TIDMGSK
RNS Number : 3130L
GlaxoSmithKline PLC
29 April 2020
Issued: Wednesday, 29 April 2020, London U.K.
GSK delivers strong Q1: sales GBP9.1 billion +19% AER, +19% CER (Proforma
+10% CER*)
Total EPS 31.5p; +87% AER; +89% CER; Adjusted EPS 37.7p +25% AER,
+26% CER
Financial and product highlights
-- Reported Group sales GBP9.1 billion +19% AER, +19% CER (Proforma
+10% CER*). Pharmaceuticals GBP4.4 billion +6% AER, +6% CER; Vaccines
GBP1.8 billion +19% AER, +19% CER; Consumer Healthcare GBP2.9 billion
+44% AER, +46% CER (Proforma +11% CER*)
-- Sales growth reflects strong underlying performance and additional
impact from increased demand including stock building for many
products
-- Total Respiratory sales GBP871 million +38% AER, +38% CER. Trelegy
sales GBP193 million +>100% AER, +>100% CER. Nucala sales GBP210
million +38% AER, +38% CER
-- Total HIV sales GBP1.2 billion, +8% AER, +8% CER. Two-drug regimen
sales GBP186 million
-- Shingrix sales GBP647 million +81% AER, +79% CER
-- Total Group operating margin 22.2%. Adjusted Group operating margin
29.4%, reflecting strong operating leverage (Pharmaceuticals 26.9%;
Vaccines 47.5%; Consumer Healthcare 26.8%)
-- Total EPS 31.5p +87% AER, +89% CER reflecting good operating performance
and an increase in the value of shares in Hindustan Unilever relating
to the disposal of Horlicks in India
-- Adjusted EPS 37.7p +25% AER; +26% CER reflecting operating performance
and lower tax rate resulting from a non-recurring revaluation of
deferred tax assets
-- Q1 net cash flow from operations GBP965 million. Free cash flow
GBP531 million
-- 19p dividend declared for the quarter
Guidance
-- Based on current assessment of COVID-19, guidance for 2020 Adjusted
EPS maintained; to be updated if needed as more information becomes
available
Pipeline highlights
-- Zejula submission accepted by FDA and EMA in first-line maintenance
treatment for women with ovarian cancer
-- Belantamab mafodotin granted FDA priority review for patients with
relapsed or refractory multiple myeloma based on data from the
pivotal DREAMM-2 study. PDUFA date set for August 2020
-- Cabenuva , first long-acting regimen for HIV, approved in Canada.
Expect submission of reply to FDA Complete Response Letter mid-year
-- Fostemsavir submitted for approval to EMA for the treatment of
HIV in adults
-- Multiple collaborations underway to develop adjuvanted vaccines
for use against COVID-19, including with Sanofi
-- Agreement with Vir Biotechnology to research and develop solutions
for coronaviruses, including using their monoclonal antibody platform
technology
Q1 2020 results Q1 2020 Growth
------------
GBPm GBP% CER%
-------- ----- -----
Turnover 9,090 19 19
Total operating profit 2,014 41 42
Total earnings per
share 31.5p 87 89
Adjusted operating
profit 2,675 24 24
Adjusted earnings per
share 37.7p 25 26
Net cash from operating
activities 965 46
Free cash flow 531 >100
The Total results are presented under 'Financial performance' on
page 11 and Adjusted results reconciliations are presented on pages
21 and 22. Adjusted results are a non-IFRS measure that may be considered
in addition to, but not as a substitute for, or superior to, information
presented in accordance with IFRS. Adjusted results are defined on
page 9 and GBP% or AER% growth, CER% growth, free cash flow and other
non-IFRS measures are defined on page 40. GSK provides guidance on
an Adjusted results basis only, for the reasons set out on page 10.
All expectations, guidance and targets regarding future performance
and dividend payments should be read together with 'Outlook, assumptions
and cautionary statements' on pages 41 and 42.
* Reported AER and CER growth rates include three months' results
of former Pfizer consumer healthcare business. Pro-forma CER growth
rates are calculated as if the equivalent three months of Pfizer
consumer healthcare business results, as reported by Pfizer, were
included in the comparative period of Q1 2019. See 'Pro-forma growth'
on page 10.
Emma Walmsley, Chief Executive Officer, GSK said:
"Responding to the COVID-19 pandemic is at the heart of our purpose
as a company and GSK's portfolio is both highly relevant and needed.
We have mobilised efforts across the company and I want to thank
all the GSK teams for their outstanding work to make sure our vital
medicines, vaccines and everyday health products continue to be available
to the people who need them. We have also taken action to deploy
our science and technologies. Our primary aim is to develop multiple
adjuvanted COVID-19 vaccines, and we are working with companies and
institutions across the world to do so.
"Our business performed strongly in the quarter with growth in sales
and earnings reflecting good underlying performance and increased
demand, including stock-building, for many of our products. Looking
ahead, we clearly face a period of considerable uncertainty, but
we remain confident in the resilience and sustainability of GSK's
business and our ability to deliver on our long-term priorities of
Innovation, Performance and Trust."
GSK's response to COVID-19
GSK's businesses and portfolio are highly relevant to helping tackle
the COVID-19 virus and we have mobilised across the company to respond
to the pandemic, focusing on our people, business continuity and
providing solutions to support the global response.
We are working hard to make sure our employees stay protected and
supported, investing in high frequency employee engagement, as well
as providing technology, resources and adjusted policies to support
our people.
Our business is performing well and has demonstrated resilience in
the face of significant demands. We have implemented business continuity
plans across all our essential operations. The liquidity position
of GSK remains strong and we have sufficient cash for our current
operational needs and access to significant additional undrawn committed
sources of finance if required. In our supply chains, we are closely
monitoring all parts of our manufacturing network and have been able
to respond quickly to fluctuations in demand. Within clinical trials
we have implemented proactive measures to protect study participants,
staff at clinical trial sites and our employees, while ensuring that
regulatory compliance and the scientific integrity of our studies
are maintained.
As we have seen elsewhere, recruitment for clinical trials has slowed
due to disruption from the pandemic and diversion of resources to
other clinical priorities. We are continuing to support enrolment
of new patients into ongoing clinical studies, provided that investigators
are confident they will be able to conduct the protocol required.
Where necessary and based on our own assessments, we have proactively
paused recruitment. We have a number of products undergoing regulatory
review and, at this time, we do not anticipate any significant delays
to regulatory approvals due to the pandemic.
However, this is clearly a very dynamic and uncertain situation and
the ultimate severity, duration and impact of the pandemic remain
unknown at this point. Despite the measures the company has taken,
there are significant risks to business performance for the remainder
of the year, and particularly over the next few months. These could
include disruption to manufacturing activities and the supply chain
including third parties, further restrictions in our ability to conduct
clinical trials, limits on patients' and customers' ability to access
certain elective or discretionary treatments, most notably vaccines
such as Shingrix, while government containment measures are in place,
and the impact of other government actions and restrictions in response
to the pandemic. We continue to monitor these risks closely.
We are determined to support the global response to the pandemic
by offering solutions, using our science, technology, portfolio and
resources. Our primary aim is to develop multiple adjuvanted COVID-19
vaccines, using our innovative adjuvant technology, and we are collaborating
with seven companies and institutions across the world, including
in North America and China. The use of an adjuvant can be of particular
importance in a pandemic situation since it may reduce the amount
of vaccine protein required per dose, allowing more vaccine doses
to be produced and therefore contributing to the protection of more
people, sooner.
Alongside vaccines, we are also exploring therapeutic options. Earlier
this month, we entered into a collaboration with Vir Biotechnology
to identify and accelerate new anti-viral antibodies that could be
used as therapeutic or preventative options for COVID-19 or future
coronavirus outbreaks. Additionally, we are screening GSK marketed
and pipeline assets for potential anti-viral activity or potential
use in prevention or treatment of symptoms related to COVID-19.
Beyond vaccines and medicines, we are also making other contributions
using our capabilities and expertise, for example to support national
testing centres. In addition, we are supporting global and local
community funds, including the UN/WHO COVID-19 Solidarity Response
Fund, to support distribution of essential supplies and PPE to health
workers.
2020 guidance
At the time of announcing the full-year 2019 results on 5 February
2020 we provided guidance with respect to expected full-year 2020
Adjusted EPS, being a decline in the range of -1% to -4% at CER.
This guidance reflected our expectations for growth in key new products,
and the start of a two-year period in which we would continue to
increase investment in these products and in our R&D pipeline, alongside
implementation of our new programme which will prepare the Group
for separation. This guidance excluded any impact in 2020 from any
further material divestments beyond those previously announced and
any potential impact on our business from the Coronavirus outbreak.
At this stage, we are unable to predict the ultimate disruptive impact
of the COVID-19 pandemic on GSK's business performance for the full-year
2020. The company performed strongly in the first quarter. However,
as set out in 'GSK's response to COVID-19' on page 2, there are significant
internal and external risks to business performance for the remainder
of the year, and particularly over the next few months. Based on
our current assessment of the impact of COVID-19, we are maintaining
our Adjusted EPS guidance for the year at this point, but we will,
if needed, update guidance as more information becomes available
to inform our expected financial performance for the full-year 2020.
All expectations, guidance and targets regarding future performance
and dividend payments should be read together with 'Outlook, assumptions
and cautionary statements' on pages 41 and 42.
If exchange rates were to hold at the closing rates on 31 March 2020
($1.24/GBP1, EUR1.13/GBP1 and Yen 134/GBP1) for the rest of 2020,
the estimated impact on 2020 Sterling turnover growth would be around
flat and if exchange gains or losses were recognised at the same
level as in 2019, the estimated impact on 2020 Sterling Adjusted
EPS growth would also be around flat.
Results presentation
A webcast of the quarterly results presentation hosted by Emma Walmsley,
GSK CEO, will be held at 2pm BST on 29 April 2020. Presentation materials
will be published on www.gsk.com prior to the webcast and a transcript
of the webcast will be published subsequently.
Information available on GSK's website does not form part of, and
is not incorporated by reference into, this Results Announcement.
Operating performance - Q1 2020
Turnover Q1 2020
------------------------------------
Pro-forma
Growth Growth growth
GBPm GBP% CER% CER%
------ ------- ------- ----------
Pharmaceuticals 4,396 6 6 6
Vaccines 1,805 19 19 19
Consumer Healthcare 2,862 44 46 11
------ ------- ------- ----------
9,063 18 19 10
Corporate and other unallocated
turnover 27
------ ------- ------- ----------
Group turnover 9,090 19 19 10
------ ------- ------- ----------
Group turnover was GBP9,090 million in the quarter, up 19% AER,
19% CER and 10% CER on a pro-forma basis, with growth delivered
by all three businesses.
Pharmaceuticals turnover in the quarter was GBP4,396 million, up
6% AER, 6% CER. Additional COVID-19 related demand and stock building
in Europe and the US had a positive impact on growth. Respiratory
sales were up 38% AER, 38% CER to GBP871 million on growth of Trelegy
Ellipta and Nucala. HIV sales of GBP1,207 million grew 8% AER, 8%
CER. Sales of Established Pharmaceuticals declined 7% AER, 6% CER
to GBP2,086 million.
Vaccines turnover grew 19% AER, 19% CER to GBP1,805 million, primarily
driven by growth in sales of Shingrix. Meningitis vaccines also
contributed to growth, but Established Vaccines declined 3% AER,
3% CER to GBP912 million.
Reported Consumer Healthcare sales grew 44% AER, 46% CER to GBP2,862
million, largely driven by the inclusion of the Pfizer portfolio.
Pro-forma sales grew 11% CER and 14% CER excluding brands divested/
under review. Growth was heavily impacted by consumer and government
responses to the COVID-19 pandemic.
Operating profit
Total operating profit was GBP2,014 million in Q1 2020 compared
with GBP1,428 million in Q1 2019. The Total operating margin was
22.2%. Adjusted operating profit was GBP2,675 million, up 24% AER,
24% CER on a turnover increase of 19% CER. The Adjusted operating
margin was 29.4%. On a pro-forma basis, Adjusted operating profit
was 14% higher at CER on a turnover increase of 10% CER. The Adjusted
pro-forma operating margin was 29.4%.
An increase in value of the shares in Hindustan Unilever Limited
to be received in connection with the disposal of Horlicks and other
Consumer Healthcare brands as well as income from asset disposals
were partly offset by higher re-measurement charges on the contingent
consideration liabilities and increased charges for Major restructuring,
including costs to integrate the Consumer Healthcare Joint Venture.
The increase in pro-forma Adjusted operating profit primarily reflected
the benefit from strong sales growth across all three businesses,
including stock building as a result of the COVID-19 pandemic in
Pharmaceuticals and Consumer Healthcare, partly offset by continuing
price pressure and investment in R&D.
