GSK boss promises sales of £33bn in attempt to head off activist Elliot

·3 min read
Emma Walmsley, chief executive officer of GlaxoSmithKline. Photo: Reuters
Emma Walmsley, chief executive officer of GlaxoSmithKline. Photo: Reuters

GlaxoSmithKline (GSK.L) CEO Emma Walmsley, who will be grilled by shareholders on Wednesday afternoon, has said the company aims to make sales of more than £33bn ($46bn) by 2031.

This comes as the firm is under pressure due to activist investor Elliot Management building up a multi-billion-pound stake in the pharma giant; lagging behind in the coronavirus vaccines race compared with rivals such as AstraZeneca (AZN.L); and its profit taking a hit.

Steve Clayton, manager of the HL Select UK Income Shares fund, which has a position in GSK, earlier said: "Elliot have a reputation for shaking up underperforming businesses and driving strategic change."

The company has now said a demerger “to create a new world leader in consumer healthcare” is confirmed for mid-2022, ahead of the meeting due to take place at 2pm BST on Wednesday.

Shares in the firm, which had earlier fallen, were up 0.9%.

Read more: GSK profit takes a hit amid COVID as activist fund builds up stake

GSK said it is offloading its consumer unit to “unlock the potential of New GSK and consumer healthcare, strengthen New GSK's balance sheet and maximise value for shareholders”.

By 2026, cash generated from operations for "New GSK" is expected to exceed £10bn.

Walmsley, who took over in 2017, said: "The benefits of the huge transformation we have driven since 2017 are now clear. We have strengthened our R&D and commercial execution, and transformed our group structure and capital allocation, while driving a profound cultural change with new leadership. Together, we are now ready to deliver a step-change in growth for New GSK and unlock the value of consumer healthcare.”

GSK's stock was up ahead of its shareholder meeting. Chart: Yahoo Finance UK
GSK's stock was up ahead of its shareholder meeting. Chart: Yahoo Finance UK

Sam Fazeli, senior pharmaceuticals analyst at Bloomberg Intelligence, told Yahoo Finance UK: "The critical thing I am looking for is how the company is going to change its pharma R&D track record, given that several of its big moves into oncology have not worked out.

"On the other hand, I am a big fan of their vaccines business and do not agree that it should be spun off, especially given the potential huge opportunity with the RSV [respiratory syncytial virus] vaccine. But even there, we question Glaxo's decision not to enter the race for a COVID-19 vaccine, and its bet on the CureVac technology, which has so far come up short."

Results of GSK's work on a COVID vaccine with French company Sanofi are expected in the coming months.

New GSK will target a dividend starting at 45p per share in 2023, the company's first full year of operation and it will retain up to 20% of GSK's holding in the new consumer arm as a short-term financial investment.

Prior to the demerger, New GSK is also expected to receive a dividend of up to £8bn from the unit.

An update on the prospects for the new consumer healthcare is planned for investors in early 2022.

The company said changes to its portfolio and network within its vaccines and pharma have led to annual cost savings delivery of £0.5bn and proceeds from divestment of non-core brands of £1.4bn

In the first quarter of 2021, the company saw strong growth in new pharmaceutical products, but this was offset by stocking and pandemic disruption. Adjusted operating profit fell 30% in the period to £1.9bn ($26bn), while turnover was £7.4bn, down 18%.

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