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GlaxoSmithKline (LSE:GSK) may be one of the most interesting stocks to watch on the London Stock Exchange. It has certainly endured its fair share of bumps and bruises of late, especially with the scandals in China generating publicity and causing a loss of revenues in country. Yesterday GSK released its annual report for the year ending 31 December 2013, indicating somewhat flat sales revenue at £26.5 billion. GSK’s share price, which has increased steadily during the month of February from 1554 to 1690, stumbled yesterday and today, pulling back to 1671 to end the week. Today’s closing price is still the best for GSK this calendar year.
If you follow the popular headlines, it would appear that investors have responded poorly to the annual report as a result of the continuing executive bonuses in spite of somewhat lackluster results. I think that is an unfair assumption. I accuse my fellow journalists of far too much speculation. I think it is fair to say that the GSK board agrees. Bear with me, and I will explain.
First, however, let’s take into consideration a broader picture of GSK’s annual results – none of which should disturb investors.
- Although gross profits were the lowest in the last three years, pretax profit was the highest, coming in at more than £5.6 billion.
- EPS was at a three-year high of 112.5, up 22.8% from the previous year.
- Although operating income was below each of the last two years, total comprehensive income increased nearly 55%.
I scarcely believe that investors who look at the big picture are going to be frightened by those results. Whilst there is an indication of areas that need improvement, the overall results are not to be disregarded. Let’s not forget that the diminished business in China was a major contributing factor in the company’s reduced turnover. It is what it is.
Looking forward operationally, GSK has 40 new products in phase 2 and 3 development and has had six new product approvals this past year in the U.S. The company is still sharpening its focus on operational efficiency by divesting of non-core assets and brands that have reached the point where they weigh down their portfolio.
What About the Bonuses?
Unfortunately, executive bonuses have probably received a bigger black eye than they deserve, thanks to the BBB (Beloved Banks of Britain) who pay out bonuses because they need to retain the “talent” that has been derelict in using that for anyone’s benefit but their own. To be fair, I have done my fair share of poking those banks in the eye for their arrogant actions.
GSK, on the other hand, is not a bank. It is a manufacturer of consumable pharmaceutical and healthcare products. Unlike the BBB, they understand what their customers want and need. That is absolutely necessary for a company to succeed in their market sector. Banks are able to rob their customers almost with complete impunity.
To the point -> GSK paid CEO Andrew Witty a bonus of £1.875 million. It was more than twice the bonus that he was paid for 2012. However, it was £245,000 less than the maximum bonus budgeted for him, despite exceeding corporate goals. In fact, the company has issued statements explaining that the reduction was due solely to the scandals in China. Performance-wise, GSK said that “Andrew Witty’s bonus reflects GSK’s very strong performance in 2013 which included receiving the highest number of product approvals of any company, meeting the top end of our financial guidance and delivering the best total shareholder return since the formation of the company with more than £5bn returned to shareholders.”
That, my friends, is the most reasonable and justifiable reason for an executive bonus that I have heard of late. I can’t recall any of the BBB having offered up anything remotely close.