Earnings per share
Total EPS was 31.5p, compared with 16.8p in Q1 2019. Adjusted EPS
was 37.7p compared with 30.1p in Q1 2019, up 25% AER, 26% CER. The
improvement primarily reflected strong operating performance, an
increase in the value of the shares in Hindustan Unilever Limited
to be received in connection with the disposal of Horlicks and other
Consumer Healthcare brands and a reduced effective tax rate, partly
offset by increased re-measurement charges on the contingent consideration
liabilities and put option.
Cash flow
The net cash inflow from operating activities for the quarter was
GBP965 million (Q1 2019: GBP663 million) and free cash flow was
GBP531 million (Q1 2019: GBP165 million). The increase primarily
reflected improved operating profits and the beneficial timing of
payments for returns and rebates, partly offset by higher working
capital.
R&D pipeline
37 medicines in development, 15 Vaccines
Pipeline news flow highlights since Q4 2019
Updates relating to COVID-19
Collaborations
-- Sanofi and GSK announced that they have signed a letter of intent
to enter into a collaboration to develop an adjuvanted candidate
vaccine for COVID-19, using innovative technology from both companies,
to help address the ongoing pandemic. The companies plan to initiate
Phase I clinical trials in the second half of 2020 and, if successful
and subject to regulatory considerations, a vaccine could be available
in H2 2021.
-- GSK and Vir Biotechnology announced they have entered into a collaboration
to research and develop solutions for coronaviruses, including
SARS-CoV-2, the virus that causes COVID-19. The collaboration will
use Vir's proprietary monoclonal antibody platform technology to
accelerate existing and identify new anti-viral antibodies that
could be used as therapeutic or preventative options to help address
the current COVID-19 pandemic and future outbreaks.
-- GSK has also entered several other collaborations on protein-based
COVID-19 vaccine candidates including with the University of Queensland,
Xiamen Innovax Biotech, Clover Biopharmaceuticals and Chongqing
Zhifei. GSK has also entered into other collaborations that have
not been announced with partners featuring other technologies,
where GSK is supplying its pandemic adjuvant technology.
Oncology
Zejula (niraparib, PARP inhibitor)
-- The US FDA and the European Medicines Agency accepted submission
of Zejula in first-line maintenance treatment for women with platinum-responsive
advanced ovarian cancer based on data from the PRIMA study.
Belantamab mafodotin (GSK2857916, BCMA immunoconjugate)
-- The US FDA granted priority review of belantamab mafodotin for
patients with relapsed/refractory multiple myeloma. The PDUFA date
has been set for August 2020.
Dostarlimab (TSR-042, PD-1 antagonist)
-- The US FDA accepted submission of dostarlimab for the second line
treatment of patients with dMMR/MSI-H recurrent endometrial cancer.
GSK'762 (BET inhibitor)
-- GSK'762 for cancer was terminated as data did not support progressing.
HIV/Infectious diseases
Cabenuva (cabotegravir + rilpivirine)
-- Cabenuva received Health Canada approval as the first complete,
long-acting, regimen for the treatment of HIV. Submission of a
reply to the FDA's Complete Response Letter is expected by the
middle of the year.
-- Positive long-term data from the Phase III FLAIR study demonstrating
efficacy and safety of cabotegravir and rilpivirine in adults living
with HIV were presented at the 2020 Conference on Retroviruses
and Opportunistic Infections (CROI).
-- Positive 48-week data from the Phase III ATLAS-2M study showing
the every-two-month regimen of cabotegravir and rilpivirine has
similar efficacy to once-monthly dosing were presented at the 2020
Conference on Retroviruses and Opportunistic Infections (CROI).
Fostemsavir (attachment inhibitor)
-- A regulatory application was submitted to the European Medicines
Agency for fostemsavir for heavily treatment-experienced adults
with multi-drug resistant HIV-1 infection who are unable to form
a suppressive regimen.
QURA Therapeutics
-- ViiV Healthcare and UNC-Chapel Hill announced the five-year renewal
of the innovative HIV cure partnership, QURA Therapeutics.
Immuno-inflammation
Benlysta (belimumab)
-- The US FDA granted Breakthrough Therapy Designation for Benlysta
for the treatment of lupus nephritis. Regulatory submission is
expected in Q2 2020.
Respiratory
Trelegy Ellipta (FF/UMEC/VI)
-- The European Medicines Agency accepted the regulatory submission
of Trelegy Ellipta for the treatment of asthma in adults supported
by the Phase III CAPTAIN study.
Nucala (mepolizumab)
-- Positive data has been received in-house from a Phase III study
of Nucala in patients with nasal polyps. Nucala is the first anti-IL5
compound to show a benefit in this indication in a Phase III study.
Regulatory submission is expected in H2 2020.
Other pharmaceuticals
Tuberculosis
-- A collaboration, called "PAN-TB", with philanthropic, non-profit
and private sector organisations was launched to accelerate the
development of novel tuberculosis drug regimens.
GR121619 (oxytocin)
-- GR121619 rights for postpartum haemorrhage were returned to Monash
University.
Vaccines
Rotarix
-- The European Medicines Agency approved the "PCV (Porcine Circovirus)
free" variant of Rotarix.
Contents Page
Total and Adjusted results 9
Financial performance 11
Cash generation 26
Returns to shareholders 27
Income statement 28
Statement of comprehensive income 29
Pharmaceuticals turnover 30
Vaccines turnover 31
Balance sheet 32
Statement of changes in equity 33
Cash flow statement 34
Segment information 35
Legal matters 36
Additional information 36
Reconciliation of cash flow to movements in net debt 39
Net debt analysis 39
Free cash flow reconciliation 39
Reporting definitions 40
Outlook, assumptions and cautionary statements 41
Independent review report 43
Contacts
GSK - one of the world's leading research-based pharmaceutical and
healthcare companies - is committed to improving the quality of human
life by enabling people to do more, feel better and live longer.
For further information please visit www.gsk.com .
GSK enquiries:
UK Media enquiries: Simon Steel +44 (0) 20 8047 (London)
5502
Tim Foley +44 (0) 20 8047 (London)
5502
Mary Hinks-Edwards +44 (0) 20 8047 (London)
5502
US Media enquiries: Kristen Neese +1 215 751 3335 (Philadelphia)
Kathleen Quinn +1 202 603 5003 (Washington)
Analyst/Investor enquiries: Sarah Elton-Farr +44 (0) 20 8047 (London)
5194
James Dodwell +44 (0) 20 8047 (London)
2406
Danielle Morris +44 (0) 20 8047 (London)
7562
Jeff McLaughlin +1 215 751 7002 (Philadelphia)
Frannie DeFranco +1 215 751 4855 (Philadelphia)
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Registered Office:
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Brentford, Middlesex
TW8 9GS
Total and Adjusted results
Total reported results represent the Group's overall performance.
GSK also uses a number of adjusted, non-IFRS, measures to report
the performance of its business. Adjusted results and other non-IFRS
measures may be considered in addition to, but not as a substitute
for or superior to, information presented in accordance with IFRS.
Adjusted results are defined below and pro-forma growth and other
non-IFRS measures are defined on page 40.
GSK believes that Adjusted results, when considered together with
Total results, provide investors, analysts and other stakeholders
with helpful complementary information to understand better the
financial performance and position of the Group from period to period,
and allow the Group's performance to be more easily compared against
the majority of its peer companies. These measures are also used
by management for planning and reporting purposes. They may not
be directly comparable with similarly described measures used by
other companies.
GSK encourages investors and analysts not to rely on any single
financial measure but to review GSK's quarterly results announcements,
including the financial statements and notes, in their entirety.
GSK is committed to continuously improving its financial reporting,
in line with evolving regulatory requirements and best practice.
In line with this practice, GSK expects to continue to review and
refine its reporting framework.
Adjusted results exclude the following items from Total results,
together with the tax effects of all of these items:
-- amortisation of intangible assets (excluding computer software)
-- impairment of intangible assets (excluding computer software) and
goodwill
-- Major restructuring costs, which include impairments of tangible
assets and computer software, (under specific Board approved programmes
that are structural, of a significant scale and where the costs
of individual or related projects exceed GBP25 million), including
integration costs following material acquisitions
-- transaction-related accounting or other adjustments related to
significant acquisitions
-- proceeds and costs of disposal of associates, products and businesses;
significant legal charges (net of insurance recoveries) and expenses
on the settlement of litigation and government investigations;
other operating income other than royalty income, and other items
Costs for all other ordinary course smaller scale restructuring
and legal charges and expenses are retained within both Total and
Adjusted results.
As Adjusted results include the benefits of Major restructuring
programmes but exclude significant costs (such as significant legal,
major restructuring and transaction items) they should not be regarded
as a complete picture of the Group's financial performance, which
is presented in Total results. The exclusion of other Adjusting
items may result in Adjusted earnings being materially higher or
lower than Total earnings. In particular, when significant impairments,
restructuring charges and legal costs are excluded, Adjusted earnings
will be higher than Total earnings.
GSK is undertaking a number of Major restructuring programmes in
response to significant changes in the Group's trading environment
or overall strategy, or following material acquisitions. Costs,
both cash and non-cash, of these programmes are provided for as
individual elements are approved and meet the accounting recognition
criteria. As a result, charges may be incurred over a number of
years following the initiation of a Major restructuring programme.
Significant legal charges and expenses are those arising from the
settlement of litigation or government investigations that are not
in the normal course and materially larger than more regularly occurring
individual matters. They also include certain major legacy matters.
Reconciliations between Total and Adjusted results, providing further
information on the key Adjusting items, are set out on pages 21
and 22.
GSK provides earnings guidance to the investor community on the
basis of Adjusted results. This is in line with peer companies and
expectations of the investor community, supporting easier comparison
of the Group's performance with its peers. GSK is not able to give
guidance for Total results as it cannot reliably forecast certain
material elements of the Total results, particularly the future
fair value movements on contingent consideration and put options
that can and have given rise to significant adjustments driven by
external factors such as currency and other movements in capital
markets.
Pro-forma growth
The acquisition of the Pfizer consumer healthcare business completed
on 31 July 2019 and so GSK's reported results for Q1 2020 include
three months of results of the former Pfizer consumer healthcare
business from 1 January 2020.
The Group has presented pro-forma growth rates at CER for turnover,
Adjusted operating profit and operating profit by business taking
account of this transaction. Pro-forma growth rates for the quarter
are calculated comparing reported results for Q1 2020, calculated
applying the exchange rates used in the comparative period, with
the results for Q1 2019 adjusted to include the equivalent three
months of results of the former Pfizer consumer healthcare business
during Q1 2019, as consolidated (in US$) and included in Pfizer's
US GAAP results.
ViiV Healthcare
ViiV Healthcare is a subsidiary of the Group and 100% of its operating
results (turnover, operating profit, profit after tax) are included
within the Group income statement.
Earnings are allocated to the three shareholders of ViiV Healthcare
on the basis of their respective equity shareholdings (GSK 78.3%,
Pfizer 11.7% and Shionogi 10%) and their entitlement to preferential
dividends, which are determined by the performance of certain products
that each shareholder contributed. As the relative performance of
these products changes over time, the proportion of the overall earnings
allocated to each shareholder also changes. In particular, the increasing
proportion of sales of dolutegravir-containing products has a favourable
impact on the proportion of the preferential dividends that is allocated
to GSK. Adjusting items are allocated to shareholders based on their
equity interests. GSK was entitled to approximately 85% of the Total
earnings and 82% of the Adjusted earnings of ViiV Healthcare for
2019.
As consideration for the acquisition of Shionogi's interest in the
former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received
the 10% equity stake in ViiV Healthcare and ViiV Healthcare also
agreed to pay additional future cash consideration to Shionogi, contingent
on the future sales performance of the products being developed by
that joint venture, principally dolutegravir. Under IFRS 3 'Business
combinations', GSK was required to provide for the estimated fair
value of this contingent consideration at the time of acquisition
and is required to update the liability to the latest estimate of
fair value at each subsequent period end. The liability for the contingent
consideration recognised in the balance sheet at the date of acquisition
was GBP659 million. Subsequent re-measurements are reflected within
other operating income/expense and within Adjusting items in the
income statement in each period. At 31 March 2020, the liability,
which is discounted at 8.5%, stood at GBP5,325 million, on a post-tax
basis.
Cash payments to settle the contingent consideration are made to
Shionogi by ViiV Healthcare each quarter, based on the actual sales
performance of the relevant products in the previous quarter. These
payments reduce the balance sheet liability and hence are not recorded
in the income statement. The cash payments made to Shionogi by ViiV
Healthcare in Q1 2020 were GBP213 million.
Because the liability is required to be recorded at the fair value
of estimated future payments, there is a significant timing difference
between the charges that are recorded in the Total income statement
to reflect movements in the fair value of the liability and the actual
cash payments made to settle the liability.
