GSK says China bribes probe to hit performance

PUBLISHED : Wednesday, 24 July, 2013, 9:04pm
UPDATED : Wednesday, 24 July, 2013, 9:04pm

GlaxoSmithKline expects its financial performance in China to take a hit from Beijing’s probe into bribery allegedly carried out by senior staff, the British pharmaceuticals company said on Wednesday.

“Clearly, we are likely to see some impact to our performance in China as a result of the current investigation, but it is too early to quantify the extent of this,” GSK chief executive Andrew Witty said in an earnings update.

“We are co-operating fully with the Chinese authorities in this matter,” he added alongside news of sliding second-quarter profits for the group.

GSK on Monday admitted that senior employees at its China unit appeared to have breached Chinese law – after Chinese authorities alleged that employees had bribed government officials, pharmaceutical industry groups, hospitals and doctors to promote sales.

The London-listed pharmaceuticals firm on Monday added that it was taking the matter “extremely seriously” and pledged to “root out corruption”.

A police official has previously claimed GSK staff funnelled nearly US$500 million in suspected bribes through travel agencies and consultants since 2007.

Police have held four top executives of GSK China and prevented another, the firm’s British finance director, from leaving the country, though he has not been formally detained.

Police allege that GSK staff also took kickbacks from travel agencies in return for organising conferences, some of which did not exist.

According to media reports, more than 20 people have been detained in the case.

Meanwhile on Wednesday, GSK revealed that group net profits sank 15.6 per cent to £1.045 billion (HK$12.33 billion) in the three months to June, as austerity-driven European governments tightened their budgets and cut expenditure.

That compared with profit after tax of £1.238 billion in the same period a year earlier.

“We remain cautious about the outlook in Europe and expect austerity pressures to continue,” Witty said in the earnings statement.

The results also reflected GSK’s decision to restructure its European operations, he added.

Group sales grew 2.0 per cent to £6.618 in the second quarter, aided by faster-growing emerging markets.

Investors shrugged off the results and China profits warning, with GSK’s share price rising 0.60 per cent to 1,680.50 pence on London’s FTSE 100 index of leading companies, which was 0.81-per cent higher in early afternoon deals.