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GlaxoSmithKline’s Financial Performance

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Financial performance

GlaxoSmithKline (GSK), the world’s sixth largest pharmaceutical company in 2014, deals in pharmaceuticals, vaccines, and consumer healthcare. The company’s Pharmaceuticals segment contributed over 67% to its total revenues for 2014.

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Revenues

GlaxoSmithKline’s net revenues decreased by over 13% to 23.0 billion pounds (or $38.0 billion) in 2014, compared with 26.5 billion pounds (or $41.3 billion) in 2013. The revenues for the Pharmaceuticals and Vaccines segment declined by about 4% at a constant exchange rate (or CER) in 2014, compared with 2013 figures. This was due to lower Pharmaceuticals and Established Products sales in the US markets, partly offset by increased sales in emerging markets and ViiV healthcare.

Also, the global vaccines sales declined in 2014 due to lower sales in Europe and Japan. The Consumer Healthcare segment’s revenues declined nearly 1% at a constant CER in 2014, compared with 2013 figures, as a result of supply disruptions.

Costs

The costs for GlaxoSmithKline are compared in the chart above. Overall, the gross profit margin has been approximately 68.2% for 2014, an increase of ~0.5%, compared with 2013. The operating profit margin was 28.7% in 2014, which is 1.4% lower than in 2013.

The cost of sales includes the materials and production costs. These were 7.3 billion pounds (or $12.0 billion) in 2014 and 8.6 billion pounds (or $13.4 billion) in 2013. The cost of sales increased as a percentage of turnover by nearly 0.8%. This was due to declining pharmaceutical sales and continuing investments in new launch capacity and future manufacturing technology. This decline was partly offset by the benefits of cost reduction programs.

The selling, general, and administration (or SG&A) costs were 7.1 billion pounds (or $11.7 billion) in 2014 and 7.7 billion pounds (or $12.0 billion) in 2013. An increase of 0.4% in SG&A costs as a percentage of sales in 2014 was driven by continued investment in multiple new product launches, partly offset by the benefits of its restructuring programs.

The R&D expenses were 3.4 billion pounds (or $5.6 billion) in 2014 and 3.9 billion pounds (or $6.1 billion) in 2013, reflecting the phasing of ongoing project spending, the completion of several programs, and cost management efforts.

Royalty income was 310 million pounds (or $511.5 million) in 2014 and 387 million pounds (or $603.7 million) in 2013.

Several large pharmaceutical companies include Johnson & Johnson (JNJ), Merck & Co. (MRK), and Pfizer (PFE), which form part of the Health Care Select Sector SPDR ETF (XLV).

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