Further explanation of the acquisition-related arrangements with
ViiV Healthcare are set out on pages 51 and 52 of the Annual Report
2019.
Financial performance - Q1 2020
Total results
The Total results for the Group are set out below.
Q1 2020 Q1 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Turnover 9,090 7,661 19 19
Cost of sales (3,199) (2,733) 17 18
-------- -------- ------- -------
Gross profit 5,891 4,928 20 20
Selling, general and administration (2,916) (2,477) 18 19
Research and development (1,187) (1,006) 18 18
Royalty income 67 73 (8) (5)
Other operating income/(expense) 159 (90)
-------- -------- ------- -------
Operating profit 2,014 1,428 41 42
Finance income 41 34
Finance expense (229) (224)
Share of after tax profits
of
associates and joint ventures 9 57
-------- -------- ------- -------
Profit before taxation 1,835 1,295 42 42
Taxation (156) (310)
Tax rate % 8.5% 23.9%
-------- -------- ------- -------
Profit after taxation 1,679 985 70 71
-------- -------- ------- -------
Profit attributable to non-controlling
interests 114 155
Profit attributable to shareholders 1,565 830
-------- -------- ------- -------
1,679 985 70 71
-------- -------- ------- -------
Earnings per share 31.5p 16.8p 87 89
-------- -------- ------- -------
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for Q1 2020 and Q1 2019
are set out on pages 21 and 22.
Q1 2020
----------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
-------- ---------- ------- --------- ----------
Turnover 9,090 100 19 19 10
Cost of sales (2,610) (28.7) 18 20 9
Selling, general and
administration (2,786) (30.6) 16 18 8
Research and development (1,086) (11.9) 12 11 9
Royalty income 67 0.6 (8) (5) (5)
-------- ---------- ------- --------- ----------
Adjusted operating
profit 2,675 29.4 24 24 14
-------- ---------- ------- --------- ----------
Adjusted profit before
tax 2,497 23 23
Adjusted profit after
tax 2,155 32 32
Adjusted profit attributable
to
shareholders 1,873 26 27
-------- ------- ---------
Adjusted earnings
per share 37.7p 25 26
-------- ------- ---------
Operating profit by
business Q1 2020
--------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
------ ---------- ------- --------- ----------
Pharmaceuticals 2,018 45.9 3 2 2
Pharmaceuticals R&D* (835) 14 14 14
------ ---------- ------- --------- ----------
Total Pharmaceuticals 1,183 26.9 (4) (5) (5)
Vaccines 858 47.5 40 39 39
Consumer Healthcare 766 26.8 78 82 26
------ ---------- ------- --------- ----------
2,807 30.9 23 23 14
Corporate & other
unallocated
costs (132)
----------
Adjusted operating
profit 2,675 29.4 24 24 14
------ ---------- ------- --------- ----------
* Operating profit of Pharmaceuticals R&D segment, which is the responsibility
of the Chief Scientific Officer and President, R&D. It excludes
ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals
segment.
Turnover
Pharmaceuticals turnover
Q1 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Respiratory 871 38 38
HIV 1,207 8 8
Immuno-inflammation 151 25 24
Oncology 81 88 88
Established Pharmaceuticals 2,086 (7) (6)
------
4,396 6 6
------
US 1,758 4 3
Europe 1,142 14 15
International 1,496 2 4
------ ------- -------
4,396 6 6
------ ------- -------
Pharmaceuticals turnover in the quarter was GBP4,396 million, up
6% AER, 6% CER. Respiratory sales were up 38% AER, 38% CER to GBP871
million on growth of Trelegy Ellipta and Nucala. HIV sales of GBP1,207
million grew 8% AER, 8% CER, with growth of Juluca and Dovato exceeding
the decline of Triumeq. Sales of Established Pharmaceuticals declined
7% AER, 6% CER to GBP2,086 million, reflecting lower Advair sales
in the US.
Towards the end of the quarter, additional demand and customer stock
building in Europe and the US related to the COVID-19 pandemic had
a positive impact on the growth of HIV and Respiratory products.
This was partly offset by lower sales in China, reflecting different
stages in the progress of the pandemic and different government and
market responses.
In the US, sales grew 4% AER, 3% CER. Continued growth of Nucala,
Trelegy Ellipta and Benlysta was partly offset by the decline in
Established Products, including the ongoing impact of the loss of
exclusivity of Advair. In Europe, sales grew 14% AER, 15% CER, with
strong growth in Respiratory and HIV, including the impact of COVID-19
related customer stock building. International grew 2% AER, 4% CER,
with Respiratory and HIV growth partly offset by lower Established
Pharmaceutical sales, including the impact of a weaker allergy season
in Japan and market disruption from COVID-19 in China.
Respiratory
Total Respiratory sales were up 38% AER, 38% CER, with strong growth
from Nucala, Trelegy and Relvar/Breo in all regions. In the US, Trelegy
and Nucala growth continued and Relvar/Breo benefited from the impact
of a prior period RAR adjustment. In Europe, Respiratory sales growth
of 40% AER, 42% CER, reflected strong growth of Relvar/Breo, Trelegy
and Nucala. International Respiratory sales grew 36% AER, 36% CER,
including Nucala, up 50% AER, 55% CER, and Relvar/Breo, up 19% AER,
16% CER to GBP83 million.
Sales of Nucala were GBP210 million in the quarter and grew 38% AER,
38% CER, with US sales up 35% AER, 33% CER to GBP115 million. Europe
sales of GBP62 million grew 38% AER, 38% CER and International sales
of GBP33 million grew 50% AER, 55% CER, benefiting from new at-home
use application launches worldwide.
Sales of Ellipta products were up 38% AER, 38% CER to GBP661 million,
driven by growth in all regions. In the US, sales grew 38% AER, 37%
CER, reflecting continued strong growth of Trelegy Ellipta and the
benefit of a prior period RAR adjustment to Relvar/Breo. In Europe,
Ellipta products grew 41% AER, 44% CER. Sales of Trelegy Ellipta
contributed GBP193 million globally in the quarter, driven by an
increase in US market share.
Relvar/Breo Ellipta sales were up 33% AER, 32% CER to GBP285 million.
In the US, Relvar/Breo grew 47% AER, 45% CER, benefiting from a prior
period RAR adjustment. In Europe and International, Relvar/Breo continued
to grow strongly, up 30% AER, 33% CER and 19% AER, 16% CER, respectively.
HIV
HIV sales were GBP1,207 million with growth of 8% AER, 8% CER in
the quarter. The dolutegravir franchise grew 9% AER, 9% CER to GBP1,161
million. The remaining portfolio, with sales of GBP46 million, 4%
of total HIV sales, declined 15% AER, 13% CER and reduced the overall
growth of total HIV by one percentage point.
Sales of dolutegravir products were GBP1,161 million. Sales benefited
from customer stock building due to COVID-19, mainly on Tivicay and
Triumeq, with Tivicay delivering sales of GBP412 million, up 8% AER,
8% CER. Sales of Triumeq declined 8% AER, 8% CER to GBP563 million.
The two-drug regimens, Juluca and Dovato, delivered combined sales
of GBP186 million, with growth more than offsetting the decline in
Triumeq.
In the US, total dolutegravir sales grew 3% AER, 2% CER and in Europe
dolutegravir sales grew 16% AER, 18% CER. The growth was driven by
two-drug regimen share growth and increased COVID-19 related customer
stock building. Following recent launches of Dovato, sales of the
two-drug regimens were GBP139 million in the US and GBP43 million
in Europe, with combined growth offsetting the decline in Triumeq.
International continued to grow strongly with total dolutegravir
sales growth of 22% AER, 25% CER, driven by Tivicay tender business.
Oncology
Sales of Zejula were GBP81 million in the quarter, with growth of
93% AER, 93% CER benefiting from a favourable comparison with Q1
2019 as the product was acquired part way through that quarter. Sales
comprised GBP48 million in the US and GBP33 million in Europe.
Immuno-inflammation
Sales of Benlysta in the quarter were up 25% AER, 24% CER to GBP151
million, including sales of the sub-cutaneous formulation of GBP67
million. In the US, Benlysta grew 20% AER, 18% CER to GBP126 million.
Established Pharmaceuticals
Sales of Established Pharmaceuticals were GBP2,086 million, down
7% AER, 6% CER.
Established Respiratory products declined 11% AER, 11% CER to GBP965
million. The rate of decline of US Advair sales reduced to 40% AER,
40% CER, reflecting the start of generic competition in Q1 2019.
Also in the US, Ventolin sales were up 1% AER, but down 1% CER to
GBP147 million, including the benefit of strong uptake of the authorised
generic version launched in Q1 2019. Established Respiratory sales
in the US were adversely impacted by prior period RAR adjustments
in the quarter, but the overall, impact on total Pharmaceuticals
growth from US prior period RAR adjustments was not significant.
In Europe, Seretide sales were GBP127 million, with the decline slowing
to 5% AER, 3% CER, reflecting continued competition from generic
products partly offset by increased COVID-19 related demand. Ventolin
sales grew 15% AER, 18% CER to GBP38 million. In International, sales
of Seretide were down 8% AER, 7% CER.
The remainder of the Established Pharmaceuticals portfolio declined
by 3% AER, 2% CER to GBP1,121 million, including the impact of Zantac
withdrawal, declines in Viread and Tykerb in China and the impact
of a European Relenza tender in Q1 2019. These declines were partly
offset by growth in Augmentin in Europe and International and in
Dermatology products in International.
Vaccines turnover
Q1 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Meningitis 225 8 11
Influenza 21 40 53
Shingles 647 81 79
Established Vaccines 912 (3) (3)
------
1,805 19 19
------
US 1,013 30 29
Europe 348 3 4
International 444 9 13
------ ------- -------
1,805 19 19
------ ------- -------
Vaccines turnover grew 19% AER, 19% CER to GBP1,805 million, primarily
driven by growth in sales of Shingrix. Meningitis vaccines also contributed
to growth, with strong demand for Bexsero and Menveo. Established
Vaccines declined 3% AER, 3% CER to GBP912 million, primarily due
to lower channel inventory and unfavourable year-on-year US CDC stockpile
movements for Hepatitis vaccines together with the divestment of
Rabipur and Encepur, partly offset by favourable phasing on Rotarix
in Emerging Markets and stronger demand elsewhere in International.
Meningitis
Meningitis sales grew 8% AER, 11% CER to GBP225 million. Bexsero
sales grew 5% AER, 8% CER to GBP164 million, driven by strong demand
and favourable timing of tenders in Europe together with market growth
in the US. Menveo grew 21% AER, 24% CER, reflecting higher demand
and favourable phasing in Europe and strong demand in the US.
Influenza
Fluarix/FluLaval sales were GBP21 million, up 40% AER, 53% CER,
reflecting favourable phasing and higher demand in International.
Shingles
Shingrix sales grew 81% AER, 79% CER to GBP647 million, primarily
driven by continued strong uptake in the US. Germany and Canada also
contributed to growth.
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix)
declined by 5% AER, 4% CER. Infanrix/Pediarix sales declined 2% AER,
1% CER to GBP180 million, reflecting lower channel inventory and
unfavourable year-on-year CDC stockpile movements in the US, partly
offset by the favourable timing of tenders in Europe, together with
stronger demand and favourable phasing in International. Boostrix
sales were down 9% AER, 9% CER to GBP112 million primarily due to
unfavourable phasing in International and lower channel inventory
in the US.
Hepatitis vaccines declined 11% AER, 11% CER to GBP213 million, primarily
due to lower channel inventory and unfavourable year-on-year US CDC
stockpile movements, partly offset by lower returns and rebates in
the US and improved supply in Europe.
Synflorix sales grew 2% AER, 3% CER to GBP123 million, primarily
due to stronger demand in International and the favourable timing
of tenders in Europe.
Rotarix sales were up 13% AER, 13% CER to GBP151 million, reflecting
favourable phasing in Emerging Markets and stronger demand elsewhere
in International.
MMRV vaccines sales grew 4% AER, 7% CER to GBP57 million, largely
driven by improved supply in Europe.
Consumer Healthcare turnover
Q1 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Oral health 733 11 13
Pain relief 611 65 68
Vitamins, minerals and supplements 363 >100 >100
Respiratory health 439 51 51
Digestive health and other 452 29 31
------ ------- -------
2,598 53 55
Brands divested/under review 264 (6) (4)
------ ------- -------
2,862 44 46
------ ------- -------
US 969 98 96
Europe 746 25 27
International 1,147 28 33
------ ------- -------
2,862 44 46
------ ------- -------
Pro-forma growth 11
-------
On a reported basis, sales grew 44% AER, 46% CER to GBP2,862 million,
largely driven by the inclusion of the Pfizer portfolio. On a pro-forma
basis, sales grew 11% CER and 14% CER excluding brands divested/under
review. Overall growth was heavily impacted by consumer and government
responses to the COVID-19 pandemic.
