TIDMGSK
RNS Number : 7362X
GlaxoSmithKline PLC
01 May 2019
Issued: Wednesday, 1 May 2019, London U.K.
GSK delivers sales of GBP7.7 billion +6% AER, +5% CER
Total EPS 16.8p, +50% AER, +42% CER; Adjusted EPS 30.1p, +22% AER,
+18% CER
Financial highlights
-- Pharmaceuticals sales GBP4.2 billion, +4% AER, +2% CER; Vaccines
GBP1.5 billion, +23% AER, +20% CER; Consumer Healthcare GBP2.0
billion, flat AER, +1% CER.
-- Total Group operating margin 18.6%. Adjusted Group operating margin
28.2%, +1.6 percentage points AER, +1.0 percentage point CER (Pharmaceuticals
29.8%; Vaccines 40.3%; Consumer Healthcare 21.7%). Benefits from
strong sales growth and phasing of R&D.
-- Total EPS 16.8p, +50% AER, +42% CER.
-- Adjusted EPS 30.1p, +22% AER, +18% CER, driven by strong operating
performance, continued financial efficiencies, reduction in minority
share and a one-off benefit to associates.
-- Net cash flow from operations GBP663 million. Free cash flow GBP165
million.
-- 19p dividend declared for the quarter; continue to expect 80p for
full year 2019.
-- 2019 Guidance reaffirmed.
Product and pipeline highlights
-- Total HIV sales GBP1.1 billion, +7% AER, +4% CER, including Juluca
sales of GBP70 million.
- Dovato (dolutegravir+lamivudine), first once-daily 2-drug regimen
for treatment-naive HIV patients, launched in US.
- Long-acting cabotegravir+rilpivirine filed in the US for treatment
of HIV.
-- Total new Respiratory product sales GBP631 million, +29% AER, +25%
CER, including Trelegy GBP87 million; Nucala GBP152 million.
-- Shingrix sales GBP357 million driven by continued strong launch
execution in US.
-- Continued progress in immuno-oncology pipeline:
- Zejula sales of GBP42 million since 22 January following completion
of Tesaro acquisition
- Positive data from GARNET study presented at the Society of Gynecologic
Oncology conference indicating robust activity of PD-1 dostarlimab
in patients with advanced or recurrent endometrial cancer
- Global alliance with Merck KGaA, Darmstadt, Germany completed
to jointly develop and commercialise M7824, a novel immunotherapy
with potential in multiple difficult-to-treat cancers
- Further positive data announced from belantamab mafodotin (BCMA)
DREAMM-1 study and reported in Blood Cancer Journal
Q1 2019 results
Q1 2019 Growth
------------
GBPm GBP% CER%
-------- -----
Turnover 7,661 6 5
Total operating profit 1,428 15 10
Total earnings per share 16.8p 50 42
Adjusted operating profit 2,163 12 9
Adjusted earnings per share 30.1p 22 18
Net cash from operating activities 663 (23)
Free cash flow 165 (50)
Emma Walmsley, Chief Executive Officer, GSK said:
"We have made a strong start to 2019, which is an important year
of execution for GSK, with growth in sales, operating margins and
earnings per share in Q1, in line with our expectations. Strengthening
our pipeline remains our number one priority and we reported positive
data for several potential new medicines in HIV and Oncology during
the quarter. I am also pleased to report that integration planning
for our new proposed Consumer Healthcare business is going well and,
subject to relevant approvals, we continue to expect to complete
this transaction in the second half of the year. We look forward
to building on the progress made this quarter."
The Total results are presented under 'Financial performance' on
page 9 and Adjusted results reconciliations are presented on pages
18 and 19. 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 7 and GBP% or AER% growth, CER% growth, free cash flow and other
non-IFRS measures are defined on page 36. GSK provides guidance on
an Adjusted results basis only for the reasons set out on page 8.
All expectations, guidance and targets regarding future performance
and dividend payments should be read together with "Outlook, assumptions
and cautionary statements" on pages 36 and 37.
2019 guidance
In 2019, we continue to expect Adjusted EPS to decline in the range
of -5% to -9% at CER. This guidance reflects the recent approval
of a substitutable generic competitor to Advair in the US and the
expected impact of the Tesaro acquisition and assumes that the proposed
Consumer Healthcare nutrition disposal closes by the end of 2019
and the proposed Consumer Healthcare Joint Venture with Pfizer closes
during H2 2019.
GSK expects to maintain the dividend for 2019 at the current level
of 80p per share.
All expectations, guidance and targets regarding future performance
and dividend payments should be read together with "Outlook, assumptions
and cautionary statements" on page 36.
If exchange rates were to hold at the closing rates on 31 March 2019
($1.31/GBP1, EUR1.17/GBP1 and Yen 145/GBP1) for the rest of 2019,
the estimated negative impact on 2019 Sterling turnover growth would
be around 1% and if exchange gains or losses were recognised at the
same level as in 2018, the estimated impact on 2019 Sterling Adjusted
EPS growth would be negligible.
Results presentation
A webcast of the quarterly results presentation hosted by Emma Walmsley,
GSK CEO, will be held at 2pm BST on 1 May 2019. 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 2019
Turnover Q1 2019
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Pharmaceuticals 4,158 4 2
Vaccines 1,522 23 20
Consumer Healthcare 1,981 - 1
------ ------- -------
Group turnover 7,661 6 5
------ ------- -------
Group turnover increased 6% AER, 5% CER to GBP7,661 million, with
CER growth delivered by all three businesses.
Pharmaceuticals sales were up 4% AER, 2% CER, reflecting the continued
growth in HIV sales and growth from Nucala and Trelegy. New Respiratory
product sales (Ellipta products and Nucala) were up 29% AER, 25%
CER. Lower sales in Established Pharmaceuticals were driven by Advair
following its loss of exclusivity in the US, partly offset by the
launches of Advair and Ventolin authorised generics in the US.
Vaccines sales were up 23% AER, 20% CER, primarily driven by strong
sales of Shingrix in the US as well as increased demand for Meningitis
and Hepatitis vaccines, partly offset by a decline in Established
Vaccines.
Consumer Healthcare sales were flat at AER but grew 1% CER, as growth
in Oral health and Nutrition were partly offset by declines in Wellness
and Skin health.
Operating profit
Total operating profit was GBP1,428 million in Q1 2019 compared
with GBP1,240 million in Q1 2018. Adjusted operating profit was
GBP2,163 million, 12% higher than Q1 2018 at AER and 9% higher at
CER on a turnover increase of 5% CER. The Adjusted operating margin
of 28.2% was 1.6 percentage points higher at AER, 1.0 percentage
points higher on a CER basis than in Q1 2018.
Increased charges for major restructuring, primarily arising from
write downs in a number of manufacturing sites, and an unrealised
loss arising from the decrease in value of the shares in Hindustan
Unilever Limited were largely offset by re-measurement credits on
the contingent consideration liabilities.
Operating profit benefited from strong sales growth, particularly
in Vaccines, a more favourable mix in Vaccines and Consumer Healthcare,
a benefit from favourable inventory adjustments in the quarter,
the phasing of R&D investment and continued tight control of ongoing
costs across all three businesses. These were partly offset by continuing
price pressure, the impact of the Tesaro acquisition and other investments
in promotional product support, particularly for new launches.
Earnings per share
Total earnings per share was 16.8p, compared with 11.2p in Q1 2018.
Adjusted EPS was 30.1p compared with 24.6p in Q1 2018, up 22% AER,
18% CER, on a 9% CER increase in Adjusted operating profit. The
improvement reflected an improved trading performance, the reduced
non-controlling interest allocation of Consumer Healthcare profits
following the buyout in Q2 2018 and a one-off benefit to the share
of after tax profit of the associate, Innoviva.
Cash flow
Net cash inflow from operating activities was GBP663 million in
the quarter (Q1 2018: GBP863 million) and free cash flow was GBP165
million (Q1 2018: GBP329 million). The reduction primarily reflected
the adverse phasing of payments for returns and rebates, as well
as the initial step-down impact from Advair generic competition
and an increase in trade receivables as a result of strong sales
in the quarter, partly offset by improved operating profits and
lower contingent consideration payments compared with Q1 2018 which
included a milestone payment to Novartis.
R&D pipeline
Pipeline news flow highlights since Q4 2018:
Oncology
Dostarlimab (TSR-042)
-- On 19 March, data from the phase I/II GARNET study evaluating dostarlimab
in women with recurrent or advanced endometrial cancer who progressed
on or after a platinum-based regimen were presented at the 2019
Society for Gynecologic Oncology (SGO) Annual Meeting. The preliminary
results demonstrated clinically meaningful and durable response
rates of dostarlimab in this patient population regardless of microsatellite
instability status.
