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Responses to shareholder questions submitted in advance of the 2020 Annual General Meeting

Separation of GSK’s Consumer Healthcare Business

1. Please provide an update on the splitting of the company

Our CEO, Emma Walmsley, provided an update on the Consumer Healthcare Joint Venture and the programme for separation in her statement during the shareholder webcast on 6 May 2020. Please refer to the webcast (at minute 18:41) for this update.

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2. In preparation for the demerger of GSK Consumer Healthcare, will the Chairman look to expand the number of Non-Executive Directors to include more members who have extensive FMCG (Fast Moving Consumer Goods) experience?

The Board continually reviews its composition against its strategy to ensure that it has an appropriate balance of skills, experience and tenure to be able to pursue its strategic objective. Our Board members are drawn from a wide range of industries and backgrounds.

Vindi Banga, our Senior Independent Non-Executive Director, who has extensive senior level FMCG industry experience from his executive career at Unilever, is a member of the Nominations & Corporate Governance Committee that reviews and recommends Board succession appointments. Charlie Bancroft was appointed to the Board on 1 May 2020 and has recent FMCG experience as a member of the Board of Colgate-Palmolive Company. In addition, Emma Walmsley has considerable consumer business experience from her 17 years at L’Oreal and many years heading GSK’s consumer business. She remains Chair of the Consumer Healthcare Board.

The GSK Board will turn its attention to the most optimal composition of the boards for the new GSK and separate Consumer Healthcare company nearer to the separation. It will ensure that each board has the appropriate range of skills, experience and backgrounds to help both businesses deliver long term value creation for its patients, consumers, shareholders and other stakeholders.

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3. Following the demerger, what will the two new companies be called?

A decision on the name for the new Consumer Healthcare business will be taken closer to the time of the separation from the Group.

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Dividends

4. Why has GSK removed cheques as a dividend payment option?

We took the decision to remove cheques as a method of paying dividends to our shareholders as we believe direct credit into a bank account is a more efficient and secure method of payment.

It is safer for shareholders because there is no risk of cheques being lost or stolen in transit.

Dividends are automatically credited to a shareholder’s account as cleared funds on the day the dividend is paid. There is no delay associated with posting, depositing and clearing cheques.

It also reduces the costs associated with printing, paper and postage, while simultaneously supporting our environmental objectives.

It is worth noting that each year our registrar, Equiniti, was reissuing around 14,000 payments to our shareholders who failed to cash their cheques before they expired or because cheques had been lost or went missing in the post. This creates additional unnecessary administration work to reunite shareholders with their unclaimed dividends and often incurs reissue fees at the expense of the shareholder. Moving away from cheques should also reduce the amount of unclaimed dividend money which is currently held waiting to be claimed.

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Remuneration

5. Is the Remuneration Committee satisfied that annual targets set for Executive Directors are not proving detrimental to TSR?

Executive Directors have the vast proportion of their remuneration based on meeting stretching performance targets over time which the Remuneration Committee believes aligns directors’ interests with shareholders. TSR is just one way of gauging a company’s performance, which is why it is included by the Committee as part of a diversified and balanced set of LTI performance targets.

In addition to TSR, the strength of the pipeline and the need to generate cash for investment in the business are important areas of focus for the company and we have stretching performance targets for these too.

The Committee has implemented a number of mechanisms to ensure that the Annual Bonus and LTI targets drive performance in a sustainable way and that the outcomes reflect genuine achievement against targets and therefore represent the delivery of value for shareholders.

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COVID-19

6. In light of the current environment and COVID-19, are you intending to make any changes to your dividend policy?

For the first quarter of 2020, the Board confirmed a dividend of 19p. In addition, the Board confirmed on 29 April 2020 with its Q1 results that it currently intends to maintain the dividend for 2020 at the current level of 80p per share, subject to any material change in the external environment or performance expectations.

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7. Given the COVID-19 crisis, can we expect Board Directors and senior executives to lead by example and accept cuts to their remuneration, bonuses and other benefits?

The Board notes that where companies or directors have reduced remuneration it is largely in circumstances where the outbreak has had a direct and very negative impact on the relevant company or organisation and/or that company or organisation has needed to take advantage of the various Government subsidy and support schemes, e.g. the furlough scheme in the UK.

This is not the situation for GSK (or indeed for many of our peers) and GSK is not expecting any COVID-19 related redundancies.

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8. We received a selection of questions in respect of the company’s actions and responses to COVID-19.

Our CEO, Emma Walmsley, provided a full update on our work in this area during the shareholder webcast on 6 May 2020. Please refer to the webcast for this detail.

For a more up-to-date position on the company’s response to COVID-19 please see this section of our website which is updated on an ongoing basis.

 

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Business focus

9. How does management control discretionary promotional spend in order to ensure it provides good value for money and is not a drag on Group results in any particular year? Similarly, R&D spend increased substantially. How is this managed and controlled?