The impact of COVID-19 varied across regions as a result of differing
government actions and consumer behaviour. The US, UK, Australia
and a number of other markets benefited from increased demand and
shopper activity in both traditional retail and e-commerce channels
which resulted in accelerated purchases across all categories, while
some markets, including India and China, were negatively impacted
by mandated retailer shut-downs.
Oral health
Oral health sales grew 11% AER, 13% CER to GBP733 million in the
quarter. Sensodyne continued to perform strongly, reporting mid-teens
growth. This primarily reflected the underlying strength of the brand,
but also benefited from increased shopper activity across both traditional
retail and e-commerce channels in the US. Gum health grew in double
digits, with broad-based growth, while Denture care grew in mid-single
digits.
Pain relief
Pain relief grew 65% AER, 68% CER to GBP611 million. On a pro-forma
basis, sales grew in the mid-teens per cent, with significant growth
of Advil and Panadol reflecting accelerated purchases as a result
of COVID-19. This was partly offset by Voltaren, which was flat for
the quarter.
Vitamins, minerals and supplements
Vitamins, minerals and supplements more than doubled to GBP363 million.
On a pro-forma basis, sales grew in the high-teens per cent, with
strong performances from Centrum and Emergen-C, reflecting increased
demand for wellbeing products.
Respiratory health
Respiratory health sales grew 51% AER, 51% CER to GBP439 million
in the quarter. On a pro-forma basis, sales grew in the mid-twenties
per cent, with broad-based growth across the category, primarily
reflecting a combination of accelerated purchases and increased consumption
in response to the COVID-19 pandemic.
Digestive health and other
Digestive health and other brands grew 29% AER, 31% CER to GBP452
million. On a pro-forma basis, sales grew in low-single digits. The
strong performance of Digestive health, with growth driven largely
by Tums in the US, was partly offset by a weaker Skin health performance.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 35.2%, 0.5 percentage
points lower at AER and 0.5 percentage points lower in CER terms
compared with Q1 2019. This reflected a reduction in the costs of
Major restructuring programmes, primarily as a result of lower write
downs in a number of manufacturing sites, partly offset by the unwinding
of the fair market value uplift on inventory arising on completion
of the Consumer Healthcare Joint Venture with Pfizer.
Excluding these and other Adjusting items, Adjusted cost of sales
as a percentage of turnover was 28.7%, flat at AER, flat at CER compared
with Q1 2019. On a pro-forma basis, Adjusted cost of sales as a percentage
of turnover was 28.7%, 0.3 percentage points lower at CER, compared
with Q1 2019. This reflected a more favourable product mix in Vaccines,
primarily due to the growth of Shingrix in the US and a further contribution
from integration and restructuring savings in Pharmaceuticals and
Consumer Healthcare, offset by unfavourable product mix and continued
adverse pricing pressure in Pharmaceuticals, particularly in Respiratory.
Selling, general and administration
Total SG&A costs as a percentage of turnover were 32.1%, 0.3 percentage
points lower at AER and 0.1 percentage points lower at CER compared
with Q1 2019. This included increased major restructuring costs partly
offset by lower significant legal and transaction costs.
Excluding these and other Adjusting items, Adjusted SG&A costs as
a percentage of turnover were 30.6%, 0.6 percentage points lower
at AER than in Q1 2019 and 0.4 percentage points lower on a CER basis.
On a pro-forma basis, Adjusted SG&A costs as a percentage of turnover
were 30.6%, 0.6 percentage points lower at CER, compared with Q1
2019.
The growth in Adjusted SG&A costs of 16% AER, 18% CER and 8% CER
on a pro-forma basis reflected increased investment resulting from
the acquisition of Tesaro and in promotional product support, particularly
for new launches in Vaccines, Respiratory and HIV as well as increased
costs for a number of legal settlements. This was partly offset by
the continuing benefit of restructuring in Pharmaceuticals and Consumer
Healthcare and the tight control of ongoing costs, particularly in
non-promotional spending across all three businesses.
Research and development
Total R&D expenditure was GBP1,187 million (13.1% of turnover), up
18% AER, 18% CER, including an increase in major restructuring costs.
Adjusted R&D expenditure was GBP1,086 million (11.9% of turnover),
12% higher at AER, 11% higher at CER than in Q1 2019. On a pro-forma
basis, Adjusted R&D expenditure grew 9% CER compared with Q1 2019.
Pharmaceuticals R&D expenditure was GBP853 million, up 14% AER, 13%
CER, reflecting a continued significant increase in Oncology investment
across multiple mid and late-stage assets including the legacy Tesaro
portfolio and a number of other programmes, including belantamab
mafodotin, ICOS and bintrafusp alfa. In addition to the Oncology
investment there has also been increased spending on the progression
of key assets in the specialty and primary care portfolio, including
otilimab for rheumatoid arthritis, mepolizumab for COPD and gepotidacin
for urogenital gonorrhoea and uncomplicated urinary tract infection.
These increases in investment were partly offset by reduced spend
in ViiV Healthcare and on daprodustat, where the significant costs
related to clinical trial materials have now ended. R&D expenditure
in Vaccines and Consumer Healthcare was GBP158 million and GBP75
million, respectively.
Royalty income
Royalty income was GBP67 million (Q1 2019: GBP73 million), down 8%
AER, 5% CER, primarily reflecting adverse movements in Consumer Healthcare.
Other operating income/(expense)
Net other operating income of GBP159 million (Q1 2019: GBP90 million
expense) primarily reflected an increase in value of the shares in
Hindustan Unilever Limited to be received in connection with the
disposal of Horlicks and other Consumer Healthcare brands. The cumulative
increase in value since the signing of the proposed transaction was
GBP780 million. The majority of this transaction completed on 1 April
2020. Other operating income also included an increase in profit
and milestone income from a number of asset disposals.
This was partly offset by accounting charges of GBP473 million (Q1
2019: GBP85 million credit) arising from the re-measurement of the
contingent consideration liabilities related to the acquisitions
of the former Shionogi-ViiV Healthcare joint venture and the former
Novartis Vaccines business and the liabilities for the Pfizer put
option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
This included a re-measurement charge of GBP435 million (Q1 2019:
GBP60 million credit) for the contingent consideration liability
due to Shionogi, primarily arising from changes in exchange rate
assumptions as well as the unwind of the discounting.
Operating profit
Total operating profit was GBP2,014 million in Q1 2020 compared with
GBP1,428 million in Q1 2019. An increase in value of the shares in
Hindustan Unilever Limited to be received in connection with the
disposal of Horlicks and other Consumer Healthcare brands as well
as income from asset disposals were partly offset by higher re-measurement
charges on the contingent consideration liabilities and increased
charges for Major restructuring, primarily arising from restructuring
in the Vaccines business and costs to integrate the Consumer Healthcare
Joint Venture.
Excluding these and other Adjusting items, Adjusted operating profit
was GBP2,675 million, 24% higher than Q1 2019 at AER and 24% higher
at CER on a turnover increase of 19% CER. The Adjusted operating
margin of 29.4% was 1.2 percentage points higher at AER, and 1.1
percentage points higher on a CER basis than in Q1 2019. On a pro-forma
basis, Adjusted operating profit was 14% higher at CER on a turnover
increase of 10% CER. The Adjusted pro-forma operating margin of 29.4%
was 0.9 percentage points higher on a CER basis than in Q1 2019.
The increase in pro-forma Adjusted operating profit primarily reflected
the benefit from strong sales growth across all three businesses,
including an uplift from the impact of increased customer demand
and stock building as a result of the COVID-19 pandemic in Pharmaceuticals
and Consumer Healthcare, a more favourable mix in Vaccines, the continued
benefit of restructuring and tight control of ongoing costs across
all three businesses. This was partly offset by continuing price
pressure, particularly in Respiratory, including the impact of the
launch of a generic version of Advair in the US in February 2019,
investment in R&D including a significant increase in Oncology investment,
partly on the assets from the Tesaro acquisition, and investments
in promotional product support, particularly for new launches in
Vaccines, HIV and Respiratory.
Contingent consideration cash payments which are made to Shionogi
and other companies reduce the balance sheet liability and hence
are not recorded in the income statement. Total contingent consideration
cash payments in Q1 2020 amounted to GBP215 million (Q1 2019: GBP217
million). This included cash payments made to Shionogi of GBP213
million (Q1 2019: GBP219 million).
Operating profit by business
Pharmaceuticals operating profit was GBP1,183 million, down 4% AER,
5% CER on a turnover increase of 6% at CER. The operating margin
of 26.9% was 2.9 percentage points lower at AER than in Q1 2019 and
3.1 percentage points lower on a CER basis. This primarily reflected
the increase in cost of sales percentage due to the continued impact
of lower prices, particularly in Respiratory, including the impact
of the launch of a generic version of Advair in the US in February
2019, a significant increase in Oncology R&D and investment in new
product support and targeted priority markets, together with higher
provisions for legal settlements and costs in the quarter. This was
partly offset by the continued benefit of restructuring and tight
control of ongoing costs.
Vaccines operating profit was GBP858 million, up 40% AER, 39% CER
on a turnover increase of 19% CER. The operating margin of 47.5%
was 7.2 percentage points higher at AER than in Q1 2019 and 6.7 percentage
points higher on a CER basis. This was primarily driven by enhanced
operating leverage from strong sales growth, particularly Shingrix
in the US, improved product mix and higher royalty income.
Consumer Healthcare operating profit was GBP766 million, up 78% AER,
82% CER on a turnover increase of 46% CER. On a pro-forma basis,
operating profit was GBP766 million, 26% CER higher on a turnover
increase of 11% CER. The operating margin of 26.8% was 5.1 percentage
points higher at AER and 5.3 percentage points higher on a CER basis
than in Q1 2019. The pro-forma operating margin of 26.8% was 3.2
percentage points higher on a CER basis. The higher margins were
primarily driven by significantly higher than normal sales growth
due to COVID-19 buying patterns, as well as strong sales performance
from a number of power brands. This growth was partially reduced
by increased promotional investment and unfavourable movements in
other income.
Net finance costs
Total net finance costs were GBP188 million compared with GBP190
million in Q1 2019. Adjusted net finance costs were GBP187 million
compared with GBP187 million in Q1 2019. During Q1 2020, favourable
fair value gains on interest rate swaps more than offset lower interest
income on cash and adverse foreign exchange. The impact of higher
debt levels was offset by favourable refinancing of term debt during
2019.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was GBP9 million (Q1
2019: GBP57 million). Q1 2019 included a one-off adjustment of GBP51
million to reflect GSK's share of increased after tax profits of
Innoviva primarily as a result of a non-recurring income tax benefit.
Taxation
The charge of GBP156 million represented an effective tax rate on
Total results of 8.5% (Q1 2019: 23.9%) and reflected the different
tax effects of the various Adjusting items, including the non-taxable
gain arising from the increase in value of the shares in Hindustan
Unilever Limited to be received in connection with the disposal of
Horlicks and other Consumer Healthcare brands. Tax on Adjusted profit
amounted to GBP342 million and represented an effective Adjusted
tax rate of 13.7% (Q1 2019: 19.7%), primarily reflecting the cancellation
by the UK Government of a reduction in the UK corporation tax rate
from 19% to 17% resulting in an increase in the value of balance
sheet deferred tax assets.
Issues related to taxation are described in Note 14, 'Taxation' in
the Annual Report 2019. The Group continues to believe it has made
adequate provision for the liabilities likely to arise from periods
which are open and not yet agreed by tax authorities. The ultimate
liability for such matters may vary from the amounts provided and
is dependent upon the outcome of agreements with relevant tax authorities.
Non-controlling interests
The allocation of Total earnings to non-controlling interests amounted
to GBP114 million (Q1 2019: GBP155 million). The reduction was primarily
due to a reduced allocation of ViiV Healthcare profits of GBP40 million
(Q1 2019: GBP129 million), including increased charges for re-measurement
of contingent consideration liabilities. This was partly offset by
an increased allocation of Consumer Healthcare profits of GBP59 million
(Q1 2019: GBPnil) following the completion of the new Consumer Healthcare
Joint Venture with Pfizer on 31 July 2019, and which included the
unwind of the fair value uplift on acquired inventory and major restructuring
costs.
The allocation of Adjusted earnings to non-controlling interests
amounted to GBP282 million (Q1 2019: GBP149 million). The increase
in allocation primarily reflected an increased allocation of Consumer
Healthcare profits of GBP139 million (Q1 2019: GBPnil) following
the buyout of Novartis' interest in June 2018 and the completion
of the new Consumer Healthcare Joint Venture with Pfizer on 31 July
2019 as well as an increased allocation of ViiV Healthcare profits
of GBP128 million (Q1 2019: GBP123 million), partly offset by lower
net profits in some of the Group's other entities with non-controlling
interests.
