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Emma Walmsley takes huge axe to GlaxoSmithKline dividend

Shake-up: Glaxo chief Emma Walmsley promises a 'step change' for investors

Embattled GlaxoSmithKline chief Emma Walmsley is poised to unveil a huge dividend cut that will divert billions of pounds into a war chest for growth. 

Sources close to the drugs giant said the drastic move would provide Walmsley with the 'firepower' to rejuvenate Glaxo's sluggish share price. 

The Mail on Sunday can reveal she will try to win over investors by promising a 'step change in growth and returns for shareholders'. 

It comes after US hedge fund Elliott Management snapped up a multi-billion pound stake – and raised concerns privately about Walmsley's suitability for the chief executive role. 

In what will be billed as the 'biggest corporate change for GSK in 20 years', Walmsley is set to reveal how and when GSK will spin off its consumer business – which includes Sensodyne toothpaste and Panadol pain relief – from its pharmaceutical and vaccines arm next year. 

A stock market float is being mooted for the consumer division. GSK was formed when Glaxo Wellcome and Smithkline Beecham merged in 2000. 

At a crunch investor event on Wednesday, bosses will also unveil a pipeline of promising blockbuster drugs, including treatments for HIV. 

In addition they will provide a detailed five-year growth forecast and will outline plans for scientists in the pharmaceutical and vaccines divisions to work more closely together. 

It is understood that chief financial officer Iain Mackay will discuss the level of the dividend cut, which will take place next year, and GSK's long-term goals for payouts. 

The 306-year-old company has paid shareholders an 80p dividend, representing a £4billion distribution, annually each year since 2014. The payout is expected to be slashed to between 40p and 50p next year. A reduction to 45p would represent a £1.7 billion cut in the annual dividend pool to about £2.3billion. 

Analysts at Berenberg described the move as 'short-term pain for long-term gain' and forecast that it could generate £5.5billion of cash by 2025.

In a letter to Glaxo's 94,000 employees, sent late last week and seen by The Mail on Sunday, Walmsley wrote: 'We will set out ambitions for new GSK: for global health impact at scale; a step change in growth and returns for shareholders; and as a company where outstanding people can truly thrive.' 

She added that GSK's strategy 'continues to be to focus on the science of the immune system, human genetics and advanced technologies to get ahead of infectious diseases, HIV, cancer and immune-mediated and respiratory diseases'. 

A source close to GSK said the cash freed up by cutting the dividend would be spent on a mixture of research, acquisitions, paying down debts – notably shifting them on to the consumer business – and investing in manufacturing, particularly for vaccines. 'This will give us more firepower,' the source said. 

Walmsley is expected to invest some of the savings in GSK's drugs pipeline, with patents on 14 products worth about £10billion a year due to expire in the next decade. 

The long-planned investor day has taken on extra significance since US corporate raider Elliott emerged on the share register in April. The hedge fund is yet to make its intentions public, but sources have told The Mail on Sunday that Elliott has questioned the suitability of Walmsley – whose background is in consumer products – to run the business after the split. 

GSK's share price has fallen 15 per cent since Walmsley took charge in 2017. Concerns over its research and development pipeline have weighed on the shares and Walmsley has faced criticism for failing to develop GSK's own Covid vaccine.

Top investors are understood to have discussed with Elliott the idea of hiving off Glaxo's vaccines arm. But insiders said GSK would emphasise the benefits of increased collaboration between pharma and vaccines. 'We definitely have a big opportunity with vaccines and that's a major part of the growth of new GSK,' the source said. 

GSK is now expected to bring more closely together work on the prevention and treatment of infectious diseases such as flu. 

Walmsley is unlikely to announce any specific acquisitions on Wednesday, following last week's announcement of a $2 billion (£1.45billion) deal with iTeos Therapeutics to sell a potential cancer treatment. She is also not expected to reveal clinical breakthroughs due to strict regulations around the release of medical data. 

GSK's shares hit a nadir under Walmsley of £11.90 in February, but have recovered to £14.30. 

Analysts at Morgan Stanley, which has a £15.50 target price, said: 'The key question for investors is whether the pace of change is fast enough as the business gradually evolves into a more innovative, specialist medicines operation, potentially generating higher and more sustainable returns.' 

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