Belantamab mafodotin (GSK2857916)
-- On 21 March, further positive data from the DREAMM-1 study in patients
with relapsed/ refractory multiple myeloma were published in Blood
Cancer Journal. These new data showed that the median progression-free
survival (PFS) was twelve months, an increase from the previously
reported 7.9 months PFS.
-- In March, the first patient in the DREAMM-4 pilot study of belantamab
mafodotin (BCMA antibody drug conjugate) in combination with pembrolizumab
in relapsed/refractory multiple myeloma was dosed.
HIV/Infectious diseases
Cabotegravir + rilpivirine
-- On 29 April, a regulatory application was submitted to the US FDA
for the once monthly injectable, cabotegravir + rilpivirine for
the treatment of adults living with HIV-1 infection.
-- On 7 March, comprehensive data from the ATLAS and FLAIR studies
were presented at the 2019 Conference on Retroviruses and Opportunistic
Infections. These two studies showed that a long-acting, injectable,
two-drug regimen of cabotegravir and rilpivirine has similar efficacy
to daily, three-drug oral treatment in adults living with HIV-1
infection.
Dovato (dolutegravir + lamivudine)
-- On 8 April, the US FDA approved Dovato, the first, once daily,
single-tablet, two-drug regimen for treatment naive HIV-1 adults.
-- On 26 April, the Committee for Medicinal Products for Human Use
(CHMP) of the European Medicines Agency (EMA) issued a positive
opinion for Dovato, for the treatment of HIV-1 infection in adults
and adolescents.
Juluca (dolutegravir + rilpivirine)
-- On 3 April, three-year results from the SWORD 1&2 studies demonstrating
that Juluca maintained HIV viral suppression at 148-weeks were
presented at the 25th Annual Conference of the British HIV Association.
Maturation inhibitor (GSK3640254)
-- The first patient was dosed in a phase IIa study for GSK'254 in
the treatment of patients living with HIV-1 infection.
Immuno-inflammation
Benlysta (belimumab)
-- On 26 April, the US FDA approved intravenous Benlysta for use in
children aged 5 years and above with lupus.
Respiratory
Trelegy Ellipta
-- The Japan Ministry of Health, Labour and Welfare granted marketing
authorisation for Trelegy Ellipta (FF/UMEC/VI) for the treatment
of COPD.
Other pharmaceuticals
Dectova (intravenous zanamivir)
-- On 26 April, the European Commission granted marketing authorisation
for intravenous zanamivir for the treatment of complicated influenza
A or B in adult and paediatric patients (aged >6 months).
GSK3036656 (leucyl t-RNA inhibitor)
-- The first patient was dosed in a phase II study to establish the
effect of GSK'656 in patients with drug-sensitive pulmonary tuberculosis.
Vaccines
Vaccine candidates
-- A decision has been made to terminate the clinical development
of our strep pneumonia (next generation) candidate vaccine and,
following an analysis of available research results, including
interim data from an ongoing phase I study, a decision has been
made to no longer pursue the clinical development of the candidate
universal flu vaccine. GSK remains committed to further research
in flu including pursuing other approaches.
Contents Page
Total and Adjusted results 7
Financial performance 9
Cash generation 22
Returns to shareholders 23
Income statement 24
Statement of comprehensive income 25
Pharmaceuticals turnover 26
Vaccines turnover 27
Balance sheet 28
Statement of changes in equity 29
Cash flow statement 30
Segment information 31
Legal matters 32
Additional information 32
Reconciliation of cash flow to movements in net debt 35
Net debt analysis 35
Free cash flow reconciliation 35
Reporting definitions 36
Outlook, assumptions and cautionary statements 36
Independent review report 38
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:
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5502
Tim Foley +44 (0) 20 8047 (London)
5502
Mary Hinks-Edwards +44 (0) 20 8047 (London)
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5194
James Dodwell +44 (0) 20 8047 (London)
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Danielle Smith +44 (0) 20 8047 (London)
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Jeff McLaughlin +1 215 751 7002 (Philadelphia)
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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 other non-IFRS measures are
defined on page 36.
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
and has made a number of changes in recent years. In line with this
practice, GSK expects to continue to review 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 disposals 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
-- the impact of the enactment of the US Tax Cuts and Jobs Act in
2017
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 has undertaken a number of Major restructuring programmes in
recent years 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 18
and 19.
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.
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
sales of dolutegravir-containing products have 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
2018.
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 2019, the liability,
which is discounted at 8.5%, stood at GBP5,658 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 2019 were GBP219 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 41 and 42 of the Annual Report
2018.
Financial performance - Q1 2019
Total results
The Total results for the Group are set out below.
Q1 2019 Q1 2018 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Turnover 7,661 7,222 6 5
Cost of sales (2,733) (2,391) 14 15
-------- -------- ------- -------
Gross profit 4,928 4,831 2 -
Selling, general and administration (2,477) (2,311) 7 6
Research and development (1,006) (904) 11 8
Royalty income 73 53 38 42
Other operating expense (90) (429)
-------- -------- ------- -------
Operating profit 1,428 1,240 15 10
Finance income 34 20
Finance expense (224) (162)
Share of after tax profits
of associates
and joint ventures 57 9
-------- -------- ------- -------
Profit before taxation 1,295 1,107 17 11
Taxation (310) (348)
Tax rate % 23.9% 31.4%
-------- -------- ------- -------
Profit after taxation 985 759 30 23
-------- -------- ------- -------
Profit attributable to non-controlling
interests 155 210
Profit attributable to shareholders 830 549
-------- -------- ------- -------
985 759 30 23
-------- -------- ------- -------
Earnings per share 16.8p 11.2p 50 42
-------- -------- ------- -------
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for Q1 2019 and Q1 2018
are set out on pages 18 and 19.
Q1 2019
--------------------------------------
% of Growth Growth
GBPm turnover GBP% CER%
-------- ---------- ------- -------
Turnover 7,661 100 6 5
Cost of sales (2,203) (28.8) 1 2
Selling, general and administration (2,397) (31.3) 5 4
Research and development (971) (12.7) 9 6
Royalty income 73 1.0 38 42
-------- ---------- ------- -------
Adjusted operating profit 2,163 28.2 12 9
-------- ---------- ------- -------
Adjusted profit before tax 2,033 13 10
Adjusted profit after tax 1,633 14 10
Adjusted profit attributable
to shareholders 1,484 23 19
-------- ------- -------
Adjusted earnings per share 30.1p 22 18
-------- ------- -------
Operating profit by business Q1 2019
------------------------------------
% of Growth Growth
GBPm turnover GBP% CER%
------ ---------- ------- -------
Pharmaceuticals 1,968 47.3 1 (1)
Pharmaceuticals R&D* (730) 19 15
Total Pharmaceuticals 1,238 29.8 (7) (8)
Vaccines 614 40.3 81 69
Consumer Healthcare 430 21.7 12 12
------ ---------- ------- -------
2,282 29.8 11 8
Corporate & other unallocated
costs (119)
------ ---------- ------- -------
Adjusted operating profit 2,163 28.2 12 9
------ ---------- ------- -------
* Operating profit of Pharmaceuticals R&D segment, which is the responsibility
of the President, Pharmaceuticals R&D. It excludes ViiV Healthcare
R&D expenditure, which is reported within the Pharmaceuticals segment.
Turnover
Pharmaceuticals turnover
Q1 2019
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Respiratory 631 29 25
HIV 1,121 7 4
Immuno-inflammation 121 21 15
Oncology 43 - -
Established Pharmaceuticals 2,242 (5) (6)
------
4,158 4 2
------
US 1,689 8 1
Europe 1,003 (2) (1)
International 1,466 4 4
------ ------- -------
4,158 4 2
------ ------- -------
Pharmaceuticals turnover in the quarter was GBP4,158 million, up
4% AER, 2% CER. HIV sales were up 7% AER, 4% CER, to GBP1,121 million,
driven by growth of Tivicay and Juluca. Respiratory sales were up
29% AER, 25% CER, to GBP631 million, on growth of Trelegy and Nucala.
Sales of Established Pharmaceuticals declined 5% AER, 6% CER to GBP2,242
million, including the impact of the loss of exclusivity of Advair,
partly offset by the launches of authorised generics for Advair and
Ventolin in the US.
In the US, sales grew 8% AER, 1% CER, reflecting growth in HIV, Respiratory
and Benlysta, more than offsetting the decline in Established Products
including the loss of exclusivity of Advair. In Europe, sales declined
2% AER, 1% CER, with strong growth in Respiratory offset by declines
in Established Pharmaceuticals. International grew 4% AER and 4%
CER, with growth in HIV and Respiratory.
Respiratory
New Respiratory sales (Ellipta products plus Nucala) were up 29%
AER, 25% CER, with strong growth in all regions. Higher demand for
Trelegy Ellipta and Nucala resulted in US growth of 27% AER, 19%
CER and Europe growth of 31% AER, 33% CER. International grew 31%
AER, 30% CER, including Relvar/Breo Ellipta up 19%.
