|
Issued:
Wednesday, 25 July 2018, London U.K.
|
|
GSK delivers improvements in sales (at CER), margins and cash flow
in Q2 2018
Total EPS 9.0p, >100% AER, >100% CER; Adjusted EPS 28.1p, +3%
AER, +10% CER
GSK sets out new approach to Research and Development and upgrades
2018 EPS guidance
|
|
|
||
|
Financial highlights
|
||
|
|
||
|
|
●
|
Group
sales: £7.3 billion, flat AER, +4% CER. Pharmaceuticals sales
£4.2 billion, -3% AER, +1% CER; Vaccines £1.3 billion,
+13% AER, +16% CER; Consumer Healthcare £1.8 billion, -1% AER,
+3% CER
|
|
|
●
|
Adjusted
Group operating margin: 28.8%, +0.3 percentage points AER, +0.8
percentage points CER. Pharmaceuticals: 35.3%, Vaccines 28.5%,
Consumer Healthcare 19.3%
|
|
|
●
|
Adjusted
R&D £868 million, -18% AER, -15% CER reflecting benefits
of prioritisation, comparison with utilisation of Priority Review
Voucher in Q2 2017 and phasing of new investments
|
|
|
●
|
Total
EPS: 9.0p (Q2 2017: loss per share 3.7p) reflecting reduced
impairments and lower charges for restructuring and changes in
valuations of Consumer Healthcare and HIV businesses
|
|
|
●
|
Adjusted
EPS growth +3% AER, +10% CER driven by operating leverage,
continued financial efficiencies and reduction in minorities
following completion of Consumer Healthcare buyout on 1 June
2018
|
|
|
●
|
H1 2018
free cash flow £0.8 billion (H1 2017: £0.4
billion)
|
|
|
●
|
19p
dividend declared for quarter. Continue to expect 80p for FY
2018
|
|
|
●
|
New
major restructuring programme expected to deliver annual cost
savings of £400 million by 2021. Charges expected to be
£0.8 billion cash and £0.9 billion non-cash over next 3
years
|
|
|
●
|
Now
expect 2018 Adjusted EPS growth of 7 to 10% at CER if no
substitutable generic competitor to Advair introduced in US in 2018. If a
substitutable generic competitor to Advair is introduced in the US from 1
October, expect 2018 Adjusted EPS growth of 4 to 7% at
CER
|
|
|
||
|
Product and pipeline highlights
|
||
|
|
||
|
|
●
|
Sales
of Ellipta products,
including Trelegy,
£509 million +20% AER, +26% CER. Nucala sales £141 million +93%
AER, +>100% CER
|
|
|
●
|
Tivicay and Triumeq
sales of £1.1 billion +10% AER, +15% CER. New launch
Juluca £24
million
|
|
|
●
|
Positive
results of GEMINI study of new 2-drug regimen
dolutegravir+lamivudine supports use in treatment naïve
patients
|
|
|
●
|
Shingrix sales £167 million. Now expect 2018 sales of
£600-650 million
|
|
|
||
|
R&D update
|
||
|
|
|
|
|
|
●
|
New
approach to R&D announced focusing on science related to the
immune system, the use of genetics and investments in advanced
technologies
|
|
|
●
|
Strategic
collaboration with 23andMe announced to take advantage of novel
genetic insights to enhance selection of drug targets and clinical
development of new medicines
|
|
|
●
|
GSK
currently has over 40 NMEs in its pharmaceutical pipeline with
significant data readouts 2018-2020
|
|
|
●
|
Several
assets expected to launch 2018-20 including two treatments for HIV:
dolutegravir+lamivudine and cabotegravir+ripilvirine; and
GSK’s most advanced new oncology treatment 2857916 (BCMA
antibody-drug conjugate)
|
|
|
●
|
‘916
pivotal studies started for 4L use. Initial 2L study, for use in
combination with standard of care, to start H2 2018
|
|
|
●
|
US FDA
approval received for Krintafel (tafenoquine), a radical cure
of P. vivax malaria
|
|
|
||
|
Q2 2018 results
|
|||||||||||
|
|
Q2 2018
|
|
Growth
|
|
H1 2018
|
|
Growth
|
||||
|
|
£m
|
|
£%
|
|
CER%
|
|
£m
|
|
£%
|
|
CER%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
7,310
|
|
-
|
|
4
|
|
14,532
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating profit
|
779
|
|
>100
|
|
>100
|
|
2,019
|
|
19
|
|
39
|
|
Total
earnings per share
|
9.0p
|
|
>100
|
|
>100
|
|
20.2p
|
|
14
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,102
|
|
1
|
|
7
|
|
4,025
|
|
(1)
|
|
8
|
|
Adjusted
earnings per share
|
28.1p
|
|
3
|
|
10
|
|
52.7p
|
|
1
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash from operating activities
|
1,362
|
|
35
|
|
|
|
2,225
|
|
3
|
|
|
|
Free
cash flow
|
492
|
|
>100
|
|
|
|
821
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Total results are presented under ‘Income Statements’
on page 42 and Adjusted results reconciliations are presented on
pages 19,27 and 64 to 67. Adjusted results are a non-IFRS measure
that allows key trends and factors in the Group’s performance
to be more easily identified by shareholders. Non-IFRS measures may
be considered in addition to, but not as a substitute for, or
superior to, information presented in accordance with IFRS. The
definitions of £% or AER% growth, CER% growth, Adjusted
results, free cash flow and other non-IFRS measures are set out on
page 39. All expectations and targets regarding future performance
should be read together with “Assumptions related to 2018
guidance and 2016-2020 outlook” and “Assumptions and
cautionary statement regarding forward-looking statements” on
page 40.
|
|
Q2 2018 Performance
Emma Walmsley, Chief Executive Officer, GSK said:
“GSK
has delivered encouraging results across the company this quarter
with CER sales growth in each of our three global businesses, an
improved Group operating margin, Adjusted EPS growth of 10% (CER)
and stronger free cash flow.
“Sales growth
reflected strong commercial execution of the three new launches we
have prioritised: Trelegy
Ellipta which provides three medicines in a single inhaler
to treat COPD;Juluca, the
first 2-drug regimen, once-daily, single pill for HIV, helping to
reduce the amount of medicines needed, and Shingrix, which represents a new
standard for the prevention of shingles. We are increasing our
expectations for sales of Shingrix in 2018 to £600-650
million.
“Focused
improvements in operating performance have helped deliver increases
in earnings and cash flow. Free cash flow for the year to date was
£0.8 billion and we are announcing a dividend of 19p for the
quarter. We continue to expect to pay a dividend of 80p for
2018.
“With
the recent new product launches, development of the new R&D
approach and the successful buyout of the Consumer business, we
have evaluated the Group’s cost base and what is required to
deliver competitive long-term growth and performance in each of the
Group’s three businesses. As a result, we are today
announcing a new major restructuring programme, which aims 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.
“We are today
upgrading our guidance for CER growth in Adjusted earnings per
share for 2018. This reflects increased sales expectations for
Shingrix, the positive
effect of the completed Consumer Healthcare buyout as well as the
delay of a potential generic version of Advair in the US, partly offset by the
continuing pricing pressures in Respiratory. We remain increasingly
confident in our ability to deliver mid to high single digit growth
in Adjusted EPS CAGR 2016-2020 (at 2015 CER).”
R&D Update
Alongside
the Q2 results, at a presentation to investors in London today, GSK
sets out the new approach it will take to Research and Development
(R&D).
Emma Walmsley, Chief Executive Officer, GSK said:
“Innovation
is the first of our three long-term strategic priorities I set out
for GSK last year. Improving the performance of our Pharmaceuticals
business and strengthening our R&D pipeline is fundamental to
this. Today, we have announced the start of a new approach to
R&D which aims to capitalise on the assets we have in our
promising early-stage pipeline and build the next wave of growth
for GSK.
“Under Hal
Barron’s leadership, we are reallocating resources to support
this new R&D approach, and savings realised from the new major
restructuring programme will be used to help fund targeted
increases in R&D spending as well as support new products. We
believe the R&D approach outlined today will deliver the value
we see in our pipeline for the benefit of patients and
shareholders.”
Dr Hal Barron, Chief Scientific Officer and President R&D, GSK
said:
“GSK
has a long history of developing novel medicines that provide
significant benefits for patients and today we are describing the
next phase of innovation in R&D that will strengthen our
pipeline and deliver a new generation of medicines and vaccines. At
the core of this new approach is identifying new medicines by
focusing on ways to modulate the immune system, leveraging the vast
amounts of human genetic data now being generated, analysing this
complex data with machine learning and creating an accountable
culture where smart risk-taking is rewarded. This combination of
science, technology and culture will generate new insights, improve
our probability of success, enable us to focus and, most
importantly, create new medicines that will have important benefits
for patients.”
New R&D approach
Our
understanding of the science related to the immune system in the
development of human disease is rapidly advancing, suggesting a
much broader clinical and commercial opportunity for novel immune
modulatory therapies. In addition, access to large databases
derived from carefully genotyped and phenotyped patient
populations, coupled with technological advances in data analytics,
now offer the opportunity to direct drug discovery and development
to a new generation of targets with significantly increased
probability of success.
1B1BScience
Going
forward, GSK’s Research will have an even greater focus on
the basic biology of the immune system as well as targets that have
a high degree of validation based on human genetics. Medicines
targeting mechanisms of action with strong human genetic validation
have a higher (2-fold) probability of success. This means a shift
to a genetics-driven (vs genetics-supported)
portfolio.
GSK’s
Pharmaceutical and Vaccines businesses have a deep history of
developing novel and competitive assets targeting the immune
system. The company currently has 27 immunomodulatory NMEs (new
molecular entities) in the clinic, representing 60% of the total
clinical pipeline. Of these 27 assets, more than half are potential
first-in-class therapy options for a range of different diseases.
In Oncology, GSK is developing a number of assets using different
immune-based approaches: cell therapy, epigenetic modulators and
antibodies targeting immune cells (agonists and
antagonists).
