Glaxo Q3 profit and revenue rise, boosted by weak pound

Drug maker GlaxoSmithKline – which generates much of its revenue outside the UK – reported a jump in third-quarter profit on Wednesday as it benefited from the weakening of the pound following the UK’s decision to leave the European Union in June.

In the three months to the end of September, net profit rose to £808m from £538m the year before, on revenue of £7.5bn, up 23%. At constant exchange rates, revenue was 8% higher. Analysts had been expecting revenue of around £7.3bn.

Meanwhile, core operating profit was up 35% to £2.3bn, or 13% higher at constant exchange rates.

Glaxo saw continued growth across all of its businesses, with pharmaceutical sales up 6% to £4.1bn, vaccine sales up 20% to £1.6bn and consumer healthcare sales up 5% to £1.9bn.

New product sales grew a whopping 79% to £1.21bn, driven by HIV and respiratory treatments, as well as meningitis vaccines.

The company reaffirmed its 2016 profit forecast, saying it expects core earnings per share to rise 11% to 12% at constant exchange rates.

At the end of September, net debt stood at £14.7bn, up from £10.7bn at the end of December. This comprised gross debt of £19.4bn and cash and liquid investments of £4.7bn. The group said the increase in net debt was mostly down to dividends paid to shareholders of £3.9bn, as well as a £1.4bn adverse exchange impact from the translation of the non-sterling denominated debt, partly offset by free cash flow of £1.3bn.

Chief executive Andrew Witty said: “Our third quarter results reflect strong performances across the group and the sustained progress we have made over the course of 2016 to deliver sales growth of new products, maintain effective cost control and execute on our restructuring and integration plans.

“Our most recent review of the group’s pipeline reinforces our confidence in the near-term portfolio and the options we have in early-to-mid stage development. With the filing of Shingrix in the US this week, we have completed three of the four regulatory filings targeted for the second half of 2016, and we expect to start four Phase III trials for assets in HIV, respiratory and anaemia before the end of the year.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “GSK put in an expectation-busting performance in the third quarter of the year, with all divisions contributing to a very positive top and bottom line performance.

“There’s a dark side to that currency movement though. GSK borrow in dollars as well as sterling, and the cost of that debt has increased by £1.4bn as a result of a weaker pound. That, combined with a dividend that is still uncovered by free cash, means that net debt has increased 37% from the start of the year to £14.7bn.”

At 1407 BST, the shares were down 1.8% to 1,599.88p.