Sales of Nucala were GBP152 million in the quarter and grew 46% AER,
41% CER, continuing to benefit from the global rollout of the product.
US sales of Nucala grew 44% AER, 36% CER to GBP85 million.
Sales of Ellipta products were up 24% AER, 20% CER to GBP479 million
driven by continued growth in all regions. In the US, sales grew
22% AER, 14% CER, reflecting further market share gains partly offset
by the impact of continued competitive pricing pressures, particularly
for ICS/LABA products. In Europe, sales grew 27% AER, 28% CER. In
the US, sales of Trelegy Ellipta contributed GBP66 million in the
quarter, continuing to benefit from the expanded US label.
Relvar/Breo Ellipta sales were down 2% AER, 5% CER. In the US, Relvar/Breo
Ellipta declined 22% AER, 27% CER, impacted by competitive pricing
pressures and the impact of generic Advair on the ICS/LABA market.
In Europe and International, Relvar/Breo Ellipta continued to grow,
up 8% AER, 10% CER and 23% AER, 19% CER respectively.
HIV
HIV sales increased 7% AER, 4% CER to GBP1,121 million in the quarter.
The growth was driven by the dolutegravir franchise, which grew 11%
AER, 7% CER in the quarter, partly offset by a decline in the rest
of the portfolio. Sales of dolutegravir products were GBP1,067 million
in the quarter, with Triumeq and Tivicay delivering sales of GBP614
million and GBP383 million, respectively. Juluca, the first of our
two drug regimens, recorded sales of GBP70 million driven by continued
share growth.
The US and International regions grew 10% AER, 3% CER and 28% AER,
29% CER respectively, driven by Juluca in the US and a Tivicay tender
in International. In Europe, dolutegravir products declined 3% AER,
2% CER with volume growth offset by price erosion and government
clawback adjustments in Q1 2018.
The remaining portfolio delivered sales of GBP54 million, representing
5% of total HIV sales, declining 36% AER, 35% CER. This reflected
continued competition from generic products and transition to new
regimens and reduced the overall growth of total HIV by approximately
three percentage points.
Immuno-inflammation
Sales of Benlysta in the quarter were up 21% AER, 15% CER to GBP121
million, including sales of the sub-cutaneous formulation of GBP47
million. In the US, Benlysta grew 18% AER, 11% CER to GBP105 million.
Oncology
Zejula recorded sales of GBP42 million, following the completion
of the acquisition of Tesaro on 22 January 2019.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the quarter were GBP2,242
million, down 5% AER, 6% CER.
Established Respiratory products were flat at AER but declined 2%
CER to GBP1,083 million, with the decline in Advair/Seretide partially
offset by higher sales of Ventolin and allergy products. In the US,
a generic version of Advair was launched in February, resulting in
23% AER, 27% CER decline in the quarter. In Europe, Seretide sales
were down 20% AER, 19% CER to GBP133 million, reflecting continued
competition from generic products and the transition of the Respiratory
portfolio to newer products. In International, sales of Seretide
were up 4% AER and CER. Ventolin grew by 36% AER, 33% CER driven
by strong initial sales from the launch of an authorised generic
version in the US.
The remainder of the Established Pharmaceuticals portfolio declined
by 10% AER, 9% CER, including Lamictal which declined 10% AER, 12%
CER to GBP132 million due to generic competition in the US, together
with declines in Relenza, Coreg and Levitra.
Vaccines turnover
Q1 2019
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Meningitis 209 16 18
Influenza 15 67 67
Shingles 357 >100 >100
Established Vaccines 941 - (1)
------
1,522 23 20
------
US 777 59 49
Europe 339 (13) (12)
International 406 13 16
------ ------- -------
1,522 23 20
------ ------- -------
Vaccines turnover grew 23% AER, 20% CER to GBP1,522 million, primarily
driven by growth in sales of Shingrix. Meningitis vaccines also contributed
to growth primarily due to favourable phasing of Bexsero and stronger
demand in International, together with demand and share gains in
the US. Established Vaccines were flat at AER but declined 1% CER,
reflecting Cervarix year-on-year supply phasing and increased competition
in China, competitive pressures particularly in the EU on Infanrix,
Pediarix and supply constraints in MMRV vaccines, partly offset by
higher sales of Hepatitis vaccines and Synflorix.
Meningitis
Meningitis sales grew 16% AER, 18% CER to GBP209 million. Bexsero
sales grew 12% AER, 14% CER to GBP156 million, driven by favourable
phasing and continued growth in private market sales in International,
together with demand and share gains in the US, partly offset by
the completion of the vaccination of catch-up cohorts in certain
markets in Europe. Menveo sales declined 11% AER, 11% CER, primarily
reflecting the timing of CDC purchases in the US.
Influenza
Fluarix/FluLaval sales were up 67% AER, 67% CER to GBP15 million,
primarily due to favourable supply phasing in International.
Shingles
Shingrix recorded sales of GBP357 million, primarily driven by the
US, which benefited from market growth in new patient populations
now covered by immunisation recommendations and the favourable benefit
of prior period payer rebate adjustments. Canada, as well as the
recent launch in Germany, also contributed to growth.
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix)
were flat at AER, down 2% CER. Infanrix, Pediarix sales were down
11% AER, 14% CER to GBP183 million, reflecting increased competitive
pressures and supply constraints in Europe, partly offset by favourable
CDC stockpile movements in the US. Boostrix sales grew 23% AER, 21%
CER to GBP123 million, primarily driven by share gains in the US
and favourable tender phasing in International.
Hepatitis vaccines grew 23% AER, 18% CER to GBP239 million, benefiting
from a competitor supply shortage, favourable CDC stockpile movements
and stronger demand in the US, together with higher demand in International,
partly offset by supply constraints in Europe.
Rotarix sales grew 3% AER, 2% CER to GBP134 million, reflecting favourable
supply phasing in International.
Synflorix sales grew 22% AER, 23% CER to GBP121 million, primarily
due to favourable phasing and stronger demand in International.
MMRV vaccines sales declined 29% AER, 28% CER to GBP55 million, mainly
driven by supply constraints in Europe and International.
Cervarix sales were down 62% AER and CER, reflecting year-on-year
supply phasing and increased competition in China.
Consumer Healthcare turnover
Q1 2019
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Wellness 1,006 (1) (1)
Oral health 662 4 4
Nutrition 167 (1) 2
Skin health 146 (4) (3)
------
1,981 - 1
------
US 489 7 -
Europe 599 (4) (3)
International 893 - 3
------ ------- -------
1,981 - 1
------ ------- -------
Consumer Healthcare sales were flat at AER but grew 1% CER in the
quarter to GBP1,981 million as growth in Oral health and Nutrition
were partly offset by declines in Wellness and Skin health. Growth
was generated in International markets, particularly in India and
South East Asia, while Europe was impacted by on-going competitive
pressures.
The divestments of small tail brands and Horlicks and MaxiNutrition
in the UK together with the phasing out of low margin contract manufacturing
reduced overall sales growth by approximately one percentage point.
Wellness
Wellness sales declined 1% at AER and CER to GBP1,006 million. Respiratory
sales were down 3% AER, 4% CER with mid single-digit growth in Flonase,
benefiting from a strong pre-allergy season sell-in in the US. This
was more than offset by a decline in Theraflu due to increased competitive
pressures and a strong comparator last year. Growth was also impacted
by a decline in non-strategic brands.
Pain relief was down 1% AER but flat at CER. Panadol returned to
growth following the prior year discontinuation of slow-release Panadol
products in the Nordic countries, but this was offset by trade shipment
phasing in other pain relief brands. Voltaren had a flat quarter
as a result of manufacturing changes, but consumption reflected low
single-digit growth.
Oral health
Oral health sales grew 4% AER and CER to GBP662 million with Sensodyne
continuing to drive performance, reporting high single-digit CER
growth. This reflected strong delivery in the International region
supported by innovation launches in the quarter, including Sensodyne
Pronamel Enamel Repair in the US. An improved performance in Europe
resulted from responses to on-going competitive pressures. Sales
of Denture care and parodontax grew in low and mid single digits
respectively, despite the tough prior year comparator due to innovation
launches such as Polident Max Seal. Oral health growth was also impacted
by a decline in non-strategic brands.
Nutrition
Nutrition sales declined 1% AER but grew 2% CER to GBP167 million,
with India growing in mid single digits. Growth was adversely impacted
by the Horlicks and MaxiNutrition divestments in the UK, which impacted
overall Nutrition growth by three percentage points.