Access
to databases that can be used to assess the impact of genetic
variation on human disease offers significant opportunities to
improve drug development. Today GSK announced a major advance in
this capability with the formation of a new collaboration with
23andMe, the world’s leading consumer genetics and research
company. This collaboration offers GSK a transformational
opportunity to utilise 23andMe's database and statistical analytics
to identify disease-relevant genes and novel targets. 23andMe
currently has 5 million customers and growing, making it the
world’s largest genetic and phenotypic resource. GSK will
also be able to benefit from 23andMe’s ability to identify
patients with specific gene variations in specific diseases,
helping significantly accelerate recruitment for new clinical
studies. This new collaboration complements GSK’s existing
investments in the EBI/Sanger Open Targets consortium, Altius
Institute, and the UK Biobank.
2B2BTechnology
Investing in
advanced technology platforms, such as machine learning, to support
interpretation of genetics data will be an important part of
enabling the new R&D approach. In addition, the Group will be
investing in functional genomics to validate potential targets,
applying techniques for gene modification such as CRISPR
technology. GSK will also invest in computational design,
automation and new capabilities to assess the indication potential,
selection, sequencing and management of evidence generation for new
assets over the lifecycle. These investments will supplement
GSK’s existing strengths in other technologies, including a
leading position in Cell and Gene Therapy.
3B3BCulture
Execution of this
new approach will require investing in, and changing the culture
within GSK R&D. A critical element of this will be through
effective collaboration with external partners, investment in new
talent and development of people. GSK also intends to promote a
culture of increased accountability and smart risk-taking. This
will include redefining success and fostering a culture of
truth-seeking versus progression-seeking, and optimised portfolio
decision-making, alongside implementation of a new robust
governance model. Targeted business development to strengthen the
Group’s pipeline and technology capabilities will also be
part of the new R&D approach.
4B4BPipeline
GSK
currently has over 40 NMEs in its pharmaceutical pipeline and
expects a significant number of critical data readouts in
2018-2020. The Group has potential assets expected to launch in
this period, including two new dual therapy treatments for HIV,
dolutegravir+lamivudine and cabotegravir+ripilvirine, and
GSK’s most advanced new oncology treatment, 2857916 (BCMA
antibody-drug conjugate), for treatment of multiple myeloma. Beyond
2020, GSK expects to launch multiple medicines from its promising,
early-stage and highly innovative R&D portfolio. Further
details and updates on GSK’s R&D pipeline are presented
on page 37.
|
|
2018 guidance update
|
|
|
|
|
|
Following
an encouraging first half year of trading, GSK is upgrading its
expectations for the full year:
|
|
|
|
|
|
●
|
in the
event that no substitutable generic competitor to Advair is introduced to the US market
in 2018, the Group now expects full year 2018 Adjusted EPS growth
of 7 to 10% at CER, or
|
|
|
|
|
●
|
in the
event of a 1 October introduction of a substitutable generic
competitor to Advair in the
US, the Group now expects full year 2018 Adjusted EPS growth of 4
to 7%, with US Advair sales
of around £900 million at CER (US$1.30/£1).
|
|
|
|
|
This
revised guidance reflects:
|
|
|
|
|
|
●
|
the
successful launch of Shingrix, where we now expect to
deliver sales of £600-650 million in 2018;
|
|
|
|
|
●
|
the
additional contribution to earnings from the buyout of
Novartis’ stake in the Consumer Healthcare Joint
Venture.
|
|
|
|
|
It also
adjusts for the delay in the launch of generic competition to
Advair. In addition, the
revised guidance incorporates our expectations of a continuation of
the additional pricing pressures in Respiratory that we identified
in Q1 2018 including the greater than originally expected decline
in Advair sales before any
US generic competition that we expect in 2018 of around
30%.
The
effective tax rate for 2018 is expected to be approximately 19-20%
of Adjusted profits after the impact of US tax reform which is
expected to benefit the Group effective tax rate by two to three
percentage points.
Total
reported results represent the Group’s overall performance.
However, these results can contain material unusual or
non-operational items that may obscure the key trends and factors
determining the Group’s operational performance. As a result,
GSK also reports Adjusted results, which is a non-IFRS measure. GSK
believes that Adjusted results allow the Group’s performance
to be more easily and clearly identified by shareholders. The
definition of Adjusted results, as set out on page 39, also aligns
the Group’s results with the majority of its peer companies
and how they report earnings.
Adjusted
results may exclude significant costs such as those from major
restructuring programmes, significant legal charges or transaction
items. Major restructuring charges have been reported as an
adjusting item since the Group adopted its current reporting
structure in 2012. Estimated charges from the major restructuring
programmes approved by the Board, are set out on page
28.
As
Adjusted results may exclude significant costs, such as those from
major restructuring programmes or significant legal charges, they
should not be regarded as a complete picture of the Group’s
financial performance which is presented in its Total results. When
restructuring charges are excluded, Adjusted earnings will be
higher than Total earnings. The exclusion of other Adjusting items
may result in Adjusted earnings being materially higher or lower
than Total earnings.
Reconciliations
between Total and Adjusted results, as set out on pages 19, 27 and
64 to 67, including detailed breakdowns of the key adjusting items,
are provided to shareholders to ensure full visibility and
transparency as they assess the Group’s
performance.
GSK is
not able to give guidance for Total results as it cannot reliably
forecast certain material elements of our 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.
In
addition, it should be noted that contingent consideration cash
payments are made each quarter primarily to Shionogi by ViiV
Healthcare which reduce the balance sheet liability and are hence
not recorded in the income statement. The cash payments to be made
to Shionogi by ViiV Healthcare for the six months to 30 June 2018
were £376 million. An explanation of the acquisition-related
arrangements with ViiV Healthcare, including details of cash
payments to Shionogi, is set out on page 62.
If
exchange rates were to hold at the closing rates on 30 June 2018
($1.32/£1, €1.13/£1 and Yen 146/£1) for the
rest of 2018, the estimated negative impact on full-year 2018
Sterling turnover growth would be around 3% and if exchange gains
or losses were recognised at the same level as in 2017, the
estimated negative impact on 2018 Sterling Adjusted EPS growth
would be around 6%.
|
|
|
Contents
|
Page
|
|
|
|
|
Sales
performance
|
6
|
|
Financial
performance – Q2 2018
|
16
|
|
Financial
performance – H1 2018
|
24
|
|
Research
and development
|
36
|
|
Reporting
definitions
|
39
|
|
Outlook
assumptions and cautionary statements
|
40
|
|
Contacts
|
41
|
|
|
|
|
Income
statements
|
42
|
|
Statement
of comprehensive income – three months ended 30 June
2018
|
43
|
|
Statement
of comprehensive income – six months ended 30 June
2018
|
44
|
|
Pharmaceuticals
turnover – three months ended 30 June 2018
|
45
|
|
Pharmaceuticals
turnover – six months ended 30 June 2018
|
46
|
|
Vaccines
turnover – three months ended 30 June 2018
|
47
|
|
Vaccines
turnover – six months ended 30 June 2018
|
47
|
|
Balance
sheet
|
48
|
|
Statement
of changes in equity
|
49
|
|
Cash
flow statement – six months ended 30 June 2018
|
50
|
|
Segment
information
|
51
|
|
Legal
matters
|
53
|
|
Taxation
|
53
|
|
Additional
information
|
54
|
|
Reconciliation
of cash flow to movements in net debt
|
61
|
|
Net
debt analysis
|
61
|
|
Free
cash flow reconciliation
|
61
|
|
Non-controlling
interests in ViiV Healthcare
|
62
|
|
Adjusted
results reconciliations
|
63
|
|
|
|
|
Principal
risks and uncertainties
|
68
|
|
Directors’
responsibility statement
|
69
|
|
Independent
review report
|
70
|
|
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.
Cialis is a trademark of Eli Lilly and Company.
|
|
Group turnover by business and geographic region
|
|
Group turnover by business
|
Q2 2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
4,229
|
|
(3)
|
|
1
|
|
Vaccines
|
1,253
|
|
13
|
|
16
|
|
Consumer
Healthcare
|
1,828
|
|
(1)
|
|
3
|
|
|
|
|
|
|
|
|
Group
turnover
|
7,310
|
|
-
|
|
4
|
|
|
|
|
|
|
|
|
Group
turnover was flat at AER but increased 4% at CER to £7,310
million, with CER growth delivered by all three
businesses.
Pharmaceuticals
sales were down 3% AER but up 1% CER, driven primarily by the
growth in sales of HIV products as well as growth in Nucala and the Ellipta portfolio. This was partly
offset by lower sales of Seretide/Advair and Established
Pharmaceuticals. Overall Respiratory sales declined 6% at AER and
2% at CER.
Vaccines
sales were up 13% AER, 16% CER, driven primarily by sales of
Shingrix in the US as well
as increased demand for Hepatitis vaccines, partly offset by
declines in some other Established Vaccines.
Consumer
Healthcare sales declined 1% AER but grew 3% CER reflecting strong
performances in the Oral health and Skin health categories. This
was partly offset by slower growth in the Wellness and Nutrition
categories, together with the ongoing impact of non-strategic brand
divestments, generic competition to Transderm Scop in the US and the
implementation of the Goods & Service Tax (GST) in
India.
|
|
Group turnover by geographic region
|
Q2 2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
US
|
2,785
|
|
2
|
|
7
|
|
Europe
|
1,950
|
|
(1)
|
|
(1)
|
|
International
|
2,575
|
|
(2)
|
|
3
|
|
|
|
|
|
|
|
|
Group
turnover
|
7,310
|
|
-
|
|
4
|
|
|
|
|
|
|
|
|
US
sales grew 2% AER, 7% CER driven by strong performances from
Tivicay and Triumeq, as well as contributions from
the growth of Shingrix and
Hepatitis vaccines.
Europe
sales decreased 1% AER, 1% CER as growth from Tivicay and Triumeq was more than offset by
continued generic competition to Epzicom and Avodart as well as a decrease in
Bexsero sales largely due
to the completion of the vaccination of catch-up cohorts in certain
markets which benefited Q2 2017. Growth in new Respiratory products
offset the decline in Seretide.
