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LONDON (Alliance News) - GlaxoSmithKline PLC Wednesday slashed the amount it is planning to pay shareholders in the wake of its transformational deal with Novartis and said it would only keep its ordinary dividend flat for the next three years, in an effort to shelter itself against the possible introduction of generic competition to obstructive pulmonary disease treatment Advair in the US as well as possible investments it will have to make in its Viiv Healthcare joint venture and consumer healthcare business.
As it set out its growth targets for the next five years in the wake of the Novartis deal, Glaxo also said it has opted to retain its existing holding in its HIV joint venture ViiV Healthcare, citing the positive outlook for the business. It had previously been mulling an initial public offering for a minority stake in the venture.
The pharmaceutical giant said it now plans to pay out about GBP1 billion, or 20 pence a share, as a special dividend in the wake of the Novartis deal, less than the GBP4 billion it had suggested back in March. It added that it plans to keep its ordinary dividend at the 2014 level of 80 pence for each of the next three years, having increased its dividend incrementally from 63 pence in 2010.
Glaxo agreed a three-part deal with Novartis last year to sell the Swiss company its its oncology portfolio, buy Novartis' global vaccines business, and create a joint consumer healthcare business.
The pharmaceutical giant also set out its guidance for 2015 and for 2016 through to 2020. For 2015 it expects to see its core earnings per share decline at a percentage rate in the high teens on a constant currency basis, mostly due to pricing pressure on Advair in the US and Europe, and the dilutive effect of the deal with Novartis.
For the first quarter to end-March the company posted a pretax profit of GBP9.92 billion, up from GBP903 million a year before, due to a big one-off boost of GBP8.71 billion gain from its three part deal with Novartis AG. Revenue rose to GBP5.62 billion from GBP5.61 billion a year before.
However, it expects to see core earnings per share recover significantly in 2016, with percentage growth expect to reach double digits at constant currency rates as the adverse impacts seen in 2015 begin to diminish, and it begins to see the sales and synergy benefits of the Novartis deal.
It expects its earnings to grow faster than sales, with core earnings per share expected to grow at a compound annual growth rate of mid-to-high single digits on a constant currency basis over the five year period between 2016 and 2020. It expects revenue to grow at a compound annual growth rate of low-to-mid single digits over the same period at constant currency.
Glaxo said it has accelerated the cost savings programme associated with the Novartis deal, and is now is looking to produce over half the total synergies of GBP1 billion in 2016 rather than in 2017, and to complete the programme by the end of 2017 rather than in 2019.
It expects to produce total yearly benefits of GBP3 billion from a combination of restructuring and synergy programmes by the end of 2017.
Shares in Glaxo are trading up 1.4% at 1,521.00 pence Wednesday afternoon.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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