Skin health
Skin health sales declined 4% AER, 3% CER to GBP146 million, largely
due to divestments of small tail brands in the US, which had a negative
impact on growth of three percentage points.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 35.7%, 2.6 percentage
points higher at AER and 3.2 percentage points higher in CER terms
compared with Q1 2018. This reflected an increase in the costs of
manufacturing restructuring programmes, primarily as a result of
write downs in a number of manufacturing sites, and increased amortisation
of intangible assets.
Excluding these and other Adjusting items, Adjusted cost of sales
as a percentage of turnover was 28.8%, down 1.4 percentage points
at AER, and 0.8 percentage points down at CER compared with Q1 2018.
The reduction reflected a more favourable product mix in Vaccines,
primarily due to growth of Shingrix in the US, and Consumer Healthcare,
a favourable impact of inventory adjustments in Vaccines and a further
contribution from integration and restructuring savings in Pharmaceuticals
and Consumer Healthcare. This was partly offset by continued adverse
pricing pressure in Pharmaceuticals, particularly in Respiratory,
and an unfavourable product mix in Pharmaceuticals.
Selling, general and administration
Total SG&A costs as a percentage of turnover were 32.3%, 0.3 percentage
points higher compared with Q1 2018 at AER and 0.5 percentage points
higher on a CER basis. This included acquisition costs related to
the announced agreement with Pfizer to combine our consumer healthcare
businesses.
Excluding these and other Adjusting items, Adjusted SG&A costs as
a percentage of turnover were 31.3%, 0.4 percentage points lower
at AER than in Q1 2018 and 0.2 percentage points lower on a CER basis.
The growth in Adjusted SG&A costs of 5% AER, 4% CER reflected increased
investment resulting from the acquisition of Tesaro and in promotional
product support, particularly for new launches in Vaccines, Respiratory
and HIV and targeted priority markets. This was partly offset by
the tight control of ongoing costs, particularly in non-promotional
spending across all three businesses.
Research and development
Total R&D expenditure was GBP1,006 million (13.1% of turnover), up
11% AER, 8% CER. Adjusted R&D expenditure was GBP971 million (12.7%
of turnover), 9% higher at AER, 6% higher at CER than Q1 2018. Pharmaceuticals
R&D expenditure was GBP747 million, up 12% AER, 8% CER, primarily
reflecting increased Development investment resulting from the acquisition
of Tesaro and investment in the progression of a number of mid and
late-stage programmes, particularly in Oncology, including the transition
of certain programmes from Discovery into Development. This was partly
offset by the phasing of investment in late-stage programmes, particularly
in HIV, together with a reduction in Discovery expenditure arising
from completion of the Bioelectronics phase I investment, the transition
of certain programmes into Development and the benefits of the re-prioritisation
of the R&D portfolio. R&D expenditure in Vaccines and Consumer Healthcare
was GBP162 million and GBP62 million, respectively.
Royalty income
Royalty income was GBP73 million (Q1 2018: GBP53 million), up 38%
AER, 42% CER, primarily reflecting increased royalties on sales of
Gardasil.
Other operating expense
Net other operating expense of GBP90 million (Q1 2018: GBP429 million)
primarily reflected a decrease in value of the shares in Hindustan
Unilever Limited to be received on the disposal of Horlicks and other
Consumer Healthcare brands of GBP206 million in the quarter. The
cumulative reduction in value since the signing of the proposed transaction
was GBP108 million. This was partly offset by the profit on a number
of asset disposals and accounting credits of GBP85 million (Q1 2018:
GBP416 million charge) 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 credit of GBP60 million for the contingent consideration
liability due to Shionogi, primarily arising from credits arising
from changes in exchange rate assumptions partly offset by the unwind
of the discount.
Operating profit
Total operating profit was GBP1,428 million in Q1 2019 compared with
GBP1,240 million in Q1 2018. Increased charges for major restructuring,
primarily arising from write downs in a number of manufacturing sites,
and a decrease in value of the shares in Hindustan Unilever Limited
to be received on the disposal of Horlicks and other Consumer Healthcare
brands, were largely offset by re-measurement credits on the contingent
consideration liabilities.
Excluding these and other Adjusting items, Adjusted operating profit
was GBP2,163 million, 12% higher than Q1 2018 at AER and 9% higher
at CER on a turnover increase of 5% CER. The Adjusted operating margin
of 28.2% was 1.6 percentage points higher at AER, 1.0 percentage
points higher on a CER basis than in Q1 2018. The increase in Adjusted
operating profit primarily reflected the benefit from sales growth
in all three businesses, particularly Vaccines, a more favourable
mix in Vaccines and Consumer Healthcare, a benefit from favourable
inventory adjustments in the quarter in Vaccines and continued tight
control of ongoing costs across all three businesses. This was partly
offset by continuing price pressure, particularly in Respiratory,
including an initial impact of the launch of a generic version of
Advair in February 2019, 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 the quarter amounted to GBP217 million (Q1 2018:
GBP517 million). This included cash payments made to Shionogi of
GBP219 million (Q1 2018: GBP197 million).
Operating profit by business
Pharmaceuticals operating profit was GBP1,238 million, down 7% AER,
8% CER on a turnover increase of 2% CER. The operating margin of
29.8% was 3.4 percentage points lower at AER than in Q1 2018 and
3.3 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 initial
impact of the launch of a generic version of Advair in February 2019,
an unfavourable product mix, primarily as a result of the growth
in some lower margin established products, together with investment
in new product support and targeted priority markets, and the impact
of the acquisition of Tesaro with increased investment in SG&A and
R&D. This was partly offset by continued tight control of ongoing
costs and the benefits of re-prioritisation of the R&D portfolio.
Vaccines operating profit was GBP614 million, 81% higher than Q1
2018 at AER and 69% higher at CER on a turnover increase of 20% CER.
The operating margin of 40.3% was 13.0 percentage points higher than
in Q1 2018 at AER and 11.1 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,
the favourable impact of inventory adjustments and higher royalty
income, with higher SG&A investment increased broadly in line with
sales to support new launches and business growth.
Consumer Healthcare operating profit was GBP430 million, up 12% AER,
12% CER, on a turnover increase of 1% CER. The operating margin of
21.7% was 2.3 percentage points higher than in Q1 2018 at AER, and
2.1 percentage points higher on a CER basis. This primarily reflected
continued manufacturing restructuring and integration benefits and
improved product mix as well as tight control of promotional and
other operating expenses compared with Q1 2018.
Net finance costs
Total net finance costs were GBP190 million compared with GBP142
million in Q1 2018. Adjusted net finance costs were GBP187 million
compared with GBP139 million in Q1 2018. The increase primarily reflected
higher debt levels following the acquisition from Novartis of its
stake in the Consumer Healthcare Joint Venture in June 2018 and the
acquisition of Tesaro in January 2019, as well as an adverse comparison
with a one-off accounting adjustment of GBP20 million to amortisation
of interest charges in Q1 2018. This was partly offset by the benefit
from older bonds being refinanced at lower interest rates. Following
the introduction of IFRS 16, 'Leases', finance costs included an
unwind of the discount on the lease liability of GBP11 million in
the quarter.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was GBP57 million (Q1
2018: GBP9 million). This 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 GBP310 million represented an effective tax rate on
Total results of 23.9% (Q1 2018: 31.4%) and reflected the different
tax effects of the various Adjusting items, including the non-taxable
loss arising from the decrease in value of the shares in Hindustan
Unilever Limited to be received on the disposal of Horlicks and other
Consumer Healthcare brands. Tax on Adjusted profit amounted to GBP400
million and represented an effective Adjusted tax rate of 19.7% (Q1
2018: 20.2%).
Issues related to taxation are described in Note 14, 'Taxation' in
the Annual Report 2018. 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 GBP155 million (Q1 2018: GBP210 million). The reduction was primarily
due to the ending of the allocation of Consumer Healthcare profits
(Q1 2018: GBP89 million) following the buyout of Novartis' interest.
This was partly offset by an increased allocation of ViiV Healthcare
profits to GBP129 million (Q1 2018: GBP110 million) as well as higher
net profits in some of the Group's other entities with non-controlling
interests.
The allocation of Adjusted earnings to non-controlling interests
amounted to GBP149 million (Q1 2018: GBP224 million). The reduction
in allocation was again primarily due to the ending of the allocation
of Consumer Healthcare profits, partly offset by an increased allocation
of ViiV Healthcare profits.
Earnings per share
Total earnings per share was 16.8p, compared with 11.2p in Q1 2018.
The increase in earnings per share primarily reflected an improved
trading performance, the reduced non-controlling interest allocation
of Consumer Healthcare profits and the increased share of after tax
profit of the associate, Innoviva.
Adjusted EPS of 30.1p compared with 24.6p in Q1 2018, up 22% AER,
18% CER, on a 9% CER increase in Adjusted operating profit. The improvement
primarily resulted from the reduced non-controlling interest allocation
of Consumer Healthcare profits following the buyout in Q2 2018 and
an increased share of after tax profits of associates as a result
of a non-recurring income tax benefit in Innoviva, partly offset
by increased net finance costs.