GSK operates a rigorous annual budgeting process whereby operating expenses for each of the businesses are agreed by the CFO and the CEO. The annual budget is then approved by the Board of Directors and forms part of management incentive plans. Performance against the approved budget is closely monitored and formally reviewed by the CFO and CEO on a monthly basis, where actions to improve performance or address overspending in any area are discussed and agreed with the relevant business head.

The Board and Audit & Risk Committee also oversee management’s work in this regard.

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10. Major restructuring appears to be fairly consistent, is full value obtained from this spend?

Restructuring the business is a necessary part of enabling GSK to achieve its strategic objectives, with separate programmes being initiated to respond to specific external influences or acquisitions and divestments and related reorganisations. In particular, a programme has been initiated recently to ensure that both the Consumer Healthcare and the Biopharma businesses are well placed to become successful stand-alone companies after separation.

The overall budget for each restructuring programme is approved by the Board and individual projects within each programme are approved by the CFO and CEO and monitored on a monthly basis. The programme budget may not be exceeded without further Board approval.

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11. Do you have an estimate of how much of the increase in 2020 Q1 sales was due to stock building, and is therefore likely to reverse over the full year?

We had a very strong performance in Q1 across all three businesses. Consumer Healthcare benefited from the addition of the Pfizer consumer health business, but also strong pro-forma growth (+14% CER excl. divestments). Approximately two-thirds of the growth was due to COVID-19 related demand, particularly in the US. In Pharmaceuticals sales grew 6% CER, approximately half to two-thirds of which was related to pull-forward and stocking patterns, primarily in Respiratory in Europe and International, and HIV in the US. Vaccines grew 19% driven by strong Shingrix performance with no material impact from COVID-19.

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12. What is GSK doing to improve its TSR?

The Board recognises that TSR is a key focus for shareholders and that is why a substantial proportion of Executive Director and senior management remuneration is dependent on achieving stretching targets related to the company’s ongoing TSR performance over a sustained period.

Our Remuneration Report in our 2019 Annual Report sets out the company’s performance against these targets over time.

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13. Is the company focused on delivering returns to shareholders?

The company’s strategy is absolutely focused on excellent performance and delivering returns to shareholders. In 2019, we delivered sales of £33.8 billion (+8% CER, Pro-forma +4% CER), adjusted earnings per share of 123.9p (+1% CER) and generated free cash flow of £5.1 billion.

2020 has started strongly with Q1 sales of £9.1 billion (+19% CER, Pro-forma +10% CER), adjusted earnings per share of 37.7p (+26% CER) and free cash flow of £0.5 billion.

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14. Can the Board please give an overview on GSK’s approach as a Living Wage employer?

GSK is committed to being a Modern Employer as part of our Trust agenda. This means respecting the right of our employees to fair conditions of work. Our Global Employment Guidelines are based on international labour standards. They include the requirement that GSK specifies working hours in its contracts in all countries. We do not support potentially exploitive practices e.g. zero hours contracts. At the same time we encourage flexible working within the company and we also endeavour to ensure that total compensation and our benefits package are competitive. We regularly audit our employment practices globally.

The protocol for shift pattern changes and for the payment of shift allowances are contracted and implemented in each country to comply with local regulations and hence we do not have a global policy. We are committed to listening and responding to our people and therefore invest heavily in employee voice mechanisms, through which issues such as working hours and shift patterns can be raised and discussed.

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15. Is there an ideal location for the Chief Scientific Officer?

Dr Hal Barron, GSK’s Chief Scientific Officer, is based on the West Coast of the US and pre-COVID he travelled often as part of his role, including to our key R&D sites in the US and UK. GSK is a global company and has R&D operations and runs trials across the world. The Board believes there is considerable advantage to having Dr Barron closely involved with the life-sciences community on the West Coast and we have been able to establish several partnerships with innovative companies and academics as a result.

The technology solutions available across the Group also enable all our employees to communicate efficiently wherever they are in the world.

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16. Can the number of company subsidiaries be decreased to reduce the burden on staff?

GSK operates in multiple jurisdictions which require it to establish legal entities in these countries to carry out our work. We are mindful of the administrative burden of maintaining these companies and are continually looking for opportunities to enhance our performance and reduce our cost base by further reducing them, subject to any legal, regulatory or tax restrictions which may prevent us from doing so. In this regard, we are currently undertaking a rationalisation programme to liquidate (where we are able to do so) up to 50 subsidiaries globally.

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AGM

17. In the absence of the usual AGM, will shareholders be sent, or be able to collect, goody bags this year?

In light of the circumstances we currently find ourselves in, we have decided this year to use the funds that otherwise go towards the provision of goody bags at the AGM to make a donation to the NHS in recognition of the hard work and dedication of NHS staff.  

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18. Why was the AGM scheduled to be held at the London Heathrow Sofitel again this year rather than in central London?

The decision was made to move our AGM to a new location in 2019, after GSK was notified that the QEII Centre, where the company has held its AGMs for many years, would become the temporary home for Parliament. We reviewed a number of locations but determined that the Sofitel Heathrow best suited our requirements in terms of having capacity to accommodate a potentially large number of shareholders, being easily accessible as well as being situated near our headquarters.

For these reasons, we booked the Sofitel Heathrow again this year.

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