– GlaxoSmithKline clears cash from eurozone on a daily basis (Telegraph, Feb. 7, 2012):
GlaxoSmithKline is clearing cash out of eurozone countries on a daily basis to protect itself against a potential banking and liquidity crisis in the region.
Sir Andrew Witty, chief executive of Britain’s biggest drug maker, said that early last year the company had started emptying “tens of millions of pounds” in cash every day out of most eurozone countries into accounts in Britain.
“We don’t leave any cash in most European countries. We sweep any cash we raise during the day out of local banks into banks we think are robust and secure,” he added. “You do your best to actively manage the risk.”
Drug makers have been hurt by price cuts in the eurozone as cash-strapped governments curb their drug bills, as well as failures by countries to pay their debts.
But Sir Andrew said that Glaxo had been reducing its risk over the past two years through “a huge focus on getting paid” by the hospitals it sells to in Southern Europe and it had been able to reduce its debts in the region.
He stressed that action taken by the European Central Bank’s had made “a very positive effect on bank liquidity and confidence” and he did not think “we’re one step away from the end of the world”. But Glaxo has no plans to stop repatriating cash.
His comments came as Glaxo’s annual results showed that price cuts in Europe had contributed to a 10pc fall in sales in the region, to £8.3bn. But, that was partially offset by growth in emerging markets and overall sales dipped 3.5pc to £27.4bn.
Pre-tax profits almost doubled to £8.3bn after last year’s earnings were hit by a legal charge in the final quarter.
Shares in Glaxo fell 13.5p to £14.06 as the company said it would buy back £1bn to £2bn of shares this year, Last year it bought £2.2bn.
A full-year dividend of 70p will be paid on April 12, plus a 5p dividend from disposals.
Glaxo has been returning cash to shareholders rather than spending it on acquisitions. Sir Andrew said the company had “kissed an awful lot of frogs last year and none of them turned into princes because the valuations were just not there. There wasn’t a better acquisition out there than buying our own stock.”
Glaxo has also been focusing on improving its internal R&D activities. After carrying out a Dragons’ Den-style review of its 38 groups of scientists, known as Discovery Performance Units, Glaxo said it had closed three units and created four; of the remaining units, six had investment increased and five had it cut.
Sir Andrew said establishing the units had “created a degree of accountability we’ve never seen before” and the Glaxo has managed to lift the financial returns from its laboratories to an estimated 12pc from 11pc two years ago. It is confident of reaching its long-term 14pc target.
James Dawson, an analyst at Charles Stanley, kept his “hold” rating on Glaxo. “Some of the pricing pressure resulting from the European austerity measures and US healthcare reforms were mitigated by the internal costs savings being undertaken,” he said.
“However, the question remains; how much more margin pressure will Glaxo have to absorb and what is the scope for further cost savings?” he added.