In
International, sales declined 2% AER, but grew 3% CER reflecting
strong growth in Tivicay,
Triumeq, and the
Respiratory portfolio. Sales in Emerging Markets declined 6% AER,
but grew 1% CER, reflecting, in particular, a decline in Vaccines
sales which were impacted by pricing and phasing in the
quarter.
|
|
Group turnover by business and geographic region
|
|
Group turnover by business
|
H1 2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
8,238
|
|
(4)
|
|
1
|
|
Vaccines
|
2,491
|
|
10
|
|
14
|
|
Consumer
Healthcare
|
3,803
|
|
(2)
|
|
2
|
|
|
|
|
|
|
|
|
Group
turnover
|
14,532
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
Group
turnover declined 1% AER but increased 4% CER to £14,532
million, with CER growth delivered by all three
businesses.
Pharmaceuticals
sales were down 4% AER but up 1% CER, driven primarily by the
growth in HIV sales and growth from Nucala and the Ellipta portfolio. This was partly
offset by lower sales of Seretide/Advair and Established
Pharmaceuticals. Overall Respiratory sales declined 6% AER, 1%
CER.
Vaccines
sales were up 10% AER, 14% CER, primarily driven by sales of
Shingrix in the US as well
as increased demand for Hepatitis vaccines, partly offset by
declines in some Established Vaccines.
Consumer
Healthcare sales declined 2% AER but grew 2% CER mainly led by
strong performances from power brands in the Oral health category.
This was partly offset by the ongoing impact of non-strategic brand
divestments, generic competition to Transderm Scop in the US and the
implementation of the Goods & Service Tax (GST) in
India.
|
|
Group turnover by geographic region
|
H1 2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
US
|
5,303
|
|
(1)
|
|
7
|
|
Europe
|
3,991
|
|
1
|
|
-
|
|
International
|
5,238
|
|
(3)
|
|
3
|
|
|
|
|
|
|
|
|
Group
turnover
|
14,532
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
US
sales declined 1% AER, but grew 7% CER driven by strong
performances from Tivicay
and Triumeq, as well as
contributions from the growth of Shingrix and Hepatitis
vaccines.
Europe
sales grew 1% AER, but were flat at CER as growth from Tivicay and Triumeq was offset by continued generic
competition to Epzicom and
Avodart. Growth in the new
Respiratory products offset the decline in Seretide.
In
International, sales declined 3% AER, but grew 3% CER, reflecting
strong growth in Tivicay,
Triumeq, the Respiratory
portfolio and Cervarix in
China, following its recent launch. Sales in Emerging Markets
declined 5% AER, but grew 2% CER.
|
|
Turnover – Q2 2018
|
|
Pharmaceuticals
|
|
|
Q2 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Respiratory
|
1,696
|
|
(6)
|
|
(2)
|
|
HIV
|
1,189
|
|
7
|
|
11
|
|
Immuno-inflammation
|
114
|
|
23
|
|
29
|
|
Established
Pharmaceuticals
|
1,230
|
|
(9)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
4,229
|
|
(3)
|
|
1
|
|
|
|
|
|
|
|
|
US
|
1,871
|
|
(5)
|
|
-
|
|
Europe
|
984
|
|
(1)
|
|
(1)
|
|
International
|
1,374
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
|
4,229
|
|
(3)
|
|
1
|
|
|
|
|
|
|
|
|
Pharmaceuticals
turnover in the quarter was £4,229 million, down 3% AER, but
up 1% CER, driven primarily by growth in HIV sales, which were up
7% AER, 11% CER, to £1,189 million, reflecting continued
strong performances by Triumeq and Tivicay and continued growth from
Juluca. Respiratory sales
declined 6% AER, 2% CER, to £1,696 million, with growth from
the Ellipta portfolio and
Nucala more than offset by
lower sales of Seretide/Advair. Sales of Established
Pharmaceuticals fell 9% AER, 5% CER, to £1,230
million.
In the
US, sales declined 5% AER, but flat at CER, with growth in the HIV
portfolio and Benlysta more
than offset by declines in Established Products and Respiratory. In
Europe, sales declined 1% AER, 1% CER, reflecting continued generic
competition to Epzicom and
Avodart and the ongoing
transition of the Respiratory portfolio. International declined 1%
AER but grew 4% CER, driven primarily by the new Respiratory
portfolio.
Respiratory
Total
Respiratory sales declined 6% AER, 2% CER, with the US down 14%
AER, 9% CER. In Europe, sales grew 5% AER, 5% CER and International
grew 2% AER, 7% CER, with growth in both Japan and Emerging
Markets. Growth from the Ellipta portfolio and Nucala was more than offset by lower
sales of Seretide/Advair
which declined 30% AER, 28% CER globally.
Sales
of Nucala were £141
million in the quarter and grew 93% AER, >100% CER, continuing
to benefit from the global rollout of the product. US sales of
Nucala grew 76% AER, 86%
CER to £88 million, benefiting from market growth and some
re-stocking in the quarter.
Sales
of Ellipta products were up
20% AER, 26% CER, driven by continued growth in all regions. In the
US, sales grew 12% AER, 18% CER, reflecting further market share
gains, partly offset by the impact of continued competitive pricing
pressures, particularly for ICS/LABAs. In Europe, sales grew 36%
AER, 36% CER. Sales of Trelegy
Ellipta, our new once daily closed triple product,
contributed £26 million in the quarter, benefiting from an
expanded label in the US.
Relvar/Breo Ellipta sales declined 1% AER, but grew 4% CER,
to £279 million, primarily driven by growth in Europe, which
was up 22% AER, 24% CER to £61 million, and in International,
which was up 29% AER, 35% CER to £62 million. In the US,
Breo Ellipta sales declined
15% AER, 10% CER, with volume growth of 30% reflecting continued
market share growth, offset by the combined impact of prior period
payer rebate adjustments (primarily an unfavourable comparison with
rebate levels in Q2 2017) and increased competitive pricing
pressure. Anoro Ellipta
sales grew 41% AER, 48% CER to £120 million, driven by gains
in the US. All Ellipta
products, Breo,
Anoro, Incruse, Arnuity and Trelegy, continued to grow market share
in the US during the quarter.
Sales
of New Respiratory products, comprising Ellipta products and Nucala, grew 31% AER, 27% CER to
£650 million.
Seretide/Advair sales declined 30% AER, 28% CER to £590
million. Sales of Advair in
the US declined 45% AER, 43% CER (10% volume decline and 33%
negative impact of price) primarily reflecting increased
competitive pricing pressures. In Europe, Seretide sales were down 17% AER, 17%
CER to £151 million (10% volume decline and a 7% price
decline). This reflected continued competition from generic
products and the transition of the Respiratory portfolio to newer
products. In International, sales of Seretide were down 6% AER, 2% CER, to
£179 million (3% volume decline and 1% positive impact of
price), also reflecting generic competition in certain markets and
the continuing transition to the newer Respiratory
products.
HIV
HIV
sales increased 7% AER, 11% CER to £1,189 million in the
quarter, with the US up 7% AER, 13% CER, Europe up 3% AER, 4% CER
and International up 11% AER, 16% CER. The growth was driven by
continued increases in market share for Triumeq and Tivicay, partly offset by the impact of
generic competition to Epzicom/Kivexa, particularly affecting
the European market. The ongoing increase in patient numbers for
both Triumeq and
Tivicay resulted in sales
of £682 million and £407 million, respectively, in the
quarter. Juluca recorded
sales of £24 million in the quarter.
Epzicom/Kivexa sales declined 59% AER, 56% CER to £26
million, reflecting ongoing generic competition.
Immuno-inflammation
Sales
in the quarter were up 23% AER, 29% CER, primarily driven by
Benlysta which grew 23%
AER, 29% CER to £114 million. In the US, Benlysta grew 23% AER, 29% CER to
£102 million.
Established
Pharmaceuticals
Sales
of Established Pharmaceuticals in the quarter were £1,230
million, down 9% AER, 5% CER, benefiting from favourable prior
period payer rebate adjustments and some post-divestment inventory
sales.
The
Avodart franchise was down
14% AER, 11% CER to £138 million, primarily due to the loss of
exclusivity in Europe, with the US impact now broadly annualised.
Coreg franchise sales
declined 69% AER, 67% CER following a generic Coreg CR entrant to the US market in Q4
2017. Augmentin sales
declined 10% AER, 5% CER to £127 million.
|
|
Vaccines
|
|
|
Q2 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Meningitis
|
184
|
|
(8)
|
|
(3)
|
|
Influenza
|
17
|
|
(19)
|
|
(14)
|
|
Shingles
|
167
|
|
-
|
|
-
|
|
Established
Vaccines
|
885
|
|
(1)
|
|
1
|
|
|
|
|
|
|
|
|
|
1,253
|
|
13
|
|
16
|
|
|
|
|
|
|
|
|
US
|
486
|
|
54
|
|
61
|
|
Europe
|
393
|
|
-
|
|
-
|
|
International
|
374
|
|
(7)
|
|
(3)
|
|
|
|
|
|
|
|
|
|
1,253
|
|
13
|
|
16
|
|
|
|
|
|
|
|
|
Vaccines
turnover grew 13% AER, 16% CER to £1,253 million, primarily
driven by market expansion and share growth forShingrix, and a competitor supply
shortage in Hepatitis.
Established Vaccines growth was impacted by lower Synflorix sales, reflecting
unfavourable phasing and lower pricing in Emerging Markets, and
lower sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) due to unfavourable
year-on-year phasing in International and increased competitive
pressures, particularly in Europe.
Meningitis
Meningitis
sales declined 8% AER, 3% CER to £184 million. Bexsero sales declined by 11% AER, 6%
CER largely due to the completion of the vaccination of catch-up
cohorts in certain markets in Europe which benefited 2017, partly
offset by continued growth in private market sales in
International. Menveo sales
were down 12% AER, 7% CER, impacted by supply constraints in Europe
and International.
Influenza
Fluarix/FluLaval sales declined 19% AER, 14% CER to £17
million, mainly driven by increased competition in
International.
Shingles
Shingrix recorded sales of £167 million in the quarter
in the US and Canada, driven by demand and share gains. US sales of
Shingrix benefited from
market growth in new patient populations now covered by
immunisation recommendations and achieved a 98% market share in the
quarter. Because of the high demand, an allocation process has been
implemented in the US, to help manage inventory and deliveries and
to ensure patients have the opportunity to complete the two-dose
series.
Established
Vaccines
Sales
of the DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) were down 12% AER, 10% CER.