Earnings per share
Total earnings per share was 31.5p, compared with 16.8p in Q1 2019.
The increase in earnings per share primarily reflected strong operating
performance, an increase in the value of the shares in Hindustan
Unilever Limited to be received in connection with the disposal of
Horlicks and other Consumer Healthcare brands and a reduced effective
tax rate, partly offset by increased re-measurement charges on the
contingent consideration liabilities and put options and a one-off
benefit in Q1 2019 from increased share of after tax profits of the
associate Innoviva.
Adjusted EPS was 37.7p compared with 30.1p in Q1 2019, up 25% AER,
26% CER, on a 24% CER increase in Adjusted operating profit. The
improvement primarily resulted from a reduced effective tax rate
partly offset by reduced share of after tax profits of associates
resulting from a non-recurring income tax benefit in Innoviva and
a higher non-controlling interest allocation of Consumer Healthcare
profits.
Currency impact on Q1 2020 results
The results for Q1 2020 are based on average exchange rates, principally
GBP1/$1.29, GBP1/EUR1.17 and GBP1/Yen 140. Comparative exchange rates
are given on page 37. The period-end exchange rates were GBP1/$1.24,
GBP1/EUR1.13 and GBP1/Yen 134.
In the quarter, turnover increased 19% AER, 19% CER. Total EPS was
31.5p compared with 16.8p in Q1 2019. Adjusted EPS was 37.7p compared
with 30.1p in Q1 2019, up 25% AER, 26% CER. The marginally negative
currency impact primarily reflected the weakness in Euro and emerging
market currencies offset by weakness of Sterling, particularly against
the US$ and Yen, relative to Q1 2019. Exchange gains or losses on
the settlement of intercompany transactions had a negligible impact
on the negative currency impact of one percentage point on Adjusted
EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for
Q1 2020 and Q1 2019 are set out below.
Three months ended 31 March 2020
Divestments,
significant
legal
Intangible Intangible Major and
Total amort- impair- restruct- Transaction- other Adjusted
results isation ment uring related items results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 9,090 9,090
Cost of sales (3,199) 171 29 293 96 (2,610)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 5,891 171 29 293 96 6,480
Selling, general
and
administration (2,916) 14 106 10 (2,786)
Research and
development (1,187) 17 84 (1,086)
Royalty income 67 67
Other operating
income/(expense) 159 473 (632) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 2,014 188 43 483 569 (622) 2,675
Net finance costs (188) 1 (187)
Share of after
tax
profits of
associates and
joint
ventures 9 9
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,835 188 43 484 569 (622) 2,497
Taxation (156) (39) (6) (105) (58) 22 (342)
Tax rate % 8.5% 13.7%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 1,679 149 37 379 511 (600) 2,155
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 114 168 282
Profit
attributable
to
shareholders 1,565 149 37 379 343 (600) 1,873
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 31.5p 3.0p 0.8p 7.6p 6.9p (12.1)p 37.7p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of
shares
(millions) 4,965 4,965
------------ ------------
Three months ended 31 March 2019
Divestments,
significant
legal
Intangible Intangible Major and
Total amort- impair- restruct- Transaction- other Adjusted
results isation ment uring related items results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 7,661 7,661
Cost of sales (2,733) 171 13 341 5 (2,203)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 4,928 171 13 341 5 5,458
Selling, general
and
administration (2,477) 4 25 29 22 (2,397)
Research and
development (1,006) 17 2 15 1 (971)
Royalty income 73 73
Other operating
(expense)/income (90) (1) (87) 178 -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,428 188 19 380 (53) 201 2,163
Net finance costs (190) 1 (3) 2 (187)
Share of after
tax
profits of
associates and
joint
ventures 57 57
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,295 188 19 381 (53) 203 2,033
Taxation (310) (37) (3) (58) 8 (400)
Tax rate % 23.9% 19.7%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 985 151 16 323 (45) 203 1,633
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 155 (6) 149
Profit
attributable
to
shareholders 830 151 16 323 (39) 203 1,484
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 16.8p 3.1p 0.3p 6.5p (0.7)p 4.1p 30.1p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of
shares
(millions) 4,936 4,936
------------ ------------
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated manufacturing
operations and supply chains and long lifecycle of the business mean
that restructuring programmes, particularly those that involve the
rationalisation or closure of manufacturing or R&D sites are likely
to take several years to complete.
Total Major restructuring charges incurred in Q1 2020 were GBP483
million (Q1 2019: GBP380 million), analysed as follows:
Q1 2020 Q1 2019
------------------------- -------------------------
Cash Non-cash Total Cash Non-cash Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ --------- ------ ------ --------- ------
2018 major restructuring
programme (incl. Tesaro) 26 155 181 24 312 336
Consumer Healthcare
Joint
Venture integration
programme 57 2 59 10 - 10
Separation Preparation
restructuring programme 237 - 237 - - -
Combined restructuring
and
integration programme 3 3 6 22 12 34
323 160 483 56 324 380
------ --------- ------ ------ --------- ------
Cash charges primarily arose from restructuring of Vaccines Manufacturing
and R&D functions as well as commercial pharmaceuticals restructuring
under the Separation Preparation programme, integration costs under
the Consumer Healthcare Joint Venture integration programme and restructuring
of the manufacturing organisation, R&D and some administrative functions
as well as the integration of Tesaro under the 2018 major restructuring
programme. Non-cash charges under the 2018 major restructuring programme
primarily related to write down of sites on disposal of sites as
part of plans to restructure the manufacturing network.
Total cash payments made in Q1 2020 were GBP168 million (Q1 2019:
GBP174 million), GBP34 million for the existing Combined restructuring
and integration programme (Q1 2019: GBP121 million), GBP53 million
(Q1 2019: GBP53 million) under the 2018 major restructuring programme
including the settlement of certain charges accrued in previous quarters,
a further GBP70 million relating to the Consumer Healthcare Joint
Venture integration programme and GBP11 million relating to the Separation
Preparation restructuring programme.
The analysis of Major restructuring charges by business was as follows:
Q1 2020 Q1 2019
GBPm GBPm
-------- --------
Pharmaceuticals 172 336
Vaccines 210 -
Consumer Healthcare 74 21
-------- --------
456 357
Corporate & central functions 27 23
-------- --------
Total Major restructuring costs 483 380
-------- --------
The analysis of Major restructuring charges by Income statement line
was as follows:
Q1 2020 Q1 2019
GBPm GBPm
-------- --------
Cost of sales 293 341
Selling, general and administration 106 25
Research and development 84 15
Other operating expense - (1)
-------- --------
Total Major restructuring costs 483 380
-------- --------
The benefit in the quarter from the 2018 major restructuring programme
was GBP0.1 billion. Given their early stages, the benefits from the
Consumer Healthcare Joint Venture integration and Separation Preparation
restructuring programmes were less than GBP0.1 billion.
The 2018 major restructuring programme, including Tesaro, is expected
to cost GBP1.75 billion over the period to 2021, with cash costs
of GBP0.85 billion and non-cash costs of GBP0.9 billion, and is expected
to deliver annual savings of around GBP450 million by 2021 (at 2019
rates). These savings are intended to be fully re-invested to help
fund targeted increases in R&D and commercial support of new products.
The completion of the new Consumer Healthcare Joint Venture with
Pfizer is expected to realise substantial cost synergies, generating
total annual cost savings of GBP0.5 billion by 2022 for expected
cash costs of GBP0.7 billion and non-cash charges of GBP0.3 billion,
plus additional capital expenditure of GBP0.2 billion. Up to 25%
of the cost savings are intended to be reinvested in the business
to support innovation and other growth opportunities.
The Group initiated in Q1 2020 a two-year Separation Preparation
programme to prepare for the separation of GSK into two companies:
New GSK, a biopharma company with an R&D approach focused on science
related to the immune system, the use of genetics and new technologies,
and a new leader in Consumer Healthcare. The programme aims to:
-- Drive a common approach to R&D with improved capital allocation
-- Align and improve the capabilities and efficiency of global support
functions to support New GSK
-- Further optimise the supply chain and product portfolio, including
the divestment of non-core assets. A strategic review of prescription
dermatology is underway
-- Prepare Consumer Healthcare to operate as a standalone company
The programme will target delivery of GBP0.7 billion of annual savings
by 2022 and GBP0.8 billion by 2023, with total costs estimated at
GBP2.4 billion, of which GBP1.6 billion is expected to be cash costs.
The proceeds of anticipated divestments are largely expected to cover
the cash costs of the programme.
Additional one-time costs to prepare Consumer Healthcare for separation
are estimated at GBP600-700 million, excluding transaction costs.
Transaction-related adjustments
Transaction-related adjustments resulted in a net charge of GBP569
million (Q1 2019: GBP53 million credit). This included a net GBP473
million accounting charge for the re-measurement of the contingent
consideration liabilities related to the acquisitions of the former
Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines
business and the liabilities for the Pfizer put option and Pfizer
and Shionogi preferential dividends in ViiV Healthcare.
Q1 2020 Q1 2019
Charge/(credit) GBPm GBPm
-------- --------
Contingent consideration on former Shionogi-ViiV
Healthcare joint venture
(including Shionogi preferential dividends) 435 (60)
ViiV Healthcare put options and Pfizer preferential
dividends 49 (24)
Contingent consideration on former Novartis Vaccines
business (11) (1)
Release of fair value uplift on acquired Pfizer
inventory 91 -
Other adjustments 5 32
-------- --------
Total transaction-related charges 569 (53)
-------- --------
The GBP435 million charge relating to the contingent consideration
for the former Shionogi-ViiV Healthcare joint venture represented
an increase in the valuation of the contingent consideration due
to Shionogi, primarily as a result of a GBP94 million unwind of the
discount and GBP341 million primarily from updated exchange rate
assumptions as well as adjustments to sales forecasts. The GBP49
million charge relating to the ViiV Healthcare put options and Pfizer
preferential dividends represented an increase in the valuation of
the put option as a result of updated exchange rate assumptions as
well as adjustments to multiples and sales forecasts.
The ViiV Healthcare contingent consideration liability is valued
on a long-term basis. The potential impact of the COVID-19 pandemic
remains uncertain and at 31 March 2020, it has been assumed that
there will be no significant impact on the long-term value of the
liability. This position remains under review and the amount of the
liability will be updated in future quarters as further information
on the impact of the pandemic becomes available. An explanation of
the accounting for the non-controlling interests in ViiV Healthcare
is set out on page 10.
Divestments, significant legal charges and other items
Divestments and other items included a gain in the period of GBP536
million arising from the increase in value of the shares in Hindustan
Unilever Limited to be received in connection with the disposal of
Horlicks and other Consumer Healthcare brands, as well as milestone
income and certain other Adjusting items. A charge of GBP5 million
(Q1 2019: GBP22 million) for significant legal matters included the
settlement of existing matters as well as provisions for ongoing
litigation. Significant legal cash payments were GBP5 million (Q1
2019: GBP4 million).
Cash generation
Cash flow
Q1 2020 Q1 2019
-------- --------
Net cash inflow from operating activities
(GBPm) 965 663
Free cash flow* (GBPm) 531 165
Free cash flow growth (%) >100% (50)%
Free cash flow conversion* (%) 34% 20%
Net debt** (GBPm) 26,668 27,058
-------- --------
* Free cash flow and free cash flow conversion are defined on page
40 .
** Net debt is analysed on page 39.
Q1 2020
The net cash inflow from operating activities for the quarter was
GBP965 million (Q1 2019: GBP663 million). The increase primarily
reflected improved operating profits, the beneficial timing of payments
for returns and rebates and reduced inventory, partly offset by a
higher increase in trade receivables as a result of strong sales
in the quarter.
Total cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were GBP213 million
(Q1 2019: GBP219 million), of which GBP185 million was recognised
in cash flows from operating activities and GBP28 million was recognised
in contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
Free cash flow was GBP531 million for the quarter (Q1 2019: GBP165
million). The increase primarily reflected improved operating profits,
the beneficial timing of payments for returns and rebates, reduced
inventory and the receipt of milestone income, partly offset by a
higher increase in trade receivables as a result of strong sales
in the quarter and higher dividends to non-controlling interests.
Net debt
At 31 March 2020, net debt was GBP26.7 billion, compared with GBP25.2
billion at 31 December 2019, comprising gross debt of GBP32.0 billion
and cash and liquid investments of GBP5.3 billion, including GBP0.5
billion reported within Assets held for sale. Net debt increased
due to GBP1.2 billion of net adverse exchange impacts from the translation
of non-Sterling denominated debt and exchange on other financing
items and the dividend paid to shareholders of GBP0.9 billion, partly
offset by GBP0.5 billion of free cash flow and GBP0.2 billion of
income from disposals of businesses and investments.