Currency impact on Q1 2019 results
The Q1 2019 results are based on average exchange rates, principally
GBP1/$1.31, GBP1/EUR1.15 and GBP1/Yen 144. Comparative exchange rates
are given on page 33. The period-end exchange rates were GBP1/$1.31,
GBP1/EUR1.17 and GBP1/Yen 145.
In the quarter, turnover increased 6% AER, 5% CER. Total EPS was
16.8p compared with 11.2p in Q1 2018. Adjusted EPS was 30.1p compared
with 24.6p in Q1 2018, up 22% AER and up 18% CER. The positive currency
impact primarily reflected the weakness of Sterling, particularly
against the US$ and Yen, partly offset by weakness in emerging market
currencies and the Euro, relative to Q1 2018. Exchange gains or losses
on the settlement of intercompany transactions contributed around
one percentage point of the positive currency impact of four percentage
points on Adjusted EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for
Q1 2019 and Q1 2018 are set out below.
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 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
------------ ------------
Three months ended 31 March 2018
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 7,222 7,222
Cost of sales (2,391) 139 27 43 3 (2,179)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 4,831 139 27 43 3 5,043
Selling, general
and
administration (2,311) 19 6 (2,286)
Research and
development (904) 10 3 4 (887)
Royalty income 53 53
Other operating
(expense)/income (429) 434 (5) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,240 149 27 65 437 5 1,923
Net finance costs (142) 1 2 (139)
Share of after
tax
profits of
associates and
joint
ventures 9 9
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,107 149 27 66 437 7 1,793
Taxation (348) (32) (4) (17) 20 19 (362)
Tax rate % 31.4% 20.2%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 759 117 23 49 457 26 1,431
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 210 14 224
Profit
attributable
to
shareholders 549 117 23 49 443 26 1,207
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 11.2p 2.4p 0.5p 1.0p 9.0p 0.5p 24.6p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of
shares
(millions) 4,903 4,903
------------ ------------
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.
Major restructuring costs are those related to specific Board approved
Major restructuring programmes and are excluded from Adjusted Results.
Major restructuring programmes, including integration costs following
material acquisitions, are those that are structural and are of a
significant scale where the costs of individual or related projects
exceed GBP25 million. Other ordinary course smaller scale restructuring
costs are retained within Total and Adjusted results.
The Board approved a new Major restructuring programme in July 2018,
which is designed to significantly improve the competitiveness and
efficiency of the Group's cost base with savings delivered primarily
through supply chain optimisation and reductions in administrative
costs.
The Group acquired Tesaro in January 2019, and is expected to incur
around GBP50 million of integration and restructuring cash costs,
leading to annual cost-saving benefits of around GBP50 million. This
will be added to and reported as part of the 2018 Major restructuring
programme.
The Group also announced in December that it had reached agreement
with Pfizer Inc to combine our consumer healthcare businesses. The
proposed transaction is expected to realise substantial cost synergies,
with the new Joint Venture expected to generate total annual cost
savings of GBP0.5 billion by 2022 for expected total major restructuring
cash costs of GBP0.9 billion and non-cash charges of GBP0.3 billion.
Up to 25% of the cost savings are intended to be reinvested in the
business to support innovation and other growth opportunities.
Total Major restructuring charges incurred in the quarter were GBP380
million (Q1 2018: GBP65 million), analysed as follows:
Q1 2019 Q1 2018
------------------------- -------------------------
Cash Non-cash Total Cash Non-cash Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ --------- ------ ------ --------- ------
Combined restructuring
and
integration programme 22 12 34 48 17 65
2018 major restructuring
programme (incl. Tesaro) 24 312 336 - - -
Consumer Healthcare
Joint
Venture integration
programme 10 - 10
56 324 380 48 17 65
------ --------- ------ ------ --------- ------
Non-cash charges arising under the 2018 major restructuring programme
primarily related to the write-down of assets as part of the plans
to reduce the manufacturing network. Cash charges arose from restructuring
of the manufacturing organisation, R&D and some administrative functions.
Non-cash charges under the Combined restructuring and integration
programme primarily related to announced plans to restructure the
manufacturing network, and cash charges arose from restructuring
in some manufacturing sites, R&D and some administrative functions.
Total cash payments made in the quarter were GBP174 million, GBP121
million for the existing Combined restructuring and integration programme
(Q1 2018: GBP104 million) and GBP53 million under the 2018 major
restructuring programme including the settlement of certain charges
accrued in previous quarters.
The analysis of Major restructuring charges by business was as follows:
Q1 2019 Q1 2018
GBPm GBPm
-------- --------
Pharmaceuticals 336 23
Vaccines - 25
Consumer Healthcare 21 15
-------- --------
357 63
Corporate & central functions 23 2
-------- --------
Total Major restructuring costs 380 65
-------- --------
The analysis of Major restructuring charges by Income statement line
was as follows:
Q1 2019 Q1 2018
GBPm GBPm
-------- --------
Cost of sales 341 43
Selling, general and administration 25 19
Research and development 15 3
Other operating income (1) -
-------- --------
Total Major restructuring costs 380 65
-------- --------
The Combined restructuring and integration programme delivered incremental
annual cost savings in the quarter of GBP0.1 billion. Given its relatively
recent launch, the benefit delivery in the quarter from the 2018
major restructuring programme was not material.
Total cash charges for the Combined restructuring and integration
programme are now expected to be approximately GBP4.1 billion with
non-cash charges up to GBP1.6 billion. The programme has now delivered
approximately GBP4.0 billion of annual savings, including an estimated
currency benefit of GBP0.3 billion. The programme is now expected
to deliver by 2020 total annual savings of GBP4.4 billion on a constant
currency basis, including an estimated benefit of GBP0.4 billion
from currency on the basis of Q1 2019 average exchange rates.
The 2018 major restructuring programme, now 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 Q1 2019 rates). These savings will be fully re-invested
to help fund targeted increases in R&D and commercial support of
new products.
Transaction-related adjustments
Transaction-related adjustments resulted in a net credit of GBP53
million (Q1 2018: GBP437 million charge). This primarily reflected
GBP85 million of accounting credits 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 2019 Q1 2018
Charge/(credit) GBPm GBPm
-------- --------
Consumer Healthcare Joint Venture put option - 495
Contingent consideration on former Shionogi-ViiV
Healthcare Joint Venture
(including Shionogi preferential dividends) (60) (31)
ViiV Healthcare put options and Pfizer preferential
dividends (24) (61)
Contingent consideration on former Novartis Vaccines
business (1) 13
Other adjustments 32 21
-------- --------
Total transaction-related (credits)/charges (53) 437
-------- --------
The GBP60 million credit relating to the contingent consideration
for the former Shionogi-ViiV Healthcare Joint Venture represented
a reduction in the valuation of the contingent consideration due
to Shionogi, primarily as a result of updated exchange rate assumptions,
partly offset by a GBP108 million unwind of the discount.
Other adjustments included transaction costs relating to the agreement
with Pfizer to combine our consumer healthcare businesses.
An explanation of the accounting for the non-controlling interests
in ViiV Healthcare is set out on page 8.
Divestments, significant legal charges and other items
Divestments and other items included a loss in the quarter of GBP206
million arising from the decrease in value of the shares in Hindustan
Unilever Limited to be received on the disposal of Horlicks and other
Consumer Healthcare brands, as well as equity investment impairments
and certain other Adjusting items. This was partly offset by the
profit on a number of asset disposals. A charge of GBP22 million
(Q1 2018: GBP5 million) for significant legal matters included the
benefit of the settlement of existing matters as well as provisions
for ongoing litigation. Significant legal cash payments were GBP4
million (Q1 2018: GBP5 million).
Cash generation
Cash flow
Q1 2019 Q1 2018
-------- --------
Net cash inflow from operating activities (GBPm) 663 863
Free cash flow* (GBPm) 165 329
Free cash flow growth (%) (50)% (49)%
Free cash flow conversion* (%) 20% 60%
Net debt** (GBPm) 27,058 13,377
-------- --------
* Free cash flow and free cash flow conversion are defined on page
36.
As announced at Q2 2018, with the introduction of the new R&D strategy,
GSK has revised its definition of free cash flow to include proceeds
from disposals of intangible assets, as set out on page 35. Comparative
figures have been revised accordingly.
** Net debt is analysed on page 35.
Q1 2019
The net cash inflow from operating activities for the quarter was
GBP663 million (Q1 2018: GBP863 million). The reduction primarily
reflected the adverse timing of payments for returns and rebates,
as well as the initial step-down impact from Advair generic competition
and an increase in trade receivables as a result of strong sales
in the quarter, partly offset by improved operating profits and lower
contingent consideration payments compared with Q1 2018 which included
a milestone payment to Novartis.