Boostrix sales declined 19%
AER, 17% CER to £121 million, primarily driven by unfavourable
year-on-year phasing in International and the return to the market
of a competitor in Europe, partly offset by higher demand and share
gains in the US. Infanrix,
Pediarix sales were down 4%
AER, 3% CER to £149 million, reflecting unfavourable
year-on-year CDC stockpile movements in the US and increased
competitive pressures, particularly in Europe, partly offset by
stronger demand in International.
Hepatitis
vaccines grew 35% AER, 41% CER to £210 million, benefiting
from a competitor supply shortage and stronger demand in the US and
Europe.
Rotarix sales grew 11% AER, 12% CER to £105 million,
mainly driven by the phasing of tenders and a favourable comparison
with a higher returns provision in Q2 2017 in
International.
Synflorix sales were down 34% AER, 33% CER to £100
million, primarily impacted by unfavourable phasing and lower
pricing in Emerging Markets.
|
|
Consumer Healthcare
|
|
|
Q2 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Wellness
|
901
|
|
(3)
|
|
1
|
|
Oral
health
|
611
|
|
1
|
|
5
|
|
Nutrition
|
154
|
|
(7)
|
|
1
|
|
Skin
health
|
162
|
|
3
|
|
8
|
|
|
|
|
|
|
|
|
|
1,828
|
|
(1)
|
|
3
|
|
|
|
|
|
|
|
|
US
|
428
|
|
-
|
|
4
|
|
Europe
|
573
|
|
(1)
|
|
(1)
|
|
International
|
827
|
|
(2)
|
|
5
|
|
|
|
|
|
|
|
|
|
1,828
|
|
(1)
|
|
3
|
|
|
|
|
|
|
|
|
Consumer
Healthcare sales declined 1% AER but grew 3% CER in the quarter to
£1,828 million as strong performances in Oral health and Skin
health were partly offset by slower growth in the Wellness and
Nutrition categories.
Strong performances in the US and International markets,
particularly Brazil and India, were partly offset by lower growth
in Europe and Australia.
The
divestments of small tail brands and Horlicks and MaxiNutrition in the UK, generic
competition to Transderm
Scop in the US and the ongoing impact of the implementation
of the Goods & Service Tax (GST) in India in aggregate impacted
growth in the quarter by approximately one percentage
point.
Wellness
Wellness
sales declined 3% AER but grew 1% CER to £901 million,
reflecting growth in Gastro-intestinal sales. Respiratory declined
3% AER, but was flat at CER as double-digit growth in China and
Brazil was offset by lower Flonase growth in the US due to the
delayed and shorter allergy season compared with last
year.
Pain
relief was down 4% AER, 2% CER largely due to a double-digit
decline in Panadol, which reflected a change in the
route to market model in South East Asia and the discontinuation of
slow-release Panadol
products in the Nordic countries. Voltaren sales declined slightly,
affected by tougher competition in major European markets and
promotional phasing in Germany compared with last
year.
Oral
health
Oral
health sales grew 1% AER, 5% CER to £611 million with
Sensodyne growing in
high-single to low-double digits across most major markets, partly
offset by destocking in China. Denture care grew in mid-single
digits through continued performance of Poligrip in the US and the launch of
Corega into the mass market
channel in Russia, partly offset by a decline in Europe due to
strong competition. Gum health delivered double-digit growth with
continued strong Parodontax
performance in the US.
Nutrition
Nutrition
sales declined 7% AER but grew 1% CER to £154 million,
including a nine percentage point impact of divestments and the GST
implementation in India. The Nutrition business in India continued
to perform strongly, benefiting from new products including
Horlicks Protein+ which was
launched earlier in the year.
Skin
health
Skin
health grew 3% AER 8% CER to £162 million led by double-digit
growth in Fenistil in
Russia and Germany as retailers built seasonal stocks, Lamisil in Korea and mid-single digit
growth in Lip care.
|
|
Pharmaceuticals
|
|
|
H1 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Respiratory
|
3,271
|
|
(6)
|
|
(1)
|
|
HIV
|
2,237
|
|
7
|
|
12
|
|
Immuno-inflammation
|
214
|
|
16
|
|
24
|
|
Established
Pharmaceuticals
|
2,516
|
|
(9)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
8,238
|
|
(4)
|
|
1
|
|
|
|
|
|
|
|
|
US
|
3,441
|
|
(7)
|
|
-
|
|
Europe
|
2,011
|
|
-
|
|
(1)
|
|
International
|
2,786
|
|
(2)
|
|
5
|
|
|
|
|
|
|
|
|
|
8,238
|
|
(4)
|
|
1
|
|
|
|
|
|
|
|
|
Pharmaceuticals
turnover in the six months was £8,238 million, down 4% AER,
but up 1% CER, driven primarily by growth in HIV sales, which were
up 7% AER, 12% CER, to £2,237 million, reflecting continued
strong performances by Triumeq and Tivicay and continued growth from
Juluca. Respiratory sales
declined 6% AER, 1% CER, to £3,271 million, with growth from
the Ellipta portfolio and
Nucala offset by lower
sales of Seretide/Advair.
Sales of Established Pharmaceuticals fell 9% AER, 5% CER, with the
decline mitigated by some one-off contract sales in the six
months.
In the
US, sales declined 7% AER but were flat at CER, with growth in the
HIV portfolio and Benlysta
offsetting declines in Established Products and Respiratory. In
Europe, sales were flat at AER but declined 1% CER, reflecting
continued generic competition to Epzicom and Avodart and the ongoing transition of
the Respiratory portfolio. International declined 2% AER but grew
5% CER, reflecting growth in the new Respiratory and HIV
portfolios.
Respiratory
Total
Respiratory sales declined 6% AER, 1% CER, with the US down 14%
AER, 7% CER. In Europe, sales grew 3% AER, 2% CER and International
was flat at AER but grew 6% CER, driven primarily by higher sales
in Japan. Growth from the Ellipta portfolio and Nucala was offset by lower sales of
Seretide/Advair.
Sales
of Nucala were £245
million in the six months, up 86% AER, 95% CER, continuing to
benefit from the global rollout of the product. US sales of
Nucala grew 60% AER, 73%
CER to £147 million, despite increased competitive pressures
from a new market entrant.
Sales
of Ellipta products were up
22% AER, 29% CER, driven by continued growth in all regions. In the
US, sales grew 13% AER, 22% CER, reflecting further market share
gains, partly offset by the impact of continued competitive pricing
pressures, particularly for ICS/LABAs. In Europe, sales grew 39%
AER, 37% CER. Sales of Trelegy
Ellipta, our new once daily closed triple product,
contributed £37 million to total Ellipta sales, benefiting from an
expanded label in the US.
Relvar/Breo Ellipta sales grew 3% AER, 8% CER, to £498
million, primarily driven by growth in Europe, which was up 24%
AER, 23% CER to £123 million, and in International, which was
up 29% AER, 37% CER to £119 million. In the US, Breo Ellipta sales declined 13% AER, 6%
CER, with volume growth of 36%, reflecting continued market share
growth, offset by the combined impact of prior period payer rebate
adjustments (primarily an unfavourable comparison with rebate
levels in the first half of 2017) and increased competitive pricing
pressure. Anoro Ellipta
sales grew 48% AER, 56% CER to £217 million, driven by gains
in the US. All Ellipta
products, Breo,
Anoro, Incruse, Arnuity and Trelegy, continued to grow market share
in the US during the six months.
Sales
of New Respiratory products, comprising Ellipta products and Nucala, grew 32% AER, 39% CER to
£1,140 million.
Seretide/Advair sales declined 28% AER, 24% CER to
£1,156 million. Sales of Advair in the US declined 40% AER, 35%
CER (8% volume decline and 27% negative impact of price) primarily
reflecting increased competitive pricing pressures. In Europe,
Seretide sales were down
18% AER, 19% CER to £317 million (10% volume decline and a 9%
price decline). This reflected continued competition from generic
products and the transition of the Respiratory portfolio to newer
products. In International, sales of Seretide were down 12% AER, 7% CER, to
£350 million (6% volume decline and 1% negative impact of
price), also reflecting generic competition in certain markets and
the continuing transition to the newer Respiratory
products.
Pricing
pressures also affected other Respiratory products, with
Ventolin sales declining
11% AER, 5% CER to £350 million.
HIV
HIV
sales increased 7% AER, 12% CER to £2,237 million in the six
months, with the US up 5% AER, 14% CER, Europe up 9% AER, 8% CER
and International up 7% AER, 14% CER. The growth was driven by
continued increases in market share for Triumeq and Tivicay, partly offset by the impact of
generic competition to Epzicom/Kivexa, particularly affecting
the European market. The ongoing increase in patient numbers for
both Triumeq and
Tivicay resulted in sales
of £1,288 million and £755 million, respectively, in the
six months. Juluca was
approved in the US in November 2017, and recorded sales of £34
million in the six months.
Epzicom/Kivexa sales declined 56% AER, 54% CER to £63
million, reflecting ongoing generic competition.
Immuno-inflammation
Sales
in the six months were up 16% AER, 24% CER, primarily driven by
Benlysta, which grew 16%
AER, 25% CER to £214 million. In the US, Benlysta grew 15% AER, 23% CER to
£191 million.
Established
Pharmaceuticals
Sales
of Established Pharmaceuticals were £2,516 million, down 9%
AER, 5% CER, benefiting from favourable prior period payer rebate
adjustments and some post-divestment inventory sales.
The
Avodart franchise was down
13% AER, 10% CER to £279 million, primarily due to the loss of
exclusivity in Europe, with the US impact now broadly annualised.
Coreg franchise sales declined 64% AER, 61% CER
following a generic Coreg
CR entrant to the US market in Q4 2017. Augmentin sales declined 2% AER, but
grew 4% CER to £291 million with improved demand in Emerging
Markets.
|
|
Vaccines
|
|
|
H1 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Meningitis
|
364
|
|
(7)
|
|
(2)
|
|
Influenza
|
26
|
|
(24)
|
|
(18)
|
|
Shingles
|
277
|
|
-
|
|
-
|
|
Established
Vaccines
|
1,824
|
|
(1)
|
|
2
|
|
|
|
|
|
|
|
|
|
2,491
|
|
10
|
|
14
|
|
|
|
|
|
|
|
|
US
|
975
|
|
44
|
|
55
|
|
Europe
|
782
|
|
-
|
|
(1)
|
|
International
|
734
|
|
(8)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
2,491
|
|
10
|
|
14
|
|
|
|
|
|
|
|
|
Vaccines
turnover grew 10% AER, 14% CER to £2,491 million, primarily
driven by growth in sales of Shingrix, Hepatitis vaccines, which
benefited from a competitor supply shortage, and the launch of
Cervarix in
China. Established Vaccines
growth was impacted by lower Synflorix sales, reflecting
unfavourable phasing and lower pricing in Emerging Markets, and
lower sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) due to unfavourable
year-on-year phasing in International and increased competitive
pressures, particularly in Europe.