At 31 March 2020, GSK had short-term borrowings (including overdrafts
and lease liabilities) repayable within 12 months of GBP7.3 billion
with loans of GBP3.4 billion repayable in the subsequent year.
The potential impact of the COVID-19 pandemic remains uncertain but
at 31 March 2020, the Group had sufficient cash for its operational
needs and continues to fund its global operations effectively. GSK
also has access to significant additional undrawn committed sources
of finance if required.
Returns to shareholders
Quarterly dividends
The Board has declared a first interim dividend for 2020 of 19 pence
per share (Q1 2019: 19 pence per share).
GSK recognises the importance of dividends to shareholders and aims
to distribute regular dividend payments that will be determined primarily
with reference to the free cash flow generated by the business after
funding the investment necessary to support the Group's future growth.
The Board currently intends to maintain the dividend for 2020 at
the current level of 80p per share, subject to any material change
in the external environment or performance expectations. Over time,
as free cash flow strengthens, it intends to build free cash flow
cover of the annual dividend to a target range of 1.25-1.50x, before
returning the dividend to growth.
Payment of dividends
The equivalent interim dividend receivable by ADR holders will be
calculated based on the exchange rate on 7 July 2020. An annual fee
of $0.03 per ADS (or $0.0075 per ADS per quarter) is charged by the
Depositary.
The ex-dividend date will be 14 May 2020, with a record date of 15
May 2020 and a payment date of 9 July 2020.
Paid/ Pence per
payable share GBPm
------------- ---------- -----
2020
First interim 9 July 2020 19 946
2019
First interim 11 July 2019 19 940
10 October
Second interim 2019 19 941
9 January
Third interim 2020 19 941
Fourth interim 9 April 2020 23 1,144
--- ------
80 3,966
--- ------
Weighted average number of shares
Q1 2020 Q1 2019
millions millions
---------- ----------
Weighted average number of shares
- basic 4,965 4,936
Dilutive effect of share options
and share awards 45 42
---------- ----------
Weighted average number of shares
- diluted 5,010 4,978
---------- ----------
At 31 March 2020, 4,976 million shares (Q1 2019: 4,946 million) were
in free issue (excluding Treasury shares and shares held by the ESOP
Trusts). GSK made no share repurchases during the period. The company
issued 1.6 million shares under employee share schemes in the year
for proceeds of GBP23 million (Q1 2019: GBP27 million).
At 31 March 2020, the ESOP Trust held 40.5 million GSK shares against
the future exercise of share options and share awards. The carrying
value of GBP385 million has been deducted from other reserves. The
market value of these shares was GBP610 million.
At 31 March 2020, the company held 367.7 million Treasury shares
at a cost of GBP5,144 million, which has been deducted from retained
earnings.
Financial information
Income statement
Q1 2020 Q1 2019
GBPm GBPm
-------- --------
TURNOVER 9,090 7,661
Cost of sales (3,199) (2,733)
-------- --------
Gross profit 5,891 4,928
Selling, general and administration (2,916) (2,477)
Research and development (1,187) (1,006)
Royalty income 67 73
Other operating income/(expense) 159 (90)
-------- --------
OPERATING PROFIT 2,014 1,428
Finance income 41 34
Finance expense (229) (224)
Share of after tax profits
of
associates and joint ventures 9 57
-------- --------
PROFIT BEFORE TAXATION 1,835 1,295
Taxation (156) (310)
Tax rate % 8.5% 23.9%
-------- --------
PROFIT AFTER TAXATION 1,679 985
-------- --------
Profit attributable to non-controlling
interests 114 155
Profit attributable to shareholders 1,565 830
-------- --------
1,679 985
-------- --------
EARNINGS PER SHARE 31.5p 16.8p
-------- --------
Diluted earnings per share 31.2 p 16.7p
-------- --------
Statement of comprehensive income
Q1 2020 Q1 2019
GBPm GBPm
-------- --------
Profit for the period 1,679 985
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges 178 75
Fair value movements on cash flow hedges (18) -
Reclassification of cash flow hedges to income statement 1 1
Deferred tax on fair value movements on cash flow
hedges - (1)
161 75
-------- --------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests 53 (18)
Fair value movements on equity investments (39) 38
Deferred tax on fair value movements on equity investments 10 (10)
Re-measurement gains/(losses) on defined benefit
plans 1,000 (442)
Tax on re-measurement gains/(losses) on defined
benefit plans (187) 75
-------- --------
837 (357)
-------- --------
Other comprehensive expense for the period 998 (282)
-------- --------
Total comprehensive income for the period 2,677 703
-------- --------
Total comprehensive income for the period attributable
to:
Shareholders 2,510 566
Non-controlling interests 167 137
-------- --------
2,677 703
-------- --------
Pharmaceuticals turnover - three months ended 31 March 2020
Total US Europe International
--------------------------------------- --------------------------------------- --------------------------------------- ---------------------------------------
Growth Growth Growth Growth
------------------------ ------------------------ ------------------------ ------------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Respiratory 871 38 38 464 38 36 247 40 42 160 36 36
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Ellipta products 661 38 38 349 38 37 185 41 44 127 32 32
Anoro Ellipta 117 15 16 63 9 9 36 33 33 18 6 12
Arnuity Ellipta 9 29 29 7 17 17 - - - 2 100 100
Incruse Ellipta 57 (16) (16) 30 (32) (32) 20 11 11 7 17 17
Relvar/Breo
Ellipta 285 33 32 115 47 45 87 30 33 83 19 16
Trelegy Ellipta 193 >100 >100 134 >100 >100 42 >100 >100 17 >100 >100
Nucala 210 38 38 115 35 33 62 38 38 33 50 55
HIV 1,207 8 8 705 2 1 320 15 17 182 18 21
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Dolutegravir
products 1,161 9 9 691 3 2 305 16 18 165 22 25
Tivicay 412 8 8 214 (4) (5) 106 13 15 92 39 42
Triumeq 563 (8) (8) 338 (12) (13) 156 (3) (1) 69 1 4
Juluca 120 71 69 94 54 51 24 >100 >100 2 100 100
Dovato 66 - - 45 - - 19 - - 2 - -
Epzicom/Kivexa 9 (53) (47) 1 - - 3 (50) (50) 5 (58) (50)
Selzentry 26 13 13 11 (15) (15) 8 14 14 7 >100 >100
Other 11 (8) (8) 2 (60) (60) 4 33 33 5 25 25
Immuno-
inflammation 151 25 24 126 20 18 14 27 36 11 >100 >100
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Benlysta 151 25 24 126 20 18 14 27 36 11 >100 >100
Oncology 81 88 88 48 85 81 33 94 100 - - -
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Zejula 81 93 93 48 85 81 33 >100 >100 - - -
Established
Pharmaceuticals 2,086 (7) (6) 415 (22) (23) 528 1 2 1,143 (4) (2)
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Established
Respiratory 965 (11) (11) 303 (24) (25) 220 1 2 442 (5) (4)
Seretide/Advair 395 (19) (18) 106 (40) (40) 127 (5) (3) 162 (8) (7)
Flixotide/Flovent 123 (16) (16) 50 (36) (37) 28 8 8 45 7 10
Ventolin 253 3 4 147 1 (1) 38 15 18 68 3 6
Avamys/Veramyst 109 (5) (5) - - - 19 - 5 90 (6) (7)
Other Respiratory 85 (7) (8) - - - 8 14 - 77 (8) (8)
Dermatology 111 3 6 - - - 38 - - 73 7 12
Augmentin 169 6 8 - - - 57 16 18 112 1 3
Avodart 141 (1) - 1 - - 49 (13) (11) 91 6 7
Imigran/Imitrex 34 10 13 15 25 25 13 - 8 6 - -
Lamictal 137 4 5 69 6 5 32 28 32 36 (14) (12)
Seroxat/Paxil 36 (10) (10) - - - 10 11 11 26 (16) (16)
Valtrex 28 4 4 4 (20) (20) 9 29 29 15 - -
Others 465 (10) (9) 23 (51) (51) 100 (6) (7) 342 (6) (4)
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Pharmaceuticals 4,396 6 6 1,758 4 3 1,142 14 15 1,496 2 4
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Vaccines turnover - three months ended 31 March 2020
Total US Europe International
--------------------------------------- --------------------------------------- --------------------------------------- ---------------------------------------
Growth Growth Growth Growth
------------------------ ------------------------ ------------------------ ------------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Meningitis 225 8 11 80 13 11 95 14 17 50 (9) -
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Bexsero 164 5 8 54 12 13 84 9 12 26 (16) (10)
Menveo 40 21 24 26 13 9 9 >100 >100 5 (17) 17
Other 21 5 10 - - - 2 - - 19 6 11
Influenza 21 40 53 2 >100 >100 - - - 19 36 50
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Fluarix,
FluLaval 21 40 53 2 >100 >100 - - - 19 36 50
Shingles 647 81 79 600 83 80 20 >100 >100 27 13 17
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Shingrix 647 81 79 600 83 80 20 >100 >100 27 13 17
Established
Vaccines 912 (3) (3) 331 (12) (13) 233 (7) (5) 348 11 13
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Infanrix,
Pediarix 180 (2) (1) 88 (15) (16) 54 15 15 38 15 21
Boostrix 112 (9) (9) 58 (5) (5) 35 (5) (3) 19 (24) (28)
Hepatitis 213 (11) (11) 128 (18) (19) 55 10 12 30 (6) (6)
Rotarix 151 13 13 41 (9) (9) 31 7 10 79 32 32
Synflorix 123 2 3 - - - 19 6 11 104 1 2
Priorix,
Priorix
Tetra,
Varilrix 57 4 7 - - - 29 7 7 28 - 7
Cervarix 12 (40) (40) - - - 4 (20) (20) 8 (47) (47)
Other 64 (3) (5) 16 33 17 6 (84) (84) 42 >100 >100
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Vaccines 1,805 19 19 1,013 30 29 348 3 4 444 9 13
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Balance sheet
31 March 31 December
2020 2019
GBPm GBPm
----------- ------------
ASSETS
Non-current assets
Property, plant and equipment 10,427 10,348
Right of use assets 975 966
Goodwill 10,899 10,562
Other intangible assets 31,499 30,955
Investments in associates and
joint ventures 367 314
Other investments 1,824 1,837
Deferred tax assets 4,165 4,096
Derivative financial instruments 166 103
Other non-current assets 2,037 1,020
----------- ------------
Total non-current assets 62,359 60,201
----------- ------------
Current assets
Inventories 5,952 5,947
Current tax recoverable 365 262
Trade and other receivables 8,530 7,202
Derivative financial instruments 1,242 421
Liquid investments 86 79
Cash and cash equivalents 4,769 4,707
Assets held for sale 1,079 873
----------- ------------
Total current assets 22,023 19,491
----------- ------------
TOTAL ASSETS 84,382 79,692
----------- ------------
LIABILITIES
Current liabilities
Short-term borrowings (7,265) (6,918)
Contingent consideration liabilities (796) (755)
Trade and other payables (15,310) (14,939)
Derivative financial instruments (381) (188)
Current tax payable (815) (629)
Short-term provisions (768) (621)
----------- ------------
Total current liabilities (25,335) (24,050)
----------- ------------
Non-current liabilities
Long-term borrowings (24,741) (23,590)
Corporation tax payable (195) (189)
Deferred tax liabilities (3,903) (3,810)
Pensions and other post-employment
benefits (3,663) (3,457)
Other provisions (775) (670)
Derivative financial instruments - (1)
Contingent consideration liabilities (4,904) (4,724)
Other non-current liabilities (769) (844)
----------- ------------
Total non-current liabilities (38,950) (37,285)
----------- ------------
TOTAL LIABILITIES (64,285) (61,335)
----------- ------------
NET ASSETS 20,097 18,357
----------- ------------
EQUITY
Share capital 1,346 1,346
Share premium account 3,275 3,174
Retained earnings 6,353 4,530
Other reserves 2,120 2,355
----------- ------------
Shareholders' equity 13,094 11,405
Non-controlling interests 7,003 6,952
----------- ------------
TOTAL EQUITY 20,097 18,357
----------- ------------
Statement of changes in equity
Share- Non-
Share Share Retained Other holder's controlling Total
capital premium earnings reserves equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2020 1,346 3,174 4,530 2,355 11,405 6,952 18,357
Profit for the
period 1,565 1,565 114 1,679
Other
comprehensive
(expense)/income
for the period 998 (53) 945 53 998
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income/(expense)
for the period 2,563 (53) 2,510 167 2,677
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (119) (119)
Contribution from
non-controlling
interests 3 3
Dividends to
shareholders (941) (941) (941)
Shares issued - 23 23 23
Realised after tax
losses
on disposal of
equity
investments (41) 41 - -
Shares acquired by
ESOP
Trusts 78 362 (440) - -
Write-down on
shares held
by ESOP Trusts (217) 217 - -
Share-based
incentive plans 97 97 97
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 March 2020 1,346 3,275 6,353 2,120 13,094 7,003 20,097
------------ ------------ ------------ ------------ ------------ ------------ ------------
As previously
reported 1,345 3,091 (2,137) 2,061 4,360 (688) 3,672
Adjustment to
non-controlling
interest - - (579) - (579) 579 -
------------ ------------ ------------ ------------ ------------ ------------ ------------
As revised 1,345 3,091 (2,716) 2,061 3,781 (109) 3,672
Implementation of
IFRS16 (93) (93) (93)
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2019,
