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GSK initiating strategic reviews of Horlicks, other nutrition products
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Thursday, 29 March, 2018, 08 : 00 AM [IST]
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London
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GlaxoSmithKline plc (GSK) is initiating a strategic review of Horlicks and its other consumer healthcare nutrition products to support the funding of its buyout of Novartis’ 36.5 per cent stake in the consumer healthcare joint venture for $13 billion (£9.2 billion), and to drive increased focus on the over-the-counter (OTC) and oral health categories. The combined sales of these products were approximately £550 million in 2017.
The majority of Horlicks and other nutrition products sales are generated in India, with the Horlicks range widely recognised as a portfolio of premium nutrition products. In India, these products are sold by GlaxoSmithKline Consumer Healthcare Ltd, a public company listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
The strategic review will include an assessment of GSK’s 72.5 per cent shareholding in the company. GSK expects its outcome to conclude around the end of 2018. There can be no assurance that the review process will result in any transaction.
India remains a priority market for GSK investment and growth. The consumer healthcare business will continue to invest in growth opportunities for its OTC and oral health brands, such as Sensodyne and Eno.
The group is also actively investing in its pharmaceutical and vaccine businesses, including building new manufacturing capacities in Vemgal, Karnataka and Nashik.
The consumer healthcare joint venture was formed as a part of the three-part transaction between GSK and Novartis, which was approved by shareholders in 2014.
Last year, GSK’s Consumer Healthcare business reported sales of £7.8 billion, and since 2015, sales have grown four per cent on a three-year compound annual growth rate (CAGR) basis [2015-2017 at 2014 constant exchange rate (CER)], with an overall improvement in operating margins from 11.3 per cent in 2015 to 17.7 per cent in 2017.
Under the terms of the original transaction, Novartis has the right, exercisable from March 2, 2018 to March 2, 2035, to require GSK to purchase its stake (or specified tranches of it) in the joint venture.
This put option, in both size and possible timing, creates inherent uncertainty for the group’s capital planning.
The new agreement to buy out Novartis’ stake removes this uncertainty and improves the group’s ability to plan allocation of capital to its other priorities.
As a result of the transaction, GSK’s shareholders will capture the full value of the company’s consumer healthcare growth.
With category-leading power brands, increased focus on science-based innovation and improved operational efficiencies, GSK Consumer Healthcare is well positioned to deliver sales growth, operating margin improvements and attractive returns.
The business expects operating margins to approach mid-20s percentages by 2022 at 2017 CER.
The transaction is expected to be accretive to adjusted earnings in 2018 and thereafter, and is expected to strengthen operational cash flows.
Together with the group’s new launch opportunities and expected operational improvements, these financial benefits further support GSK’s increased confidence in its ability to deliver its 2020 outlooks and invest effectively in the group’s other priorities.
The transaction is subject to approval by GSK shareholders, as Novartis is treated as a related party under UK Listing Rules, and the board intends to unanimously recommend that shareholders vote in favour of the transaction.
Emma Walmsley, chief executive officer, GSK, said, “The proposed transaction addresses one of our key capital allocation priorities and will allow GSK shareholders to capture the full value of one of the world’s leading consumer healthcare businesses.”
“For the group, the transaction is expected to benefit adjusted earnings and cash flows, helping us accelerate efforts to improve performance,” she added.
“Most importantly, it also removes uncertainty and allows us to plan the use of our capital for other priorities, especially pharmaceutical research and development (R&D),” Walmsley said.
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