Meningitis
Meningitis
sales declined 7% AER, 2% CER to £364 million. Bexsero sales were down 1% AER but up
3% CER due to demand and share gains in the US, together with
continued growth in private market sales in International, partly
offset by the completion of the vaccination of catch-up cohorts in
certain markets in Europe which benefited H1 2017. Menveo sales decreased by 23% AER, 16%
CER, primarily reflecting a strong comparator performance in H1
2017 and supply constraints in Europe and
International.
Influenza
Fluarix/FluLaval sales declined 24% AER, 18% CER to £26
million, due to increased competition in
International.
Shingles
Shingrix recorded sales of £277 million in the first
six months in the US and Canada, driven by demand and share gains.
US sales benefited from market growth in new patient populations
now covered by immunisation recommendations.
Established
Vaccines
Sales
of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) were down 12% AER, 8% CER.
Boostrix sales declined 15%
AER, 12% CER to £221 million, primarily driven by unfavourable
year-on-year phasing in International and the return to the market
of a competitor in Europe, partly offset by higher demand and share
gains in the US. Infanrix,
Pediarix sales were down 9%
AER, 5% CER to £355 million, reflecting increased competitive
pressures in Europe and the US as well as unfavourable year-on-year
CDC stockpile movements in the US, partly offset by stronger demand
in International.
Hepatitis
vaccines grew 26% AER, 32% CER to £405 million, benefiting
from a competitor supply shortage and stronger demand in the US and
Europe.
Rotarix sales were down 2% AER but up 1% CER to £235
million.
Synflorix sales declined 30% AER, 30% CER to £199
million, primarily impacted by unfavourable phasing and lower
pricing in Emerging Markets.
Cervarix sales increased by 94% AER, 97% CER to £68
million, primarily driven by its recent launch in
China.
|
|
Consumer Healthcare
|
|
|
H1 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Wellness
|
1,918
|
|
(4)
|
|
1
|
|
Oral
health
|
1,249
|
|
1
|
|
6
|
|
Nutrition
|
322
|
|
(7)
|
|
-
|
|
Skin
health
|
314
|
|
(2)
|
|
2
|
|
|
|
|
|
|
|
|
|
3,803
|
|
(2)
|
|
2
|
|
|
|
|
|
|
|
|
US
|
887
|
|
(7)
|
|
-
|
|
Europe
|
1,198
|
|
2
|
|
1
|
|
International
|
1,718
|
|
(2)
|
|
5
|
|
|
|
|
|
|
|
|
|
3,803
|
|
(2)
|
|
2
|
|
|
|
|
|
|
|
|
Consumer
Healthcare sales in the six months declined 2% AER but grew 2% CER
to £3,803 million, mainly led by broad-based strong growth in
Oral health. The impact of generic competition on Transderm Scop in the US, divestment of
tail brands and Horlicks
and MaxiNutrition in the UK
and implementation of the Goods & Service Tax (GST) in India,
in aggregate impacted overall growth by one and a half percentage
points.
Wellness
Wellness
sales declined 4% AER but grew 1% CER to £1,918 million.
Respiratory sales were down 5% AER, 1% CER. Although Theraflu delivered double-digit growth
due to the strong cold and flu season, this was offset by a decline
in Flonase resulting from
the delayed and shorter allergy season in the US, and the
comparison with the launch of Flonase Sensimist last
year.
Pain
relief declined 1% AER but grew 2% CER to £726 million as
low-single digit growth of Voltaren was partly offset by a weaker
performance in Panadol.
Panadol continued to grow
in most International markets, but this was offset by a change in
the route to market model in South East Asia as well as the
discontinuation of slow-release Panadol products in the Nordic
countries.
Generic
competition to Transderm
Scop and tail brand divestments impacted Wellness growth by
approximately one percentage point.
Oral
health
Oral
health sales grew 1% AER, 6% CER to £1,249 million as
Sensodyne continued to
deliver high-single to low-double digit growth across most major
markets. Denture care grew in high-single digits through a strong
Poligrip performance in the
US and the launch of Corega
Max in Russia, while Gum health grew in double digits,
largely driven by momentum behind Parodontax in the US.
Nutrition
Nutrition
sales declined 7% AER but were flat at CER at £322 million.
The impact of divestments and India GST implementation on growth
was approximately 10 percentage points. Horlicks in India continued to grow
consumption, benefitting from the launch of Horlicks Protein+ in Q1
2018.
Skin
health
Skin
health sales were down 2% AER but up 2% CER to £314 million,
driven by double-digit growth from Fenistil, particularly in Europe, and
mid-single digit growth from Lip care.
|
|
Financial performance – Q2 2018
|
|
Total results
|
|
The
Total results for the Group are set out below.
|
|
|
Q2 2018
£m
|
|
Q2
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
7,310
|
|
7,320
|
|
-
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(2,310)
|
|
(2,619)
|
|
(12)
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
5,000
|
|
4,701
|
|
6
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(2,457)
|
|
(2,379)
|
|
3
|
|
8
|
|
Research
and development
|
(925)
|
|
(1,260)
|
|
(27)
|
|
(25)
|
|
Royalty
income
|
73
|
|
98
|
|
(26)
|
|
(23)
|
|
Other
operating income/(expense)
|
(912)
|
|
(1,180)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit/(loss)
|
779
|
|
(20)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
27
|
|
15
|
|
|
|
|
|
Finance
expense
|
(194)
|
|
(192)
|
|
|
|
|
|
Profit
on disposal of associates
|
-
|
|
20
|
|
|
|
|
|
Share
of after tax profits/(losses) of
associates
and joint ventures
|
2
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before taxation
|
614
|
|
(178)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(139)
|
|
92
|
|
|
|
|
|
Tax rate %
|
22.6%
|
|
51.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) after taxation
|
475
|
|
(86)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Profit
attributable to non-controlling
interests
|
34
|
|
94
|
|
|
|
|
|
Profit/(loss)
attributable to shareholders
|
441
|
|
(180)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
475
|
|
(86)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share
|
9.0p
|
|
(3.7)p
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
Cost of
sales as a percentage of turnover was 31.6%, down 4.2 percentage
points at AER and 4.7 percentage points in CER terms compared with
Q2 2017. This primarily reflected a favourable comparison with Q2
2017 which was impacted by £363 million of non-cash write
downs related to the decision to withdraw Tanzeum progressively. The quarter also
benefited from a more favourable product mix in Pharmaceuticals,
particularly due to the impact of higher HIV sales, as well as a
further contribution from integration and restructuring savings in
all three businesses. This was partly offset by an adverse
comparison with the benefit of a settlement for lost third party
supply volume in Q2 2017 in Vaccines, as well as continued adverse
pricing pressure in Pharmaceuticals, particularly in Respiratory,
and in Established Vaccines.
Selling, general and administration
SG&A
costs as a percentage of turnover were 33.6%, 1.1 percentage points
higher than in Q2 2017 at AER and 1.2 percentage points higher on a
CER basis. This primarily reflected increased investment in
promotional product support, particularly for new launches in
Vaccines, Respiratory and HIV, partly offset by tight control of
ongoing costs, particularly in non-promotional spending across all
three businesses.
Research and development
R&D
expenditure was £925 million (12.7% of turnover), 27% lower
than in Q2 2017 at AER and 25% lower at CER. This reflected a
favourable comparison with the impact of the Priority Review
Voucher in Q2 2017 and lower restructuring costs, together with the
benefit of the prioritisation initiatives started in Q3 2017,
partly offset by increased investment in the progression of a
number of mid and late-stage programmes, particularly in
Oncology.
Royalty income
Royalty
income was £73 million (Q2 2017: £98 million), primarily
reflecting the patent expiry of Cialis.
Other operating income/(expense)
Net
other operating expense of £912 million (Q2 2017: £1,180
million) primarily reflected £953 million (Q2 2017:
£1,211 million) of accounting charges 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, the value
attributable to the Consumer Healthcare Joint Venture put option
previously held by Novartis and the liabilities for the Pfizer put
option and Pfizer and Shionogi preferential dividends in ViiV
Healthcare.
These
charges were driven primarily by a re-measurement of £744
million for the contingent consideration liability due to Shionogi,
as well as the valuation of the put option liability to Pfizer,
primarily related to changes in exchange rate assumptions and
changes to HIV sales forecasts following the GEMINI study completed
in Q2 2018. In addition, following the agreement to acquire
Novartis’ interest in the Consumer Healthcare Joint Venture
announced on 27 March 2018, a net charge of £163 million has
been taken in the quarter, primarily representing a £108
million unwind of the discounted liability until settlement on 1
June 2018 as well as movements on exchange rates largely offset by
hedging gains.
Operating profit
Total
operating profit was £779 million in Q2 2018 compared with an
operating loss of £20 million in Q2 2017. The increase in
operating profit primarily reflected the reduced impact of
accounting charges related to re-measurement of the liabilities for
contingent consideration, put options and preferential dividends,
as well as reduced restructuring costs and asset impairments in
comparison to the non-cash charges in Q2 2017 relating to the
progressive withdrawal of Tanzeum and a favourable comparison
with the impact of the Priority Review Voucher utilised and
expensed in Q2 2017. Operating profit also benefited from sales
growth in all three businesses, a more favourable mix, benefits in
the quarter from prioritisation of R&D expenditure and
continued tight control of ongoing costs across all three
businesses. This was partly offset by continuing price pressure,
particularly in Respiratory, supply chain investments, the
comparison with the benefit in Q2 2017 of a settlement for lost
third party supply volume in Vaccines and investments in
promotional product support, particularly for new launches in
Respiratory, HIV and Vaccines, as well as a reduction in royalty
income.