Total cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were GBP219 million
(Q1 2018: GBP197 million), of which GBP195 million was recognised
in cash flows from operating activities and GBP24 million was recognised
in contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
Free cash flow was GBP165 million for the quarter (Q1 2018: GBP329
million). The reduction primarily reflected the adverse timing of
payments for returns and rebates, as well as the initial step-down
impact from Advair generic competition and an increase in trade receivables
as a result of strong sales in the quarter, partly offset by improved
operating profits, lower capital expenditure and lower contingent
consideration payments compared with Q1 2018 which included a milestone
payment to Novartis.
Net debt
At 31 March 2019, net debt was GBP27.1 billion, compared with GBP21.6
billion at 31 December 2018, comprising gross debt of GBP31.8 billion
and cash and liquid investments of GBP4.7 billion, including GBP0.5
billion reported within Assets held for sale. Net debt increased
due to the GBP3.6 billion acquisition of Tesaro Inc, together with
the GBP1.3 billion impact from the implementation of IFRS 16 and
the dividend paid to shareholders of GBP0.9 billion, partly offset
by GBP0.8 billion of favourable exchange impacts from the translation
of non-Sterling denominated debt.
At 31 March 2019, GSK had short-term borrowings (including overdrafts
and lease liabilities) repayable within 12 months of GBP8.4 billion
with loans of GBP1.7 billion repayable in the subsequent year.
Returns to shareholders
Quarterly dividends
The Board has declared a first interim dividend for 2019 of 19 pence
per share (Q1 2018: 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 intends to maintain the dividend for 2019 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 9 July 2019. An annual fee
of $0.03 per ADS (or $0.0075 per ADS per quarter) (2018: $0.02 per
ADS; $0.005 per ADS per quarter) is charged by the Depositary.
The ex-dividend date will be 16 May 2019, with a record date of 17
May 2019 and a payment date of 11 July 2019.
Paid/ Pence per
payable share GBPm
-------------- ---------- -----
2019
First interim 11 July 2019 19 940
2018
First interim 12 July 2018 19 934
11 October
Second interim 2018 19 934
10 January
Third interim 2019 19 935
Fourth interim 11 April 2019 23 1,138
--- ------
80 3,941
--- ------
Weighted average number of shares
Q1 2019 Q1 2018
millions millions
---------- ----------
Weighted average number of shares - basic 4,936 4,903
Dilutive effect of share options and share awards 42 42
---------- ----------
Weighted average number of shares - diluted 4,978 4,945
---------- ----------
At 31 March 2019, 4,946 million shares (31 March 2018: 4,913 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 2.1 million shares under employee share schemes
for proceeds of GBP27 million (Q1 2018: GBP11 million).
At 31 March 2019, the ESOP Trust held 40.8 million GSK shares against
the future exercise of share options and share awards. The carrying
value of GBP286 million has been deducted from other reserves. The
market value of these shares was GBP659 million.
At 31 March 2019, the company held 393.5 million Treasury shares
at a cost of GBP5,505 million, which has been deducted from retained
earnings.
Financial information
Income statement
Q1 2019 Q1 2018
GBPm GBPm
-------- --------
TURNOVER 7,661 7,222
Cost of sales (2,733) (2,391)
-------- --------
Gross profit 4,928 4,831
Selling, general and administration (2,477) (2,311)
Research and development (1,006) (904)
Royalty income 73 53
Other operating expense (90) (429)
-------- --------
OPERATING PROFIT 1,428 1,240
Finance income 34 20
Finance expense (224) (162)
Share of after tax profits of associates and joint
ventures 57 9
PROFIT BEFORE TAXATION 1,295 1,107
Taxation (310) (348)
Tax rate % 23.9% 31.4%
-------- --------
PROFIT AFTER TAXATION FOR THE PERIOD 985 759
-------- --------
Profit attributable to non-controlling interests 155 210
Profit attributable to shareholders 830 549
985 759
-------- --------
EARNINGS PER SHARE 16.8p 11.2p
-------- --------
Diluted earnings per share 16.7p 11.1p
-------- --------
Statement of comprehensive income
Q1 2019 Q1 2018
GBPm GBPm
-------- --------
Profit for the period 985 759
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges 75 66
Fair value movements on cash flow hedges - 22
Reclassification of cash flow hedges to income statement 1 (31)
Deferred tax on fair value movements on cash flow
hedges (1) -
75 57
-------- --------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests (18) (28)
Fair value movements on equity investments 38 97
Deferred tax on fair value movements on equity investments (10) (9)
Re-measurement (losses)/gains on defined benefit
plans (442) 186
Tax on re-measurement (losses)/gains on defined
benefit plans 75 (38)
-------- --------
(357) 208
-------- --------
Other comprehensive (expense)/income for the period (282) 265
-------- --------
Total comprehensive income for the period 703 1,024
-------- --------
Total comprehensive income for the period attributable
to:
Shareholders 566 842
Non-controlling interests 137 182
-------- --------
703 1,024
-------- --------
Pharmaceuticals turnover - three months ended 31 March 2019
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Respiratory 631 29 25 337 27 19 176 31 33 118 31 30
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ellipta products 479 24 20 252 22 14 131 27 28 96 26 26
Anoro Ellipta 102 5 2 58 (3) (8) 27 13 13 17 31 31
Arnuity Ellipta 7 (36) (36) 6 (40) (40) - - - 1 - -
Incruse Ellipta 68 42 37 44 63 52 18 12 12 6 20 40
Relvar/Breo
Ellipta 215 (2) (5) 78 (22) (27) 67 8 10 70 23 19
Trelegy Ellipta 87 >100 >100 66 >100 >100 19 >100 >100 2 - -
Nucala 152 46 41 85 44 36 45 45 48 22 57 50
HIV 1,121 7 4 689 10 3 278 (7) (6) 154 28 29
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dolutegravir
products 1,067 11 7 670 11 4 262 (3) (2) 135 50 50
Tivicay 383 10 7 223 (2) (8) 94 7 8 66 >100 >100
Triumeq 614 1 (2) 386 5 (1) 160 (12) (11) 68 17 17
Juluca 70 >100 >100 61 >100 >100 8 >100 >100 1 >100 >100
Epzicom/Kivexa 19 (49) (46) 1 (67) (67) 6 (57) (57) 12 (40) (35)
Selzentry 23 (21) (24) 13 (13) (20) 7 (22) (22) 3 (40) (40)
Other 12 (33) (28) 5 (29) (29) 3 (50) (33) 4 (20) (20)
Immuno-
inflammation 121 21 15 105 18 11 11 37 37 5 67 67
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Benlysta 121 21 15 105 18 11 11 22 22 5 >100 >100
Oncology 43 - - 26 - - 17 - - - - -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Zejula 42 - - 26 - - 16 - - - - -
Established
Pharmaceuticals 2,242 (5) (6) 532 (9) (14) 521 (11) (10) 1,189 (1) -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Established
Respiratory 1,083 - (2) 400 1 (5) 218 (14) (13) 465 7 6
Seretide/Advair 486 (14) (15) 176 (23) (27) 133 (20) (19) 177 4 4
Flixotide/Flovent 146 (8) (10) 78 (9) (15) 26 (4) - 42 (7) (7)
Ventolin 245 36 33 146 80 70 33 (3) (3) 66 2 5
Avamys/Veramyst 115 17 15 - - - 19 (5) (5) 96 23 21
Other Respiratory 91 10 6 - - - 7 - - 84 11 7
Dermatology 108 1 3 2 100 100 38 (3) - 68 1 3
Augmentin 160 (2) (1) - - - 49 (11) (9) 111 2 4
Avodart 143 1 1 1 (67) (67) 56 (12) (12) 86 16 16
Imigran/Imitrex 31 (3) (6) 12 - - 13 (13) (13) 6 20 -
Lamictal 132 (10) (12) 65 (8) (14) 25 (4) (4) 42 (14) (14)
Seroxat/Paxil 40 - - - - - 9 (10) (10) 31 3 3
Valtrex 27 (4) (4) 5 67 33 7 - - 15 (17) (11)
Other 518 (17) (16) 47 (53) (56) 106 (9) (7) 365 (11) (10)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pharmaceuticals 4,158 4 2 1,689 8 1 1,003 (2) (1) 1,466 4 4
-------- -------- -------- -------- ---------- -------- -------- --------- -------- -------- --------- --------
Vaccines turnover - three months ended 31 March 2019
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Meningitis 209 16 18 71 29 20 83 (16) (14) 55 >100 >100
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Bexsero 156 12 14 48 55 45 77 (16) (14) 31 94 >100
Menveo 33 (11) (11) 23 (4) (13) 4 (20) (20) 6 (25) -
Other 20 >100 >100 - - - 2 - - 18 >100 >100
Influenza 15 67 67 - - - 1 - - 14 56 56
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Fluarix,
FluLaval 15 67 67 - - - 1 - - 14 56 56
Shingles 357 >100 >100 328 >100 >100 5 - - 24 >100 >100
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Shingrix 357 >100 >100 328 >100 >100 5 - - 24 >100 >100
Established
