China syndrome bodes ill for GlaxoSmithKline's results

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We've had the sex and the drugs, but sadly no rock'n'roll (so far) in the saga of GlaxoSmithKline's murky dealings in China.

As you may recall, the company is under investigation for bribery, including allegations that its sales executives paid billions of yuan to doctors to encourage them to use its drugs. Latest revelations in the lurid affair included news that a sex tape of the former head of its China division, Mark Reilly, and his Chinese girlfriend was emailed to 13 company executives last year, including chief executive Sir Andrew Witty.

On top of that, the company admitted last week that in 2001 it had fired staff in China for bribing officials, in a case that pre-dates the current allegations.

All of this has distracted from the nuts and bolts of the company's business. On Wednesday it will report second-quarter results, which are expected to show a 12% fall in revenues to around £5.9bn, thanks to foreign exchange volatility and competition from generics.

It is clear Glaxo is going through a transition phase. Sales of its key respiratory drug, Advair, are under pressure and sales of newer drugs have yet to pick up. The company has also sold its Lucozade and Ribena brands, and a product portfolio worth around £8bn is currently on offer to private equity bidders.

There was also a complex transaction with Novartis, with Glaxo swapping its cancer treatment division for Novartis' vaccine business and entering into a consumer healthcare joint venture.

Analysts at Charles Stanley said: "Following completion of these deals (expected in the first half of 2015) Glaxo is to make a £4bn capital return to shareholders. We will be looking for confirmation that these deals are still on track to complete."

As for China, first-quarter sales were down around 20% – and given all that's going on, the City does not expect any immediate improvement. Perhaps Glaxo could amuse hacks waiting on the conference call with a track by China Crisis (OK, not strictly rock'n'roll) to complete the set.

Cable's royal road to recriminations

Vince Cable must wish he'd been out of the office when the decision was made to push the button on the Royal Mail flotation. Ever since the October listing, the business secretary has heard nothing but accusations that he sold it too cheaply, culminating in a report earlier this month in which MPs criticised the privatisation process, which they said cost taxpayers £1bn.

To make it worse, the company is rarely out of the headlines. Last week its French business was caught up in an investigation into alleged price-fixing, and two events this week will again throw the spotlight on it and, almost inevitably, its share price.

On Tuesday a first-quarter trading update is expected to show overall revenues up 2%, with letter volumes down 4% but parcel revenues up 5%. There is no doubt times are getting tougher, with competition from rival TNT Post progressing faster than expected and Amazon - a key parcel customer - developing its own distribution system.

Two days later comes its annual meeting, when its new army of shareholders can quiz the board. Unlike Cable, they must be happy with the share price since flotation, despitethe concerns about trading.

And the other bad news for Cable is that even the sellers among City analysts put a target well above the 330p flotation price. Presumably Cable still thinks this is "froth" though.

Apple's IBM link beats everything

They used to say no one ever got fired for buying IBM, and although that was many mainframes and PCs ago, Apple seems to be hoping some of that past corporate cachet rubs off.

In a move almost as unlikely as Michael Gove joining the NUT, the two companies which were once such bitter rivals announced they were getting together to develop iPhone and iPad apps and services for business users. The move will also mean IBM's sales force pushing Apple products to its own corporate customers.

More details could come when Apple unveils third-quarter figures on Tuesday. Analysts expect revenues of around $38bn, benefiting from a weak performance from rival Samsung.

As is the way, the world's Apple followers will be seeking hints of new products, with the iPhone 6 said to be starting production shortly, for launch around September. Analysts at Barclays said an iWatch could be launched later in the year, with a focus on lifestyle and personal fitness: "Nike could be a major partner for Apple in this initiative. We expect this product to ship after Thanksgiving and view it as a very attractive companion product for current iPhone users."

Then there is the £1.8bn acquisition of Dr Dre and Jimmy Iovine's Beats Electronics, partly designed to help Apple overcome declining digital music sales due to streaming services. European regulators are due to decide by the end of July whether to approve the deal with the headphone maker.

Powered by article was written by Simon Goodley, for The Observer on Sunday 20th July 2014 00.04 Europe/London © Guardian News and Media Limited 2010


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