as adjusted 1,345 3,091 (2,809) 2,061 3,688 (109) 3,579
Profit for the
period 830 830 155 985
Other
comprehensive
income/(expense)
for the period (302) 38 (264) (18) (282)
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income
for the period 528 38 566 137 703
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (92) (92)
Dividends to
shareholders (935) (935) (935)
Shares issued - 27 27 27
Realised after tax
profits
on disposal of
equity
investments 6 (6) - -
Shares acquired by
ESOP
Trusts 33 295 (328) - -
Write-down on
shares held
by ESOP Trusts (191) 191 - -
Share-based
incentive plans 89 - 89 89
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 March 2019 1,345 3,151 (3,017) 1,956 3,435 (64) 3,371
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash flow statement - three months ended 31 March 2020
Q1 2020 Q1 2019
GBPm GBPm
-------- --------
Profit after tax 1,679 985
Tax on profits 156 310
Share of after tax profits of associates and
joint ventures (9) (57)
Net finance expense 188 190
Depreciation, amortisation and other adjusting
items 194 1,183
Increase in working capital (1,340) (789)
Contingent consideration paid (186) (194)
Increase/(decrease) in other net liabilities
(excluding contingent
consideration paid) 544 (771)
-------- --------
Cash generated from operations 1,226 857
Taxation paid (261) (194)
-------- --------
Net cash inflow from operating activities 965 663
-------- --------
Cash flow from investing activities
Purchase of property, plant and equipment (197) (222)
Proceeds from sale of property, plant and equipment 6 7
Purchase of intangible assets (147) (82)
Proceeds from sale of intangible assets 113 8
Purchase of equity investments (26) (14)
Proceeds from sale of equity investments 45 20
Purchase of businesses, net of cash acquired - (3,642)
Contingent consideration paid (29) (23)
Disposal of businesses 146 (23)
Investment in associates and joint ventures (1) (4)
Interest received 18 23
Dividends from associates and joint ventures 14 -
-------- --------
Net cash outflow from investing activities (58) (3,952)
-------- --------
Cash flow from financing activities
Issue of share capital 23 27
Increase in short-term loans - 5,711
Increase in long-term loans - 2,622
Repayment of short-term loans (116) (3,502)
Repayment of lease liabilities (53) (49)
Interest paid (96) (117)
Dividends paid to shareholders (941) (935)
Distributions to non-controlling interests (119) (92)
Contribution from non-controlling interest 3 -
Other financing items 247 (4)
-------- --------
Net cash (outflow)/inflow from financing activities (1,052) 3,661
-------- --------
(Decrease)/increase in cash and bank overdrafts
in the period (145) 372
-------- --------
Cash and bank overdrafts at beginning of the
period 4,831 4,087
Exchange adjustments 42 (40)
(Decrease)/increase in cash and bank overdrafts (145) 372
-------- --------
Cash and bank overdrafts at end of the period 4,728 4,419
-------- --------
Cash and bank overdrafts at end of the period
comprise:
Cash and cash equivalents 4,769 4,132
Cash and cash equivalents reported in assets
held for sale 483 486
-------- --------
5,252 4,618
Overdrafts (524) (199)
-------- --------
4,728 4,419
-------- --------
Segment information
Operating segments are reported based on the financial information
provided to the Chief Executive Officer and the responsibilities
of the Corporate Executive Team (CET). GSK reports results under
four segments: Pharmaceuticals; Pharmaceuticals R&D; Vaccines and
Consumer Healthcare, and individual members of the CET are responsible
for each segment.
The Pharmaceuticals R&D segment is the responsibility of the Chief
Scientific Officer and President, R&D and is reported as a separate
segment. The operating profit of this segment excludes the ViiV Healthcare
operating profit (including R&D expenditure) that is reported within
the Pharmaceuticals segment.
The Group's management reporting process allocates intra-Group profit
on a product sale to the market in which that sale is recorded, and
the profit analyses below have been presented on that basis.
Corporate and other unallocated turnover and costs include the results
of certain Consumer Healthcare products which are being held for
sale in a number of markets in order to meet anti-trust approval
requirements, together with the costs of corporate functions.
Turnover by segment
Q1 2020 Q1 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 4,396 4,158 6 6
Vaccines 1,805 1,522 19 19
Consumer Healthcare 2,862 1,981 44 46
-------- -------- ------- -------
9,063 7,661 18 19
Corporate and other unallocated
turnover 27 -
-------- -------- ------- -------
Total turnover 9,090 7,661 19 19
-------- -------- ------- -------
Operating profit by segment
Q1 2020 Q1 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 2,018 1,968 3 2
Pharmaceuticals R&D (835) (730) 14 14
-------- -------- ------- -------
Pharmaceuticals including R&D 1,183 1,238 (4) (5)
Vaccines 858 614 40 39
Consumer Healthcare 766 430 78 82
-------- -------- ------- -------
Segment profit 2,807 2,282 23 23
Corporate and other unallocated
costs (132) (119)
-------- -------- ------- -------
Adjusted operating profit 2,675 2,163 24 24
Adjusting items (661) (735)
-------- -------- ------- -------
Total operating profit 2,014 1,428 41 42
Finance income 41 34
Finance costs (229) (224)
Share of after tax profits of
associates and joint ventures 9 57
-------- -------- ------- -------
Profit before taxation 1,835 1,295 42 42
-------- -------- ------- -------
Legal matters
The Group is involved in significant legal and administrative proceedings,
principally product liability, intellectual property, tax, anti-trust,
consumer fraud and governmental investigations, which are more fully
described in the 'Legal Proceedings' note in the Annual Report 2019.
At 31 March 2020, the Group's aggregate provision for legal and other
disputes (not including tax matters described on page 19 was GBP0.3
billion (31 December 2019: GBP0.2 billion).
The Group may become involved in significant legal proceedings in
respect of which it is not possible to make a reliable estimate of
the expected financial effect, if any, that could result from ultimate
resolution of the proceedings. In these cases, the Group would provide
appropriate disclosures about such cases, but no provision would
be made.
A significant development since the date of the Annual Report 2019
is as follows:
In February 2020, the Group reached a settlement with respect to
the claims brought by the US Securities and Exchange Commission (the
SEC) against the Group, relating to the Group's acquisition of Stiefel
Laboratories, Inc., in 2009. Accordingly, the trial scheduled in
US federal court for 7 July 2020 will not go forward, and the matter
is now concluded.
The ultimate liability for legal claims may vary from the amounts
provided and is dependent upon the outcome of litigation proceedings,
investigations and possible settlement negotiations. The Group's
position could change over time, and, therefore, there can be no
assurance that any losses that result from the outcome of any legal
proceedings will not exceed by a material amount the amount of the
provisions reported in the Group's financial accounts.
Additional information
Accounting policies and basis of preparation
This unaudited Results Announcement contains condensed financial
information for the three months ended 31 March 2020, and should
be read in conjunction with the Annual Report 2019, which was prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union. This Results Announcement has been
prepared applying consistent accounting policies to those applied
by the Group in the Annual Report 2019.
This Results Announcement does not constitute statutory accounts
of the Group within the meaning of sections 434(3) and 435(3) of
the Companies Act 2006. The full Group accounts for 2019 were published
in the Annual Report 2019, which has been delivered to the Registrar
of Companies and on which the report of the independent auditors
was unqualified and did not contain a statement under section 498
of the Companies Act 2006.
Exchange rates
GSK operates in many countries, and earns revenues and incurs costs
in many currencies. The results of the Group, as reported in Sterling,
are affected by movements in exchange rates between Sterling and
other currencies. Average exchange rates, as modified by specific
transaction rates for large transactions, prevailing during the period,
are used to translate the results and cash flows of overseas subsidiaries,
associates and joint ventures into Sterling. Period-end rates are
used to translate the net assets of those entities. The currencies
which most influenced these translations and the relevant exchange
rates were:
Q1 2020 Q1 2019 2019
-------- -------- -----
Average rates:
US$/GBP 1.29 1.31 1.28
Euro/GBP 1.17 1.15 1.14
Yen/GBP 140 144 139
Period-end rates:
US$/GBP 1.24 1.31 1.32
Euro/GBP 1.13 1.17 1.18
Yen/GBP 134 145 143
During Q1 2020 average Sterling exchange rates were weaker against
the US Dollar and Yen but stronger against the Euro compared with
the same period in 2019. Period-end Sterling exchange rates were
weaker against the US Dollar, the Euro and Yen compared with the
2019 period-end rates.
Net assets
The book value of net assets increased by GBP1,740 million from GBP18,357
million at 31 December 2019 to GBP20,097 million at 31 March 2020.
This primarily reflected the Total profit for the period and the
re-measurement gains on defined benefit plans exceeding the dividend
paid in the period.
The carrying value of investments in associates and joint ventures
at 31 March 2020 was GBP367 million (31 December 2019: GBP314 million),
with a market value of GBP385 million (31 December 2019: GBP396 million).
At 31 March 2020, the net deficit on the Group's pension plans was
GBP946 million compared with GBP1,921 million at 31 December 2019.
The decrease in the net deficit primarily arose from increases in
the rate used to discount UK pension liabilities from 2.0% to 2.4%,
and a reduction in the UK inflation rate from 3.0% to 2.6%, partly
offset by a decrease in the rate used to discount US pension liabilities
from 3.2% to 3.1%. The values of the UK and US assets also reduced,
primarily as a result of the impact of the COVID-19 pandemic.
The estimated present value of the potential redemption amount of
the Pfizer put option related to ViiV Healthcare, recorded in Other
payables in Current liabilities, was GBP1,060 million (31 December
2019: GBP1,011 million).
The contingent consideration liability amounted to GBP5,700 million
at 31 March 2020 (31 December 2019: GBP5,479 million), of which GBP5,325
million (31 December 2019: GBP5,103 million) represented the estimated
present value of amounts payable to Shionogi relating to ViiV Healthcare
and GBP338 million (31 December 2019: GBP339 million) represented
the estimated present value of contingent consideration payable to
Novartis related to the Vaccines acquisition.
Of the contingent consideration payable (on a post-tax basis) to
Shionogi at 31 March 2020, GBP764 million (31 December 2019: GBP730
million) is expected to be paid within one year.
Movements in contingent consideration were as follows :
ViiV Healthcare Group
Q1 2020 GBPm GBPm
---------------- ------
Contingent consideration at beginning of the
period 5,103 5,479
Re-measurement through income statement 435 436
Cash payments: operating cash flows (185) (186)
Cash payments: investing activities (28) (29)
Contingent consideration at end of the period 5,325 5,700
---------------- ------
ViiV Healthcare Group
Q1 2019 GBPm GBPm
---------------- ------
Contingent consideration at beginning of the
period 5,937 6,286
Re-measurement through income statement (60) (69)
Cash payments: operating cash flows (195) (194)
Cash payments: investing activities (24) (23)
Contingent consideration at end of the period 5,658 6,000
---------------- ------
Contingent liabilities
There were contingent liabilities at 31 March 2020 in respect of
guarantees and indemnities entered into as part of the ordinary course
of the Group's business. No material losses are expected to arise
from such contingent liabilities. Provision is made for the outcome
of legal and tax disputes where it is both probable that the Group
will suffer an outflow of funds and it is possible to make a reliable
estimate of that outflow. Descriptions of the significant legal disputes
to which the Group is a party are set out on page 36.
Business acquisitions/disposals
On 30 March 2020, GSK completed the sale of the ThermaCare business
worldwide, excluding North America, for proceeds of GBP142 million.
This disposal was required as part of the European Commission's antitrust
approval of GSK's acquisition of Pfizer's consumer healthcare business
which completed in July 2019.