Vaccines 941 - (1) 378 14 7 250 (13) (12) 313 (1) -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Infanrix,
Pediarix 183 (11) (14) 103 (3) (8) 47 (36) (34) 33 22 22
Boostrix 123 23 21 61 33 24 37 - - 25 47 59
Hepatitis 239 23 18 157 40 31 50 (15) (15) 32 33 42
Rotarix 134 3 2 45 (4) (9) 29 - 3 60 11 11
Synflorix 121 22 23 - - - 18 38 46 103 20 20
Priorix,
Priorix
Tetra,
Varilrix 55 (29) (28) - - - 27 (32) (32) 28 (25) (22)
Cervarix 20 (62) (62) - - - 5 - - 15 (68) (68)
Other 66 (17) (18) 12 (45) (45) 37 12 12 17 (31) (35)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines 1,522 23 20 777 59 49 339 (13) (12) 406 13 16
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Balance sheet
31 March 31 December
2019 2018
GBPm GBPm
----------- ------------
ASSETS
Non-current assets
Property, plant and equipment 10,271 11,058
Right of use assets 1,021 -
Goodwill 6,807 5,789
Other intangible assets 20,022 17,202
Investments in associates and joint ventures 292 236
Other investments 1,350 1,322
Deferred tax assets 3,622 3,887
Derivative financial instruments 104 69
Other non-current assets 1,352 1,576
----------- ------------
Total non-current assets 44,841 41,139
----------- ------------
Current assets
Inventories 5,678 5,476
Current tax recoverable 167 229
Trade and other receivables 6,551 6,423
Derivative financial instruments 144 188
Liquid investments 81 84
Cash and cash equivalents 4,132 3,874
Assets held for sale 771 653
----------- ------------
Total current assets 17,524 16,927
----------- ------------
TOTAL ASSETS 62,365 58,066
----------- ------------
LIABILITIES
Current liabilities
Short-term borrowings (8,413) (5,793)
Contingent consideration liabilities (830) (837)
Trade and other payables (13,424) (14,037)
Derivative financial instruments (249) (127)
Current tax payable (965) (965)
Short-term provisions (579) (732)
----------- ------------
Total current liabilities (24,460) (22,491)
----------- ------------
Non-current liabilities
Long-term borrowings (23,344) (20,271)
Corporation tax payable (265) (272)
Deferred tax liabilities (1,167) (1,156)
Pensions and other post-employment benefits (3,121) (3,125)
Other provisions (631) (691)
Derivative financial instruments - (1)
Contingent consideration liabilities (5,170) (5,449)
Other non-current liabilities (836) (938)
----------- ------------
Total non-current liabilities (34,534) (31,903)
----------- ------------
TOTAL LIABILITIES (58,994) (54,394)
----------- ------------
NET ASSETS 3,371 3,672
----------- ------------
EQUITY
Share capital 1,345 1,345
Share premium account 3,151 3,091
Retained earnings (2,438) (2,137)
Other reserves 1,956 2,061
----------- ------------
Shareholders' equity 4,014 4,360
Non-controlling interests (643) (688)
----------- ------------
TOTAL EQUITY 3,371 3,672
----------- ------------
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
------------ ------------ ------------ ------------ ------------ ------------ ------------
As previously
reported 1,345 3,091 (2,137) 2,061 4,360 (688) 3,672
Implementation of
IFRS 16 - - (93) - (93) - (93)
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2019,
as adjusted 1,345 3,091 (2,230) 2,061 4,267 (688) 3,579
Profit for the
period 830 - 830 155 985
Other
comprehensive
(expense)/income
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 (2,438) 1,956 4,014 (643) 3,371
------------ ------------ ------------ ------------ ------------ ------------ ------------
As previously
reported 1,343 3,019 (6,477) 2,047 (68) 3,557 3,489
Implementation of
IFRS 15 (4) (4) (4)
Implementation of
IFRS 9 277 (288) (11) (11)
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2018,
as adjusted 1,343 3,019 (6,204) 1,759 (83) 3,557 3,474
Profit for the
period 549 549 210 759
Other
comprehensive
income/(expense)
for the period 198 95 293 (28) 265
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income
for the period 747 95 842 182 1,024
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (80) (80)
Dividends to
shareholders (929) (929) (929)
Shares issued - 11 11 11
Realised profits
on disposal
of equity
investments 14 (14) - -
Write-down on
shares held
by ESOP Trusts (71) 71 - -
Share-based
incentive plans 90 90 90
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 March 2018 1,343 3,030 (6,353) 1,911 (69) 3,659 3,590
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash flow statement - three months ended 31 March 2019
Q1 2019 Q1 2018
GBPm GBPm
-------- --------
Profit after tax 985 759
Tax on profits 310 348
Share of after tax profits of associates and
joint ventures (57) (9)
Net finance expense 190 142
Depreciation, amortisation and other adjusting
items 1,183 478
Increase in working capital (789) (523)
Contingent consideration paid (194) (445)
(Decrease)/increase in other net liabilities
(excluding contingent
consideration paid) (771) 311
-------- --------
Cash generated from operations 857 1,061
Taxation paid (194) (198)
-------- --------
Net cash inflow from operating activities 663 863
-------- --------
Cash flow from investing activities
Purchase of property, plant and equipment (222) (258)
Proceeds from sale of property, plant and equipment 7 9
Purchase of intangible assets (82) (97)
Proceeds from sale of intangible assets 8 5
Purchase of equity investments (14) (25)
Proceeds from sale of equity investments 20 22
Purchase of businesses, net of cash acquired (3,642) -
Contingent consideration paid (23) (72)
Disposal of businesses (23) (9)
Investment in associates and joint ventures (4) (1)
Interest received 23 16
Dividends from associates and joint ventures - 39
-------- --------
Net cash outflow from investing activities (3,952) (371)
-------- --------
Cash flow from financing activities
Issue of share capital 27 11
Increase in short-term loans 5,711 701
Increase in long-term loans 2,622 -
Repayment of short-term loans (3,502) -
Net repayment of obligations under finance leases (49) (7)
Interest paid (117) (96)
Dividends paid to shareholders (935) (929)
Distributions to non-controlling interests (92) (80)
Other financing items (4) 117
-------- --------
Net cash inflow/(outflow) from financing activities 3,661 (283)
-------- --------
Increase in cash and bank overdrafts in the
period 372 209
-------- --------
Cash and bank overdrafts at beginning of the
period 4,087 3,600
Exchange adjustments (40) (52)
Increase in cash and bank overdrafts 372 209
-------- --------
Cash and bank overdrafts at end of the period 4,419 3,757
-------- --------
Cash and bank overdrafts at end of the period
comprise:
Cash and cash equivalents 4,132 4,004
Cash and cash equivalents reported in assets
held for sale 486 -
-------- --------
4,618 4,004
Overdrafts (199) (247)
-------- --------
4,419 3,757
-------- --------
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 President,
Pharmaceuticals 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.
Turnover by segment
Q1 2019 Q1 2018 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 4,158 4,009 4 2
Vaccines 1,522 1,238 23 20
Consumer Healthcare 1,981 1,975 - 1
-------- -------- ------- -------
Total turnover 7,661 7,222 6 5
-------- -------- ------- -------
Operating profit by segment
Q1 2019 Q1 2018 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 1,968 1,941 1 (1)
Pharmaceuticals R&D (730) (612) 19 15
-------- -------- ------- -------
Pharmaceuticals including R&D 1,238 1,329 (7) (8)
Vaccines 614 339 81 69
Consumer Healthcare 430 384 12 12
-------- -------- ------- -------
Segment profit 2,282 2,052 11 8
Corporate and other unallocated
costs (119) (129)
-------- -------- ------- -------
Adjusted operating profit 2,163 1,923 12 9
Adjusting items (735) (683)
-------- -------- ------- -------
Total operating profit 1,428 1,240 15 10
Finance income 34 20
Finance costs (224) (162)
Share of after tax profits of
associates
and joint ventures 57 9
-------- -------- ------- -------
Profit before taxation 1,295 1,107 17 11
-------- -------- ------- -------
Legal matters
The Group is involved in significant legal and administrative proceedings,
principally product liability, intellectual property, tax, anti-trust
and governmental investigations as well as related private litigation,
which are more fully described in the 'Legal Proceedings' note in
the Annual Report 2018.
At 31 March 2019, the Group's aggregate provision for legal and other
disputes (not including tax matters described on page 17) was GBP0.2
billion (31 December 2018: 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.
