | 2,008 | 22 | 7 | 3,951 | 33 | 26 | |||||
| Adjusted EPS | 34.7p | 23 | 6 | 67.0p | 36 | 27 | |||||
| Cash flow from operations attributable to continuing operations | 1,584 | 17 | 3,936 | >100 | |||||||
| Free cash flow | 264 | >100 | 1,741 | >100 |
(*) The amounts presented in the table above for continuing operations and Adjusted results excludes the Consumer Healthcare business discontinued operation. The amounts presented for discontinued EPS are for the Consumer Healthcare business. The presentation of continuing and discontinued operations under IFRS 5 are set out on page 50.
2022 guidance
With the momentum from the business performance to date, GSK now expects 2022 sales to increase between 6 to 8 per cent and Adjusted operating profit to increase between 13 to 15 per cent, excluding any contributions from COVID-19 solutions. Adjusted Earnings per share is expected to grow around 1 per cent lower than Operating Profit. We have delivered first half performance ahead of our full year guidance, slightly better than expected, informed by strong business delivery and the dynamics of prior year comparators.
Predominantly reflecting a more challenging H2 2021 sales comparator as well as an expected increase in R&D spend, we expect lower reported growth in the second half. Key external factors that will influence the second half of 2022 include the continued risk from COVID-19 dynamics and possible developments in the current uncertain global economic environment.
Notwithstanding uncertain economic conditions across many markets in which we operate, we observe evidence of healthcare systems recovering and continue to expect full year sales of Specialty Medicines to grow approximately 10% CER and sales of General Medicines to show a slight decrease, primarily reflecting the increased genericisation of established Respiratory medicines. Vaccines sales are now expected to grow at a low to mid-teens percentage at CER for the year. Specifically for Shingrix, we continue to expect strong double-digit growth and record annual sales in 2022, based on strong demand in existing markets and continued geographical expansion, however we do expect sales in the second half to be slightly lower than in H1 2022 due to some channel stocking in the first half in the US.
From Q2 2022, the Group presents the Haleon plc (Haleon) business as a discontinued operation according to IFRS 5. Adjusted results excludes profits from discontinued operations. Comparatives have been restated to reflect adjusted results from continuing operations, and guidance is provided on this basis.
Dividend policies and expected pay-out ratios are unchanged for GSK, but the dividends per share have been adjusted for the GSK Share Consolidation completed on 18 July 2022. The future dividend policies and guidance in relation to the expected dividend pay-out in 2022 for GSK are provided on page 35.
2022 COVID-19 solutions expectations
The majority of expected COVID-19 solutions sales for 2022 have been achieved in the first half of this year. Based on known binding agreements with governments, we expect that sales of COVID-19 solutions will be substantially lower in the second half. Compared with 2021, sales will be at a reduced profit contribution due to the increased proportion of lower margin Xevudy sales. Given the higher than expected sales achieved in the year to date we now expect this to reduce Adjusted Operating profit growth (including COVID-19 solutions in both years) by between 4% to 6%. We continue to discuss future opportunities to support governments, healthcare systems, and patients whereby our COVID-19 solutions can address the emergence of any new COVID-19 variant of concern.
All expectations, guidance and targets regarding future performance and dividend payments should be read together with ‘Guidance, assumptions and cautionary statements’ on page 69. If exchange rates were to hold at the closing rates on 30 June 2022 ($1.21/£1, €1.16/£1 and Yen 165/£1) for the rest of 2022, the estimated positive impact on 2022 Sterling turnover growth for GSK would be 5% and if exchange gains or losses were recognised at the same level as in 2021, the estimated positive impact on 2022 Sterling Adjusted Operating Profit growth for GSK would be 9%.
Demerger of Consumer Healthcare
On 18 July 2022, GSK plc separated its Consumer Healthcare business from the GSK Group to form Haleon, an independent listed company. The separation was effected by way of a demerger of 80.1% of GSK’s 68% holding in the Consumer Healthcare business to GSK shareholders. Following the demerger, 54.5% of Haleon is held in aggregate by GSK Shareholders, 6.0% is held by GSK (including shares received by GSK’s consolidated ESOT trusts) and 7.5% is held by certain Scottish limited partnerships (SLPs) set up to provide a funding mechanism pursuant to which GSK will provide additional funding for GSK’s UK Pension Schemes. The aggregate ownership by GSK (including ownership by the ESOT trusts and SLPs) after the demerger of 13.5% will be initially measured at fair value with changes through profit or loss. Pfizer continues to hold 32% of Haleon after the demerger.
The gain on demerger distribution will be recognised in Q3 2022. The asset distributed was the 54.5% ownership of the Consumer Healthcare business. The assets distributed were reduced by Consumer Healthcare transactions up to 18 July 2022 that included pre-separation dividends declared and settled after the end of Q2 2022 and before 18 July 2022. Those dividends included: £10.4 billion (£7.1 billion attributable to GSK) of dividends funded by Consumer Healthcare debt that was partially on-lent during Q1 2022 and dividends of £0.6 billion (£0.4 billion attributable to GSK) from available cash balances. GSK’s share of the pre-separation dividends funded by debt will result in a reduction of net debt for GSK on demerger (GSK’s share of the pre-separation dividends and loans are eliminated in the consolidated financial statements until demerger).
Share consolidation
Following completion of the Consumer Healthcare business demerger on 18 July 2022, GSK plc Ordinary shares were consolidated in order to maintain share price comparability before and after demerger on 18 July 2022. Shareholders of GSK plc received 4 new Ordinary shares for every 5 existing Ordinary shares. Earnings per share, diluted earnings per share, adjusted earnings per share and dividends per share have been retrospectively adjusted to reflect the Share Consolidation in all the periods presented.
Results presentation
A conference call and webcast for investors and analysts of the half-year and Q2 2022 results will be hosted by Emma Walmsley, CEO, at 12pm BST on 27 July 2022. Presentation materials will be published on www.gsk.com prior to the webcast and a transcript of the webcast will be published subsequently.
Information available on GSK’s website does not form part of, and is not incorporated by reference into, this Results Announcement.