On 1 April 2020, GSK completed its divestment of Horlicks and other
Consumer Healthcare nutrition products in India and a number of other
countries (excluding Bangladesh) to Unilever and the merger of GSK's
Indian listed Consumer Healthcare entity with Hindustan Unilever
Limited, an Indian listed public company. GSK received a 5.7% equity
stake in Hindustan Unilever Limited and approximately GBP400 million
in cash. The divestment in Bangladesh is expected to close later
this year.
Reconciliation of cash flow to movements in net debt
Q1 2020 Q1 2019
GBPm GBPm
--------- ---------
Net debt, as previously reported (25,215) (21,621)
Implementation of IFRS 16 - (1,303)
--------- ---------
Net debt at beginning of the period, as adjusted (25,215) (22,924)
Increase in cash and bank overdrafts (145) 372
Net decrease in short-term loans 116 (2,209)
Increase in long-term loans - (2,622)
Repayment of lease liabilities 53 49
Debt of subsidiary undertakings acquired - (482)
Exchange adjustments (1,454) 763
Other non-cash movements (23) (5)
--------- ---------
Increase in net debt (1,453) (4,134)
--------- ---------
Net debt at end of the period (26,668) (27,058)
--------- ---------
Net debt analysis
31 March 31 December
2020 2019
GBPm GBPm
--------- ------------
Liquid investments 86 79
Cash and cash equivalents 4,769 4,707
Cash and cash equivalents reported
in assets
held for sale 483 507
Short-term borrowings (7,265) (6,918)
Long-term borrowings (24,741) (23,590)
Net debt at end of the period (26,668) (25,215)
--------- ------------
Free cash flow reconciliation
Q1 2020 Q1 2019
GBPm GBPm
-------- --------
Net cash inflow from operating activities 965 663
Purchase of property, plant and
equipment (197) (222)
Proceeds from sale of property,
plant and equipment 6 7
Purchase of intangible assets (147) (82)
Proceeds from disposals of intangible
assets 113 8
Net finance costs (78) (94)
Dividends from joint ventures and
associates 14 -
Contingent consideration paid (reported
in investing
activities) (29) (23)
Distributions to non-controlling
interests (119) (92)
Contribution from non-controlling
interest 3 -
Free cash flow 531 165
-------- --------
Reporting definitions
Total and Adjusted results
Total reported results represent the Group's overall performance.
GSK also uses a number of adjusted, non-IFRS, measures to report
the performance of its business. Adjusted results and other non-IFRS
measures may be considered in addition to, but not as a substitute
for or superior to, information presented in accordance with IFRS.
Adjusted results are defined on page 9 and other non-IFRS measures
are defined below.
Free cash flow
Free cash flow is defined as the net cash inflow from operating activities
less capital expenditure on property, plant and equipment and intangible
assets, contingent consideration payments, net finance costs, and
dividends paid to non-controlling interests plus proceeds from the
sale of property, plant and equipment and intangible assets, and
dividends received from joint ventures and associates. It is used
by management for planning and reporting purposes and in discussions
with and presentations to investment analysts and rating agencies.
Free cash flow growth is calculated on a reported basis. A reconciliation
of net cash inflow from operations to free cash flow is set out on
page 39.
Free cash flow conversion
Free cash flow conversion is free cash flow as a percentage of earnings.
Working capital
Working capital represents inventory and trade receivables less trade
payables.
CER and AER growth
In order to illustrate underlying performance, it is the Group's
practice to discuss its results in terms of constant exchange rate
(CER) growth. This represents growth calculated as if the exchange
rates used to determine the results of overseas companies in Sterling
had remained unchanged from those used in the comparative period.
CER% represents growth at constant exchange rates. GBP% or AER% represents
growth at actual exchange rates.
Pro-forma growth
The acquisition of the Pfizer consumer healthcare business completed
on 31 July 2019 and so GSK's reported results for Q1 2020 include
three months of results of the former Pfizer consumer healthcare
business from 1 January 2020.
The Group has presented pro-forma growth rates at CER for turnover,
Adjusted operating profit and operating profit by business taking
account of this transaction. Pro-forma growth rates at CER for the
quarter are calculated comparing reported results for Q1 2020, calculated
applying the exchange rates used in the comparative period, with
the results for Q1 2019 adjusted to include the equivalent three
months of results of the former Pfizer consumer healthcare business
during Q1 2019, as consolidated (in US$) and included in Pfizer's
US GAAP results.
Brand names and partner acknowledgements
Brand names appearing in italics throughout this document are trademarks
of GSK or associated companies or used under licence by the Group.
Outlook, assumptions and cautionary statements
2020 guidance
As set out in 'GSK's response to COVID-19' on page 2, there are significant
internal and external risks to business performance for the remainder
of the year, and particularly over the next few months. Based on
our current assessment of the impact of COVID-19, we are maintaining
our Adjusted EPS guidance for the year at this point, but we will,
if needed, update guidance as more information becomes available
to inform our expected financial performance for the full-year 2020.
2016-2020 outlook
In May 2015, GSK announced that it expected Group sales to grow at
CER at a low-to-mid single digits percentage CAGR and Adjusted EPS
to grow at CER at a mid-to-high single digit percentage CAGR for
the period 2016-2020. On 3 December 2018, GSK announced that it continued
to expect to deliver on its previously published Group outlooks to
2020, but, following the acquisition of Tesaro, expected Adjusted
EPS growth at CER for the period 2016-2020 to be at the bottom end
of the mid-to-high single digit percentage CAGR range. These outlooks
are based on 2015 exchange rates.
Assumptions related to 2020 guidance and 2016-2020 outlook
In outlining the expectations for 2020 and the five-year period 2016-2020,
the Group has made certain assumptions about the healthcare sector,
the different markets in which the Group operates and the delivery
of revenues and financial benefits from its current portfolio, pipeline
and restructuring programmes.
For the Group specifically, over the period to the end of 2020, GSK
expects further declines in sales of Seretide/Advair. The introduction
of a generic alternative to Advair in the US has been factored into
the Group's assessment of its future performance. The Group assumes
no premature loss of exclusivity for other key products over the
period.
The assumptions for the Group's revenue, earnings and dividend expectations
assume no material interruptions to supply of the Group's products,
no material mergers, acquisitions or disposals, except for the acquisition
of Tesaro, the divestment of Horlicks and other Consumer Healthcare
products to Unilever and the formation of a new Consumer Healthcare
Joint Venture with Pfizer, all announced in December 2018, no material
litigation or investigation costs for the Company (save for those
that are already recognised or for which provisions have been made),
no share repurchases by the Company, and no change in the Group's
shareholdings in ViiV Healthcare. The assumptions also assume no
material changes in the macro-economic and healthcare environment
over the period. The 2020 guidance and 2016-2020 outlook have factored
in all divestments and product exits since 2015, including the divestment
and exit of more than 130 non-core tail brands (GBP0.5 billion in
annual sales) as announced on 26 July 2017 and the product divestments
planned in connection with the formation of the Consumer Healthcare
Joint Venture with Pfizer.
The Group's expectations assume successful delivery of the Group's
integration and restructuring plans over the period 2016-2020, including
the extension and enhancement to the combined programme announced
on 26 July 2017, the new Major restructuring plan announced on 25
July 2018, the Consumer Healthcare Joint Venture integration programme
and the new Separation Preparation programme. They also assume that
the integration and investment programmes following the Tesaro acquisition
and the Consumer Healthcare Joint Venture with Pfizer over this period
are delivered successfully. Material costs for investment in new
product launches and R&D have been factored into the expectations
given. Given the potential development options in the Group's pipeline,
the outlook may be affected by additional data-driven R&D investment
decisions. The expectations are given on a constant currency basis
(2016-2020 outlook at 2015 CER).
Assumptions and cautionary statement regarding forward-looking statements
The Group's management believes that the assumptions outlined above
are reasonable, and that the aspirational targets described in this
report are achievable based on those assumptions. However, given
the longer term nature of these expectations and targets, they are
subject to greater uncertainty, including potential material impacts
if the above assumptions are not realised, and other material impacts
related to foreign exchange fluctuations, macro-economic activity,
the impact of outbreaks, epidemics or pandemics, such as the COVID-19
pandemic and ongoing challenges and uncertainties posed by the COVID-19
pandemic for businesses and governments around the world, changes
in regulation, government actions or intellectual property protection,
actions by our competitors, and other risks inherent to the industries
in which we operate.
This document contains statements that are, or may be deemed to be,
"forward-looking statements". Forward-looking statements give the
Group's current expectations or forecasts of future events. An investor
can identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as 'anticipate',
'estimate', 'expect', 'intend', 'will', 'project', 'plan', 'believe',
'target' and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance.
In particular, these include statements relating to future actions,
prospective products or product approvals, future performance or
results of current and anticipated products, sales efforts, expenses,
the outcome of contingencies such as legal proceedings, dividend
payments and financial results. Other than in accordance with its
legal or regulatory obligations (including under the Market Abuse
Regulation, the UK Listing Rules and the Disclosure and Transparency
Rules of the Financial Conduct Authority), the Group undertakes no
obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise. The reader
should, however, consult any additional disclosures that the Group
may make in any documents which it publishes and/or files with the
SEC. All readers, wherever located, should take note of these disclosures.
Accordingly, no assurance can be given that any particular expectation
will be met and investors are cautioned not to place undue reliance
on the forward-looking statements.
Forward-looking statements are subject to assumptions, inherent risks
and uncertainties, many of which relate to factors that are beyond
the Group's control or precise estimate. The Group cautions investors
that a number of important factors, including those in this document,
could cause actual results to differ materially from those expressed
or implied in any forward-looking statement. Such factors include,
but are not limited to, those discussed under Item 3.D 'Risk Factors'
in the Group's Annual Report on Form 20-F for 2019 and any impacts
of the COVID-19 pandemic. Any forward looking statements made by
or on behalf of the Group speak only as of the date they are made
and are based upon the knowledge and information available to the
Directors on the date of this report.
Cautionary statement regarding pro-forma growth rates
The pro-forma growth rates at CER in this Results Announcement have
been provided to illustrate the position in Q1 2020 relative to the
position in Q1 2019 as if, for the purposes of the Q1 2019 results,
the acquisition of the Pfizer consumer healthcare business had taken
place as at 31 July 2018 and that, accordingly, three months of results
of the former Pfizer consumer healthcare business were included in
Q1 2019. The results of the former Pfizer consumer healthcare business
included for Q1 2019 are as consolidated (in US$) and included in
Pfizer's US GAAP results. The results for Q1 2020 used to calculate
the pro-forma growth rates are as reported at CER.
The pro-forma growth rates have been provided for illustrative purposes
only and, by their nature, address a hypothetical situation and therefore
do not represent the Group's actual growth rates. The pro-forma growth
rates do not purport to represent what the Group's results of operations
actually would have been if the Pfizer acquisition had been completed
on the date indicated, nor do they purport to represent the results
of operations at any future date. In addition, the pro-forma growth
rates do not reflect the effect of anticipated synergies and efficiencies
or accounting and reporting differences associated with the acquisition
of the Pfizer consumer healthcare business.
Independent review report to GlaxoSmithKline plc
We have been engaged by GlaxoSmithKline plc ("the Company") to review
the condensed financial information in the Results Announcement for
the three months ended 31 March 2020 .
What we have reviewed
The condensed financial information comprises:
-- the income statement and statement of comprehensive income for
the three month period ended 31 March 2020 on pages 28 to 29;
-- the balance sheet as at 31 March 2020 on page 32;
-- the statement of changes in equity for the three month period
then ended on page 33;
-- the cash flow statement for the three month period then ended
on page 34; and
-- the accounting policies and basis of preparation and the explanatory
notes to the condensed financial information on pages 35 to 39
that have been prepared applying consistent accounting policies
to those applied by the Group in the Annual Report 2019, which
was prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union.
We have read the other information contained in the Results Announcement,
including the non-IFRS measures contained on pages 35 to 39, and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. Our work has been
undertaken so that we might state to the Company those matters we
are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company,
for our review work, for this report, or for the conclusions we have
formed .
Directors' responsibilities
The Results Announcement of GlaxoSmithKline plc, including the condensed
financial information, is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the
Results Announcement by applying consistent accounting policies to
those applied by the Group in the Annual Report 2019, which was prepared
in accordance with IFRS as adopted by the European Union .
Our responsibility
Our responsibility is to express to the Company a conclusion on the
interim financial information in the Results Announcement based on
our review.
Scope of review
We conducted our review in accordance with International Standard
on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued
by the Auditing Practices Board for use in the United Kingdom. A
review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters,
and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion .
Conclusion
Based on our review, nothing has come to our attention that causes
us to believe that the condensed interim financial information in
the Results Announcement for the three months ended 31 March 2020
is not prepared, in all material respects in accordance with the
accounting policies set out in the accounting policies and basis
of preparation section on page 36 .
Deloitte LLP
Statutory Auditor
London, United Kingdom
29 April 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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