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.
There have been no significant legal developments since the date
of the Annual Report 2018.
Additional information
Accounting policies and basis of preparation
This unaudited Results Announcement contains condensed financial
information for the three months ended 31 March 2019, and should
be read in conjunction with the Annual Report 2018, 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 2018, except for the implementation
of IFRS 16 'Leases' from 1 January 2019. The new Standard has not
had a material impact on the reported results of the Group.
IFRS 16 'Leases' was implemented by the Group from 1 January 2019.
The new standard replaces IAS 17 'Leases' and requires lease liabilities
and right of use assets to be recognised on the balance sheet for
almost all leases. GSK has applied the modified transition approach
on adoption with no restatement of comparative information. The adjustment
made on the transition date of 1 January 2019 to each balance sheet
line item is as follows:
31 December
2018 1 January
as previously IFRS 16 2019
reported adjustments as adjusted
GBPm GBPm GBPm
--------------- ------------- -------------
Property, plant and equipment 11,058 (98) 10,960
Right of use assets - 1,071 1,071
Other non-current assets 1,576 (11) 1,565
Trade and other receivables 6,423 3 6,426
Deferred tax assets 3,887 39 3,926
Short-term borrowings (5,793) (229) (6,022)
Long-term borrowings (20,271) (1,074) (21,345)
Trade and other payables (14,037) 10 (14,027)
Current and non-current provisions (1,423) 35 (1,388)
Other non-current liabilities (938) 160 (778)
Deferred tax liabilities (1,156) 1 (1,155)
--------------- ------------- -------------
Total effect on net assets 3,672 (93) 3,579
--------------- ------------- -------------
Retained earnings (2,137) (93) (2,230)
--------------- ------------- -------------
Total effect on equity 3,672 (93) 3,579
--------------- ------------- -------------
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 2018 were published
in the Annual Report 2018, 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 2019 Q1 2018 2018
-------- -------- -----
Average rates:
US$/GBP 1.31 1.39 1.33
Euro/GBP 1.15 1.13 1.13
Yen/GBP 144 151 147
Period-end rates:
US$/GBP 1.31 1.40 1.27
Euro/GBP 1.17 1.14 1.11
Yen/GBP 145 149 140
During Q1 2019 average Sterling exchange rates were weaker against
the US Dollar and Yen but stronger against the Euro compared with
the same period in 2018. Similarly, period-end Sterling exchange
rates were weaker against the US Dollar and Yen but stronger against
the Euro compared with the 2017 period-end rates.
Net assets
The book value of net assets decreased by GBP301 million from GBP3,672
million at 31 December 2018 to GBP3,371 million at 31 March 2019.
This primarily reflected the re-measurement losses on defined benefit
plans and the dividend paid in the period exceeding the Total profit
for the period.
The carrying value of investments in associates and joint ventures
at 31 March 2019 was GBP292 million (31 December 2018: GBP236 million),
with a market value of GBP392 million (31 December 2018: GBP487 million).
At 31 March 2019, the net deficit on the Group's pension plans was
GBP1,282 million compared with GBP995 million at 31 December 2018.
The increase in the net deficit primarily arose from decreases in
the rates used to discount UK pension liabilities from 2.9% to 2.4%,
and US pension liabilities from 4.2% to 3.8%, partly offset by higher
UK assets.
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 GBP1,218 million (31 December
2018: GBP1,240 million).
Contingent consideration amounted to GBP6,000 million at 31 March
2019 (31 December 2018: GBP6,286 million), of which GBP5,658 million
(31 December 2018: GBP5,937 million) represented the estimated present
value of amounts payable to Shionogi relating to ViiV Healthcare
and GBP292 million (31 December 2018: GBP296 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 2019, GBP800 million (31 December 2018: GBP815
million) is expected to be paid within one year.
Movements in contingent consideration are as follows:
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
---------------- ------
ViiV Healthcare Group
Q1 2018 GBPm GBPm
---------------- ------
Contingent consideration at beginning of the
period 5,542 6,172
Re-measurement through income statement (31) (45)
Cash payments: operating cash flows (174) (445)
Cash payments: investing activities (23) (72)
Contingent consideration at end of the period 5,314 5,610
---------------- ------
Contingent liabilities
There were contingent liabilities at 31 March 2019 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 32.
Business acquisition
On 22 January 2019, GSK completed the acquisition of Tesaro, Inc.,
an oncology focused biopharmaceutical company, for $5.0 billion (GBP3.9
billion).
The fair value of intangible assets acquired was approximately GBP3.0
billion, including Zejula at GBP2.2 billion. Net debt of GBP0.2 billion
was assumed. Goodwill of GBP1.2 billion and a deferred tax liability
of GBP0.2 billion were also recognised. Other assets and liabilities
acquired amounted to a net GBP0.1 billion. These valuations are provisional
and may be subject to change.
Reconciliation of cash flow to movements in net debt
Q1 2019 Q1 2018
GBPm GBPm
--------- ---------
Net debt, as previously reported (21,621) (13,178)
Implementation of IFRS 16 (1,303) -
--------- ---------
Net debt at beginning of the period, as adjusted (22,924) (13,178)
Increase in cash and bank overdrafts 372 209
Net increase in short-term loans (2,209) (701)
Increase in long-term loans (2,622) -
Net repayment of obligations under finance leases 49 7
Debt of subsidiary undertakings acquired (482) -
Exchange adjustments 763 267
Other non-cash movements (5) 19
--------- ---------
Increase in net debt (4,134) (199)
--------- ---------
Net debt at end of the period (27,058) (13,377)
--------- ---------
Net debt analysis
31 March 31 December
2019 2018
GBPm GBPm
--------- ------------
Liquid investments 81 84
Cash and cash equivalents 4,132 3,874
Cash and cash equivalents reported in assets
held for sale 486 485
Short-term borrowings (8,413) (5,793)
Long-term borrowings (23,344) (20,271)
Net debt at end of the period (27,058) (21,621)
--------- ------------
Free cash flow reconciliation
Q1 2018
Q1 2019 (revised)
GBPm GBPm
-------- -----------
Net cash inflow from operating activities 663 863
Purchase of property, plant and equipment (222) (258)
Proceeds from sale of property, plant and equipment 7 9
Purchase of intangible assets (82) (97)
Proceeds from disposals of intangible assets 8 5
Net finance costs (94) (80)
Dividends from joint ventures and associates - 39
Contingent consideration paid (reported in
investing activities) (23) (72)
Distributions to non-controlling interests (92) (80)
Free cash flow 165 329
-------- -----------
With the introduction of the new R&D strategy in Q2 2018, GSK has
revised its definition of free cash flow, a non-IFRS measure, to
include proceeds from the sale of intangible assets.
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 7 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 interest, 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 35.
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.
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.
Gardasil is a trademark of Merck Sharp & Dohme Corp.
Outlook, assumptions and cautionary statements
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 2019 guidance and 2016-2020 outlook
In outlining the expectations for 2019 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 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 proposed divestment of Horlicks and other Consumer
Healthcare products to Unilever and the proposed 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. The 2019 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 proposed Consumer Healthcare transaction
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 as well as the new major restructuring plan announced
on 25 July 2018. They also assume that the proposed Consumer Healthcare
nutrition disposal closes by the end of 2019 and the proposed Consumer
Healthcare Joint Venture with Pfizer closes during H2 2019 and that
the integration and investment programmes following the Tesaro acquisition
and the proposed 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).
Subject to material changes in the product mix, the Group's medium-term
effective tax rate is expected to be around 19% of Adjusted profits.
This incorporates management's best estimates of the impact of US
tax reform on the Group based on the information currently available.
As more information on the detailed application of the US Tax Cuts
and Jobs Act becomes available, the assumptions underlying these
estimates could change with consequent adjustments to the charges
taken that could have a material impact on the results of the Group.
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,
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 2018. 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.
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 2019.
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 2019 on pages 24 and 25
respectively;
-- the balance sheet as at 31 March 2019 on page 28;
-- the statement of changes in equity for the three month period
then ended on page 29;
-- the cash flow statement for the three month period then ended
on page 30 and;
-- the accounting policies and basis of preparation and the explanatory
notes to the condensed financial information on pages 31 to 35
that have been prepared applying consistent accounting policies
to those applied by the Group in the Annual Report 2018, which
was prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union, except for
the implementation of IFRS 16 "Leases" from 1 January 2019.
We have read the other information contained in the Results Announcement,
including the non-IFRS measures contained on pages 31 to 35, and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed 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 2018, which was prepared
in accordance with IFRS as adopted by the European Union, except
for the implementation of IFRS 16 "Leases" from 1 January 2019.
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 2019
are 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 32.
Deloitte LLP
Statutory Auditor
London, United Kingdom
1 May 2019
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
QRFUGUGWAUPBUBG
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