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 £185 million (Q2
2017: £143 million). This included cash payments made by ViiV
Healthcare to Shionogi in relation to its contingent consideration
liability (including preferential dividends) which amounted to
£179 million (Q2 2017: £140 million).
Net finance costs
Net
finance expense was £167 million compared with £177
million in Q2 2017. The reduction primarily reflected the maturity
of older bonds refinanced at lower interest rates as well as the
translation impact of exchange rate movements on the reported
Sterling costs of foreign currency denominated interest-bearing
instruments.
Taxation
The
charge of £139 million represented an effective tax rate of
22.6% (Q2 2017: 51.7%) and reflected the differing tax effects of
the various adjusting items.
Non-controlling interests
The
allocation of earnings to non-controlling interests amounted to
£34 million (Q2 2017: £94 million), including the
non-controlling interest allocations of Consumer Healthcare profits
of £28 million (Q2 2017: £57 million) for the period up
to 3 May 2018 when the buyout of Novartis’ interest became
unconditional, and the allocation of ViiV Healthcare losses of
£13 million (Q2 2017: allocation of profits of £24
million). The allocation of ViiV Healthcare losses included the
impact of changes in the proportions of preferential dividends due
to each shareholder and higher re-measurement charges in the
quarter.
Earnings per share
Total
earnings per share was 9.0p, compared with a loss per share of 3.7p
in Q2 2017. The increase in earnings per share primarily reflected
the reduced impact of charges arising from increases in the
valuation of the liabilities for contingent consideration, put
options and preferential dividends, as well as reduced
restructuring costs and asset impairments. In addition there was a
favourable comparison with the impact of the Priority Review
Voucher utilised and expensed in Q2 2017 and the non-cash charges
in Q2 2017 relating to the progressive withdrawal of Tanzeum.
|
|
Adjusting items
GSK
presents Total results and Adjusted results in order to assist
shareholders in better understanding the Group’s operational
performance. Adjusted results, which is a non-IFRS measure, may be
considered in addition to, but not as a substitute for, or superior
to, information presented in accordance with IFRS.
Total
results represent the Group’s overall performance. However,
these results can contain material unusual or non-operational items
that may obscure the key trends and factors determining the
Group’s operational performance. GSK therefore also reports
Adjusted results to help shareholders identify and assess more
clearly the Group’s performance. This approach aligns the
presentation of the Group’s results more closely with the
majority of GSK’s peer group.
Adjusted
results exclude the following items from Total results:
amortisation and impairments of intangible assets and goodwill;
major restructuring costs (under specific Board approved programmes
that are structural and of a significant scale), including
integration costs following material acquisitions; significant
legal charges and expenses; transaction-related accounting
adjustments; disposals and other operating income other than
royalty income, together with the tax effects of all of these items
and the impact of the implementation 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
Total and Adjusted results.
The
adjusting items that reconcile Total operating profit, profit after
tax and earnings per share to Adjusted results are as
follows:
|
|
|
Q2 2018
|
|
Q2
2017
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
£m
|
|
Profit
after tax
£m
|
|
Earnings
per
share
p
|
|
Operating
(loss)/
profit
£m
|
|
(Loss)/
profit
after
tax
£m
|
|
(Loss)/
earnings
per
share
p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total results
|
779
|
|
475
|
|
9.0
|
|
(20)
|
|
(86)
|
|
(3.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
asset amortisation
|
138
|
|
114
|
|
2.3
|
|
153
|
|
117
|
|
2.4
|
|
Intangible
asset impairment
|
28
|
|
23
|
|
0.4
|
|
295
|
|
198
|
|
4.1
|
|
Major
restructuring costs
|
158
|
|
121
|
|
2.5
|
|
440
|
|
290
|
|
5.9
|
|
Transaction-related
items
|
1,022
|
|
825
|
|
14.0
|
|
1,226
|
|
1,128
|
|
21.5
|
|
Divestments,
significant
legal
and other items
|
(23)
|
|
(7)
|
|
(0.1)
|
|
(11)
|
|
(146)
|
|
(3.0)
|
|
|
|
|
|
|
19.1
|
|
|
|
|
|
|
|
Adjusting
items
|
1,323
|
|
1,076
|
|
19.1
|
|
2,103
|
|
1,587
|
|
30.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted results
|
2,102
|
|
1,551
|
|
28.1
|
|
2,083
|
|
1,501
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
reconciliations between Total results and Adjusted results are set
out on pages 64 to 67 and the definition of Adjusted results is set
out on page 39.
|
|
|
|
Intangible asset amortisation and impairment
Intangible
asset amortisation was £138 million, compared with £153
million in Q2 2017. There were also intangible asset impairments of
£28 million (Q2 2017: £295 million) related to
Pharmaceuticals R&D development assets, reflecting a favourable
comparison with Q2 2017 which included an impairment related to the
progressive withdrawal of Tanzeum and a number of other
impairments to commercial assets. Both of these charges were
non-cash items.
|
|
Major restructuring and integration
Major
restructuring costs related to specific Board approved programmes
that are structural and of a significant scale, including those
integration costs following material acquisitions, are excluded
from Adjusted results. Other ordinary course smaller scale
restructuring costs are retained within Total and Adjusted
results.
Major
restructuring and integration charges incurred in the quarter under
the existing combined programme were £158 million (Q2 2017:
£440 million). Non-cash charges were £64 million (Q2
2017: £277 million) and cash charges were £94 million (Q2
2017: £163 million). Cash payments made in the quarter were
£109 million (Q2 2017: £119 million) including the
settlement of certain charges accrued in previous quarters. The
programme delivered incremental annual cost savings in the quarter
of £0.1 billion.
The
Board has approved a new major restructuring programme, 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 new programme is expected to cost
£1.7 billion over the period to 2021, comprising cash costs of
£0.8 billion and non-cash costs of £0.9 billion, and is
expected to deliver annual savings of around £400 million by
2021. These savings will be fully re-invested in the Group to help
fund targeted increases in R&D and commercial support of new
products.
Transaction-related adjustments
Transaction-related
adjustments resulted in a net charge of £1,022 million (Q2
2017: £1,226 million). This primarily reflected £953
million of accounting charges 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, the value attributable to the Consumer
Healthcare Joint Venture put option held by Novartis and the
liabilities for the Pfizer put option and Pfizer and Shionogi
preferential dividends in ViiV Healthcare.
|
|
Charge/(credit)
|
Q2 2018
£m
|
|
Q2
2017
£m
|
|
|
|
|
|
|
Consumer
Healthcare Joint Venture put option
|
163
|
|
730
|
|
Contingent
consideration on former Shionogi-ViiV Healthcare Joint
Venture
(including
Shionogi preferential dividends)
|
744
|
|
298
|
|
ViiV
Healthcare put options and Pfizer preferential
dividends
|
63
|
|
66
|
|
Contingent
consideration on former Novartis Vaccines business
|
(17)
|
|
116
|
|
Other
adjustments
|
69
|
|
16
|
|
|
|
|
|
|
Total
transaction-related charges
|
1,022
|
|
1,226
|
|
|
|
|
|
|
Following
the agreement to acquire Novartis’ interest in the Consumer
Healthcare Joint Venture announced on 27 March 2018, a net charge
of £163 million was taken in the quarter, primarily
representing £108 million of unwind of the discounted
liability until settlement on 1 June 2018. Between 31 March 2018
and settlement, the liability increased by £0.5 billion due to
movements in exchange rates but the additional charge to reflect
this increase was largely offset by gains on hedging
contracts.
The
£744 million charge relating to the contingent consideration
for the former Shionogi-ViiV Healthcare Joint Venture represented
£644 million arising from updated exchange rate assumptions
and changes to sales forecasts following the GEMINI study completed
in Q2 2018, together with a £100 million unwind of the
discount. A charge of £56 million relating to an increase in
the put option liability to Pfizer reflected revised exchange rate
assumptions on forecasts as well as adjustments to pipeline
forecasts. Other adjustments included a £70 million charge
reflecting the release of an indemnity asset relating to the tax
treatment of inventory acquired as part of the Novartis Vaccines
acquisition, with a corresponding offset in the tax
charge.
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 £185 million (Q2
2017: £143 million). This included cash payments made by ViiV
Healthcare to Shionogi in relation to its contingent consideration
liability (including preferential dividends) which amounted to
£179 million (Q2 2017: £140 million).
An
explanation of the accounting for the non-controlling interests in
ViiV Healthcare is set out on page 62.
Divestments, significant legal charges and other items
Divestments
and other items included the profit on a number of asset disposals,
equity investment impairments and certain other adjusting items. A
charge of £12 million (Q2 2017: £6 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 £7 million (Q2 2017:
£42 million).
|
|
Adjusted results
GSK
uses Adjusted results, which is a non-IFRS measure, to report the
performance of the Group as it believes that it allows the key
trends and factors in the Group’s performance to be more
easily and clearly identified. Non-IFRS measures may be considered
in addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS.
|
|
|
Q2 2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
7,310
|
|
100
|
|
-
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(2,079)
|
|
(28.4)
|
|
5
|
|
7
|
|
Selling,
general and administration
|
(2,334)
|
|
(31.9)
|
|
2
|
|
6
|
|
Research
and development
|
(868)
|
|
(11.9)
|
|
(18)
|
|
(15)
|
|
Royalty
income
|
73
|
|
1.0
|
|
(26)
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,102
|
|
28.8
|
|
1
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Adjusted
profit before tax
|
1,939
|
|
|
|
2
|
|
8
|
|
Adjusted
profit after tax
|
1,551
|
|
|
|
3
|
|
10
|
|
Adjusted
profit attributable to shareholders
|
1,381
|
|
|
|
4
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Adjusted
earnings per share
|
28.1p
|
|
|
|
3
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Operating profit by business
|
Q2 2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
2,111
|
|
49.9
|
|
(2)
|
|
3
|
|
Pharmaceuticals
R&D*
|
(619)
|
|
|
|
(10)
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
Total
Pharmaceuticals
|
1,492
|
|
35.3
|
|
2
|
|
7
|
|
Vaccines
|
357
|
|
28.5
|
|
(5)
|
|
3
|
|
Consumer
Healthcare
|
352
|
|
19.3
|
|
7
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
2,201
|
|
30.1
|
|
2
|
|
7
|
|
Corporate
& other unallocated costs
|
(99)
|
|
|
|
19
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,102
|
|
28.8
|
|
1
|
|
7
|
|
|
|
|
|
|
|
|
|
|
*
Operating profit of Pharmaceuticals R&D segment, which is the
responsibility of the President, Pharmaceuticals R&D. It
excludes ViiV Healthcare operating profit, which is reported within
the Pharmaceuticals segment. A more detailed breakdown of R&D
expenses is set out on page 36
|
|
Operating profit
Adjusted
operating profit was £2,102 million, 1% higher than Q2 2017 at
AER and 7% higher at CER on a turnover increase of 4% CER. The
Adjusted operating margin of 28.8% was 0.3 percentage points higher
at AER and 0.8 percentage points higher on a CER basis than in Q2
2017. This primarily reflected the impact of the Priority Review
Voucher utilised and expensed in Q2 2017. The quarter also
benefited from sales growth in all three businesses, a more
favourable mix, the benefits of prioritisation of R&D
expenditure and continued tight control of ongoing costs across all
three businesses. This was partly offset by continuing price
pressure, particularly in Respiratory, supply chain investments,
the benefit of a settlement for lost third party supply volume in
Vaccines in Q2 2017 and investments in promotional product support,
particularly for new launches in Vaccines, Respiratory and HIV, as
well as a reduction in royalty income.
