info of interest

From Daily Telegraph UK today

GSK strategy should reassure us all
One company able to show the benefits of a falling pound to its shareholders, just a few hours after King’s speech, was GlaxoSmithKline. But GSK was interesting yesterday for more than just the earnings boost from a weak pound and strong dollar.
Since meltdown Monday on September 16, we’ve had the peak of the credit crisis, a banking crisis and the official realisation of recession. It’s been a busy old time. But in all this noise the voice of business has been lost. A refreshing sound yesterday was Andrew Witty, GSK chief executive. He runs one of those many global businesses caught in the global downturn whose success, or failure, will help dictate the pace of recovery both in the real economy and the stock market.
Rather than turn in on itself – the natural reflex for most in times of trouble – GSK is redoubling its efforts to globalise, investing in markets as diverse as Japan and Egypt, particularly good for its consumer healthcare business. Vaccines, as well as treatments, are being given priority, but the company’s financial management has given it a strong balance sheet and cash flows so it can invest through the downturn, boosting its research and development output. This financial strength will help give it the edge over rivals when it comes to securing scarce funding to finance R&D, compared to when cheap money was available to all.
But for me perhaps the most encouraging words from Witty related to the opportunities for strategic investments. I don’t know when this gruesome economic period will end but I do know what signs of recovery I look for. An increase in merger and acquisition activity is one of them as the strong devour the weak, or at least pick up quality at bargain prices. Witty believes acquisition opportunities will present themselves and has cut short the share buybacks for 2009 to ensure GSK has enough cash to pounce.
The likes of GSK can’t cure the recession but they are readying themselves for life after it, something that should reassure us all.
Canny investors can buy into the future
Another company in a similar position to GSK is BHP Billiton, the world’s biggest miner. It already has its strategic opportunity in its sights – Rio Tinto – and as shares in the mining sector fall its offer looks increasingly attractive, including the $30bn of cash that shareholders in the enlarged group will receive . A rival cash bid could still trouble BHP but its hand is strengthening.
Balance sheet strength and cash flow are again crucial to this situation and BHP scores more strongly than Rio. I expect BHP will take every opportunity today at its annual meeting to remind the world of its relative financial strength and probably repeat its long-term bullish take on China.
Since Rio chief executive Tom Albanese surprised the market last week with his stark take on China, the market has been spooked. BHP repeated its less than rosy short-term view on China yesterday but reminded us all of the ongoing industrialisation of China, and others, that will drive demand for BHP’s products long term.
Luckily, living in the UK, we can buy into the future through the shares of global, well-diversified and financially strong businesses such as GSK and BHP. And long term is where the canny investor is now looking.