Glaxo Wellcome Reveals Integration Effects

Glaxo Wellcome has given the first indication of how the integration of the acquired businesses is progressing with the release of second interim figures for the 12 months ended June 1995. It has estimated the costs of the integration of acquired businesses to form the new Glaxo Wellcome group at L1.2 billion ($1.9 billion) to December 1995, with provision for L700 million made in these accounts. Full pay-back of integration costs is expected to be achieved by the end of 1997. The firm has put the resulting headcount reduction at 7,500 worldwide, which is below figures estimated by some industry observers. The initial investor reaction was a 17 point rise in the share price to 804 pence.

At first glance, cost savings appear to be in line with the majority of industry expectations, as are pretax profits for the combined group before integration costs (this has Wellcome operations consolidated from March 16) for the 12 months ended June 30, 1995, at L2.26 billion, ahead 23%. Earnings per share were up 14% to 48.5 pence. After integration costs, pretax profits were L1.56 billion, down 15%. The tax rate went from 30.1% before integration to 30.6% after integration. John Coombe, GW's finance director, said the change in tax rate was a result of the impact of the L700 million costs factored into these accounts. This means that after integration EPS falls to 32.8 pence. Sales for the combined group were L6.47 billion, up 14%.

Mr Coombe said that the costs of integration incurred to June amounted to L53 million, with a provision of L647 million, bringing this up to the L700 million for the June accounts. Further costs for the July to December period are estimated at L500 million, which makes a total of L1.2 billion.