Cost of sales
Cost of
sales as a percentage of turnover was 28.4%, up 1.3 percentage
points at AER, and up 0.8 percentage points at CER compared with Q2
2017, the growth of 7% in CER terms primarily reflected an adverse
year-on-year comparison with the benefit of a settlement for lost
third party supply volume in Q2 2017 in Vaccines, as well as
continued adverse pricing pressure in Pharmaceuticals, particularly
in Respiratory, and in Established Vaccines. This was partly offset
by a more favourable product mix in Pharmaceuticals in the quarter,
particularly the impact of higher HIV sales, and a further
contribution from integration and restructuring savings in all
three businesses.
Selling, general and administration
SG&A
costs as a percentage of turnover were 31.9%, 0.6 percentage points
higher at AER than in Q2 2017 and 0.7 percentage points higher on a
CER basis. The 6% (at CER) increase in SG&A costs primarily
reflected increased investment in promotional product support,
particularly for new launches in Vaccines, Respiratory and HIV and
targeted priority markets partly offset by tight control of ongoing
costs, particularly in non-promotional spending across all three
businesses.
Research and development
R&D
expenditure was £868 million (11.9% of turnover), 18% AER
lower than Q2 2017 and 15% lower on a CER basis, primarily
reflecting a favourable comparison with the impact of the Priority
Review Voucher in Q2 2017, but also the benefits of the
prioritisation initiatives started in Q3 2017. This was partly
offset by increased investment in the progression of a number of
mid and late-stage programmes, particularly in
Oncology.
Royalty income
Royalty
income was £73 million (Q2 2017: £98 million), a
reduction of 26% AER, 23% CER, primarily reflecting the patent
expiry of Cialis.
Operating profit by business
Pharmaceuticals
operating profit was £1,492 million, up 2% AER, 7% CER on a
turnover increase of 1% CER. The operating margin of 35.3% was 1.7
percentage points higher at AER than in Q2 2017 and 2.1 percentage
points higher on a CER basis. This primarily reflected the benefit
of a favourable comparison with the impact of the Priority Review
Voucher in Q2 2017. The Adjusted operating profit margin also
reflected increased investment in new product support and the
targeted priority markets and the continued impact of lower prices,
particularly in Respiratory, and the reduction in royalty income
partly offset by a more favourable product mix, primarily driven by
the growth in HIV sales, as well as the benefits of prioritisation
within R&D.
Vaccines operating profit was £357 million, 5% lower than Q2
2017 at AER but 3% higher at CER on a turnover increase of 16% CER.
The operating margin of 28.5% was 5.2 percentage points lower than
in Q2 2017 at AER and 4.0
percentage points lower on a CER
basis. This was primarily driven by an unfavourable comparison with
the benefit of a settlement for lost third party supply volume in
Q2 2017, increased supply chain investments and increased SG&A
resources particularly in support of the launch of
Shingrix. This was partly offset by improved product mix
and continued restructuring and integration
benefits.
Consumer
Healthcare operating profit was £352 million, up 7% AER, 13%
CER, on a turnover increase of 3% CER. The operating margin of
19.3% was 1.6 percentage points higher than in Q2 2017 at AER, and
1.7 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 Q2
2017.
Net finance costs
Net finance expense was £165 million compared with £176
million in Q2 2017. The reduction primarily reflected
maturity
of older bonds refinanced at lower interest rates as well as
the translation impact of
exchange rate movements on the reported Sterling costs of foreign
currency denominated interest-bearing
instruments.
Taxation
Tax on Adjusted profit amounted to £388 million and
represented an effective Adjusted tax rate of 20.0% (Q2 2017:
21.2%). See ‘Taxation’ on page 53 for further
details.
Non-controlling interests
The allocation of Adjusted earnings to non-controlling interests
amounted to £170 million (Q2 2017: £174 million),
including the non-controlling interest allocations of Consumer
Healthcare profits of £16 million (Q2 2017: £80 million)
for the period up to 3 May 2018 when the buyout of Novartis’
interest became unconditional, and the allocation of ViiV
Healthcare profits of £135 million (Q2 2017: £81
million), including the impact of changes in the proportions of
preferential dividends due to each shareholder based on the
relative performance of different products in the quarter. Q2 2017
also included the non-controlling interest allocation of the costs
of the Priority Review Voucher expensed in that
quarter.
Earnings per share
Adjusted
EPS of 28.1p was up 3% AER, 10% CER, compared with a 7% CER
increase in Adjusted operating profit, primarily as a result of the
reduced non-controlling interest allocation of Consumer Healthcare
profits and a reduced Adjusted tax rate.
|
|
Financial performance – H1 2018
|
|
Total results
|
|
The
Total results for the Group are set out below.
|
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
14,532
|
|
14,704
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(4,701)
|
|
(5,132)
|
|
(8)
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
9,831
|
|
9,572
|
|
3
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(4,768)
|
|
(4,831)
|
|
(1)
|
|
3
|
|
Research
and development
|
(1,829)
|
|
(2,220)
|
|
(18)
|
|
(14)
|
|
Royalty
income
|
126
|
|
180
|
|
(30)
|
|
(28)
|
|
Other
operating income/(expense)
|
(1,341)
|
|
(1,003)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
2,019
|
|
1,698
|
|
19
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
47
|
|
36
|
|
|
|
|
|
Finance
expense
|
(356)
|
|
(386)
|
|
|
|
|
|
Profit
on disposal of associates
|
-
|
|
20
|
|
|
|
|
|
Share
of after tax profits of
associates
and joint ventures
|
11
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
1,721
|
|
1,372
|
|
25
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(487)
|
|
(235)
|
|
|
|
|
|
Tax rate %
|
28.3%
|
|
17.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after taxation
|
1,234
|
|
1,137
|
|
9
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Profit
attributable to non-controlling
interests
|
244
|
|
271
|
|
|
|
|
|
Profit
attributable to shareholders
|
990
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,234
|
|
1,137
|
|
9
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
20.2p
|
|
17.7p
|
|
14
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
Cost of
sales as a percentage of turnover was 32.3%, down 2.6 percentage
points at AER and 3.4 percentage points in CER terms compared with
H1 2017. This primarily reflected a favourable comparison with
£363 million non-cash write downs of assets in H1 2017 related
to the decision to withdraw Tanzeum progressively. The six months
also benefited from a favourable product mix in Pharmaceuticals,
particularly the impact of higher HIV sales, and a further
contribution from integration and restructuring savings in all
three businesses. This was partly offset by an adverse comparison
with the benefit of a settlement for lost third party supply volume
in Q2 2017 in Vaccines, as well as continued adverse pricing
pressure in Pharmaceuticals, particularly in Respiratory, and in
Established Vaccines.
Selling, general and administration
SG&A
costs as a percentage of turnover were 32.8%, 0.1 percentage points
lower than in H1 2017 at AER and 0.2 percentage points lower on a
CER basis. This primarily reflected tight control of ongoing costs,
particularly in non-promotional spending across all three
businesses, and reduced major legal, restructuring and integration
costs, partly offset by. increased investment in promotional
product support, particularly for new launches in Respiratory, HIV
and Vaccines.
Research and development
R&D
expenditure was £1,829 million (12.6% of turnover), 18% lower
than in H1 2017 at AER and 14% lower at CER. This reflected a
favourable comparison with the impact of the Priority Review
Voucher in H1 2017, as well as reduced restructuring costs
primarily as a result of the provision for obligations as a result
of the decision to withdraw Tanzeum progressively and the benefit
of the prioritisation initiatives started in Q3 2017. This was
partly offset by increased investment in the progression of a
number of mid and late-stage programmes, particularly in
Oncology.
Royalty income
Royalty
income was £126 million (H1 2017: £180 million),
primarily reflecting the patent expiry of Cialis.
Other operating income/(expense)
Net
other operating expense of £1,341 million (H1 2017:
£1,003 million) primarily reflected £1,369 million (H1
2017: £1,281 million) of accounting charges 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, the value
attributable to the Consumer Healthcare Joint Venture put option
previously held by Novartis and the liabilities for the Pfizer put
option and Pfizer and Shionogi preferential dividends in ViiV
Healthcare.
These
charges were driven primarily by a £713 million re-measurement
of the contingent consideration liability due to Shionogi,
primarily related to changes in exchange rate assumptions and sales
forecasts following the GEMINI study completed in Q2 2018. In
addition, a net charge of £658 million reflected the
re-measurement of the valuation of the Consumer Healthcare put
option, together with movements in exchange rates largely offset by
gains on hedging contracts.
