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GlaxoSmithKline plc (ADR) (GSK), An Emerging Market Investment?

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GlaxoSmithKline plc (ADR) (GSK) (NYSE:GSK)LONDON — While crippling austerity in Europe and fiscal obstacles could put the brake on growth rates there, in developing regions a backdrop of accommodative central bank action, elevated commodity prices and rising personal affluence levels have created an environment of exceptional commercial opportunity.

The divergence between the growth prospects of traditional and developing markets is borne out by latest International Monetary Fund’s (IMF) growth projections, which expects developing nations and emerging markets to expand 5.3% and 5.7% in 2013 and 2014, respectively. By comparison, it anticipates that the US economy will rise 1.9% this year and 3% in 2014, while eurozone GDP is forecast to dip 0.3% in 2013 before rebounding just 1.1% next year.

Bubbly activity in these developing geographies can create large opportunities for many London-listed firms. Today, I am looking at GlaxoSmithKline plc (ADR) (LSE:GSK) and assessing whether their operations in these regions are likely to underpin solid earnings growth.

Asia-Pacific demand hots up
GlaxoSmithKline plc (ADR) (LSE:GSK) announced in this month’s first-quarter trading update that group revenues dipped 2% during the period, to 6.5 billion pounds, in turn pushing operating profit 26% lower to 1.6 billion pounds.

The firm affirmed its commitment to creating a “diversified global business,” an essential strategy given that its traditional markets continue to struggle and accelerating economic growth in emerging regions is set to drive health care demand higher in coming years.

Revenues from the U.S. and Europe dropped 5% and 4% in January-March respectively, to 2.1 billion pounds and 1.8 billion pounds. And Japanese turnover sunk 6% to 510 million pounds. By comparison, sales from the “Emerging Asia Pacific” (EMAP) region advanced 6% annually to 1.7 billion pounds, and sales from this area now account for 25.7% of total turnover. This is up almost two percentage points from the corresponding 2012 period.

Groupwide pharmaceuticals and vaccines turnover slipped 2% lower to 5.1 billion pounds due to falling demand across all of GlaxoSmithKline plc (ADR) (LSE:GSK)’s established markets, it announced.

But pharmaceuticals and vaccines sales from the EMAP area bucked this trend, rising 8% in the first quarter to 1.1 billion pounds, pushed by a 15% demand increase in the Middle East and Africa to 302 million pounds. Elsewhere, Chinese sales rose a massive 19% in the three-month period to 199 million pounds.

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