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GlaxoSmithKline is putting away childish things. The pharmaceuticals group's decision to sell Lucozade and Ribena, the popular children's drinks, will cause pangs of nostalgia across the U.K., their main market. It is the right decision, however. The bigger news in Wednesday's first-quarter results announcement is the grown-up move to place 50 "tail brands" with combined 2012 sales of £3-billion ($4.7-billion) into a separate division which will report separately from 2014. That echoes similar thinking at Pfizer, and sounds like the prelude to an eventual disposal.
Lucozade and Ribena had combined sales of about £550-million last year, or roughly 10 per cent of GSK's consumer health care revenue. But sales in the first quarter in their main market were down 7 per cent. That could limit the brands' appeal for other consumer goods groups, though the collapse of the merger between beverage makers AG Barr and Britvic could tempt either of them to take a look. Private-equity interest could be piqued, too, by the fact that first-quarter sales of Lucozade and Ribena in emerging markets were up 16 per cent. These brands might be mature, but they are not dinosaurs.
The "global established products" portfolio – GSK's declining but still viable drugs, in the main – is a more mixed bag. For starters, it is a drag on group sales growth. Combined sales of the drugs to be put into the division were down 7 per cent in the first quarter, knocking a full percentage point off GSK's overall sales growth rate of 2 per cent. The slate of buyers interested in a declining drug portfolio must be a short one, so an eventual spinoff could be GSK's most likely route out.
The restructuring will make GSK look more focused. It has six new drugs awaiting regulatory approval; its shares are up 25 per cent this year, which anticipates a lot of good news. Getting out of Lucozade is all well and good. But GSK will need to replace that lost energy quickly.