The British drugmaker scrapped a flotation of its HIV unit, ViiV, and slashed a cash payout by three-quarters to £1 billion. That's unfashionable in an era of spin-offs and shareholder returns - indeed, it comes the same day that BHP Billiton shareholders approved a huge demerger by the mining giant. But it makes sense.
This is the second about-turn by Chief Executive Andrew Witty, who has already dropped a plan to sell some off-patent drugs. Keeping all of ViiV - which as a stand-alone would have instantly become a FTSE-100 outfit in its own right - means £3 billion or so less of cash coming in, hence the smaller return of capital.
Witty's caution is understandable. He's busy integrating an asset swap with Novartis and restructuring along three lines: pharmaceuticals, vaccines and consumer health, which sells over-the-counter drugs and food supplements. Pharma, still the largest business, suffers from a dearth of new drugs and falling prices. Pressure on Advair, a key respiratory drug, led GSK to forecast a steeper-than-expected "high teens" percentage fall in 2015 earnings per share.
There are many challenges ahead. US pricing could worsen further, delaying the respiratory recovery. And integrating the Novartis assets will be hard. Not only has the vaccine business Glaxo inherited turned out to be less profitable than expected, but meshing together two consumer businesses may also prove a chore.
Holding onto ViiV offsets weakness elsewhere. It means Glaxo remains a bigger, broader and slightly faster-growing business. ViiV's operating profit grew 55 per cent in the year to March. Liberum analysts expect sales here to grow 6 per cent a year through 2020, versus a 2 per cent annual decline in the rest of the pharma unit. That is helpful as GlaxoSmithKline awaits a turning point in its fortunes. The company reckons earnings will rebound from next year. Analysts highlight bright spots such as a new treatment for shingles, which UBS reckons could generate up to £1 billion a year.
It also helps that shareholders did not feel entirely abandoned. GSK's hefty 5.9 per cent dividend yield is a big lure. Witty reassured investors by confirming the dividend, although it will not be covered by 2015 earnings. But cutting back here would have been desperately uncool.