Operating profit
Total
operating profit was £2,019 million in H1 2018 compared with
£1,698 million in H1 2017. The increase in operating profit
primarily reflected reduced restructuring costs and asset
impairments in comparison with the non-cash charges in H1 2017
relating to the progressive withdrawal of Tanzeum, as well as a favourable
comparison from the impact of the Priority Review Voucher utilised
and expensed in H1 2017. In addition, there was a contribution from
sales growth on a CER basis in all three businesses, a more
favourable mix, benefits from prioritisation of R&D expenditure
and continued tight control of ongoing costs across all three
businesses. This was partly offset by continuing price pressure,
particularly in Respiratory, supply chain investments, the
favourable comparison with a settlement for lost third party supply
volume in Vaccines in H1 2017 and investments in new product
support, particularly for launches in Respiratory, HIV and
Vaccines, as well as a reduction in royalty income.
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 six months amounted to £702 million (H1
2017: £303 million). This included a cash milestone paid to
Novartis of $450 million (£317 million) as well as cash
payments made by ViiV Healthcare to Shionogi in relation to its
contingent consideration liability (including preferential
dividends) which amounted to £376 million (H1 2017: £299
million).
Net finance costs
Net
finance expense was £309 million compared with £350
million in H1 2017. The reduction reflected the benefit of a
one-off accounting adjustment to the amortisation of long term bond
interest charges of approximately £20 million, the maturity of
older bonds refinanced at lower interest rates as well as the
translation impact of exchange rate movements on the reported
Sterling costs of foreign currency denominated interest-bearing
instruments.
Taxation
The
charge of £487 million represented an effective tax rate of
28.3% (H1 2017: 17.1%) and reflected the differing tax effects of
the various adjusting items.
Non-controlling interests
The
allocation of earnings to non-controlling interests amounted to
£244 million (H1 2017: £271 million), including the
non-controlling interest allocations of Consumer Healthcare profits
of £117 million (H1 2017: £120 million) for the period up
to 3 May 2018 when the buyout of Novartis’ interest became
unconditional, and the allocation of ViiV Healthcare profits of
£97 million (H1 2017: £126 million). The allocation of
ViiV Healthcare profits included the impact of changes in the
proportions of preferential dividends due to each shareholder and
the impact of re-measurement charges.
Earnings per share
Total
earnings per share was 20.2p, compared with 17.7p in H1 2017. The
increase in earnings per share primarily reflected reduced
restructuring costs and asset impairments in comparison with the
non-cash charges in H1 2017 relating to the progressive withdrawal
of Tanzeum, as well as
a favourable
comparison from the impact of the Priority Review Voucher utilised
and expensed in H1 2017.
|
|
Adjusting items
GSK
presents Total results and Adjusted results in order to assist
shareholders in better understanding the Group’s operational
performance. Adjusted results, which is a non-IFRS measure, may be
considered in addition to, but not as a substitute for, or superior
to, information presented in accordance with IFRS.
Total
results represent the Group’s overall performance. However,
these results can contain material unusual or non-operational items
that may obscure the key trends and factors determining the
Group’s operational performance. GSK therefore also reports
Adjusted results to help shareholders identify and assess more
clearly the Group’s performance. This approach aligns the
presentation of the Group’s results more closely with the
majority of GSK’s peer group.
Adjusted
results exclude the following items from Total results:
amortisation and impairments of intangible assets and goodwill;
major restructuring costs under specific Board approved programmes
that are structural and of a significant scale, including
integration costs following material acquisitions; significant
legal charges and expenses; transaction-related accounting
adjustments; disposals and other operating income other than
royalty income, together with the tax effects of all of these items
and the impact of the implementation 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
the Adjusted results.
The
adjusting items that reconcile Total operating profit, profit after
tax and earnings per share to Adjusted results are as
follows:
|
|
|
H1 2018
|
|
H1
2017
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
£m
|
|
Profit
after tax
£m
|
|
Earnings
per
share
p
|
|
Operating
profit
£m
|
|
Profit
after
tax
£m
|
|
Earnings
per
share
p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total results
|
2,019
|
|
1,234
|
|
20.2
|
|
1,698
|
|
1,137
|
|
17.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
asset amortisation
|
287
|
|
231
|
|
4.7
|
|
295
|
|
228
|
|
4.7
|
|
Intangible
asset impairment
|
55
|
|
46
|
|
0.9
|
|
339
|
|
229
|
|
4.7
|
|
Major
restructuring costs
|
223
|
|
170
|
|
3.5
|
|
606
|
|
419
|
|
8.6
|
|
Transaction-related
items
|
1,459
|
|
1,282
|
|
23.0
|
|
1,318
|
|
1,194
|
|
22.4
|
|
Divestments,
significant legal
and
other items
|
(18)
|
|
19
|
|
0.4
|
|
(194)
|
|
(290)
|
|
(6.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusting
items
|
2,006
|
|
1,748
|
|
32.5
|
|
2,364
|
|
1,780
|
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted results
|
4,025
|
|
2,982
|
|
52.7
|
|
4,062
|
|
2,917
|
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
reconciliations between Total results and Adjusted results are set
out on pages 64 to 67 and the definition of Adjusted results is set
out on page 39.
|
|
Intangible asset amortisation and impairment
Intangible
asset amortisation was £287 million, compared with £295
million in H1 2017. There were also lower intangible asset
impairments of £55 million (H1 2017: £339 million)
related to commercial and Pharmaceuticals R&D development
assets, reflecting a favourable comparison with H1 2017 which
included an impairment related to the progressive withdrawal of
Tanzeum and a number of
other impairments to commercial assets. Both of these charges were
non-cash items.
|
|
Major restructuring and integration
Major
restructuring costs related to specific Board approved programmes
that are structural and of a significant scale, including those
integration costs following material acquisitions, are excluded
from Adjusted results. Other ordinary course smaller scale
restructuring costs are retained within Total and Adjusted
results.
Major
restructuring and integration charges incurred in the six months
were £223 million (H1 2017: £606 million). Non-cash
charges were £81 million (H1 2017: £297 million) and cash
charges were £142 million (H1 2017: £309 million). Cash
payments made in the six months were £213 million (H1 2017:
£332 million) including the settlement of certain charges
accrued in previous quarters. The programme delivered incremental
annual cost savings in the six months of £0.2
billion.
Charges
for the combined restructuring and integration programme to date
are £5.0 billion, of which cash charges were £3.6
billion. Cash payments of £3.3 billion have been made to date.
Non-cash charges were £1.4 billion.
Estimated
charges for 2018 under the existing programmes are £0.5
billion, with cash charges of around £0.3 billion and non-cash
charges of around £0.2 billion.
Total
cash charges for the existing programme are now expected to be
approximately £4.1 billion with non-cash charges up to
£1.6 billion. The programme has now delivered approximately
£3.8 billion of annual savings, including a currency benefit
of £0.4 billion. The programme is now expected to deliver by
2020 total annual savings of £4.0 billion on a constant
currency basis, together with an estimated benefit of £0.4
billion from currency on the basis of H1 2018 average exchange
rates.
The
Board has approved a new major restructuring programme, 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 new programme is expected to cost
£1.7 billion over the period to 2021, comprising cash costs of
£0.8 billion and non-cash costs of £0.9 billion, and is
expected to deliver annual savings of around £400 million by
2021. These savings will be fully re-invested in the Group to help
fund targeted increases in R&D and commercial support of new
products.
Estimated
charges under the new programme for 2018 are £0.4 billion,
with cash charges of around £0.3 billion and non-cash charges
of around £0.1 billion.
Transaction-related adjustments
Transaction-related
adjustments resulted in a net charge of £1,459 million (H1
2017: £1,318 million). This primarily reflected £1,369
million of accounting charges 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, the value attributable to the Consumer
Healthcare Joint Venture put option held by Novartis and the
liabilities for the Pfizer put option and Pfizer and Shionogi
preferential dividends in ViiV Healthcare.
|
|
Charge/(credit)
|
H1 2018
£m
|
|
H1
2017
£m
|
|
|
|
|
|
|
Consumer
Healthcare Joint Venture put option
|
658
|
|
851
|
|
Contingent
consideration on former Shionogi-ViiV Healthcare Joint
Venture
(including
Shionogi preferential dividends)
|
713
|
|
346
|
|
ViiV
Healthcare put options and Pfizer preferential
dividends
|
2
|
|
(48)
|
|
Contingent
consideration on former Novartis Vaccines business
|
(4)
|
|
131
|
|
Other
adjustments
|
90
|
|
38
|
|
|
|
|
|
|
Total
transaction-related charges
|
1,459
|
|
1,318
|
|
|
|
|
|
|
A net
charge of £658 million relating to the Consumer Healthcare
Joint Venture represented the re-measurement of the valuation of
the Consumer Healthcare put option to the agreed undiscounted
valuation of $13 billion (£9.2 billion on signing), together
with an increase due to movements in exchange rates, largely offset
by gains on hedging contracts.
The
£713 million charge taken relating to the contingent
consideration for the former Shionogi-ViiV Healthcare Joint Venture
represented a £512 million increase in the valuation of the
contingent consideration due to Shionogi, primarily as a result of
updated exchange rate assumptions and sales forecasts following the
GEMINI study completed in Q2 2018, together with a £201
million unwind of the discount.
Other
adjustments included a £70 million charge reflecting the
release of an indemnity asset relating to the tax treatment of
inventory acquired as part of the Novartis Vaccines acquisition,
with a corresponding offset in tax.
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 six months amounted to £702 million (H1
2017: £303 million). This included a cash milestone paid to
Novartis of $450 million (£317 million) as well as cash
payments made by ViiV Healthcare to Shionogi in relation to its
contingent consideration liability (including preferential
dividends) which amounted to £376 million (H1 2017: £299
million).
An
explanation of the accounting for the non-controlling interests in
ViiV Healthcare is set out on page 62.
Divestments, significant legal charges and other items
Divestments
and other items included the profit on a number of asset disposals,
equity investment impairments and certain other adjusting items. A
charge of £17 million (H1 2017: £61 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 £12 million (H1 2017:
£47 million).
|
|
Adjusted results
GSK
uses Adjusted results, which is a non-IFRS measure, to report the
performance of the Group. as it believes that it allows the key
trends and factors in the Group’s performance to be more
easily and clearly identified Non-IFRS measures may be considered
in addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS
|
|
|
H1 2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
14,532
|
|
100
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(4,258)
|
|
(29.3)
|
|
1
|
|
3
|
|
Selling,
general and administration
|
(4,620)
|
|
(31.8)
|
|
-
|
|
4
|
|
Research
and development
|
(1,755)
|
|
(12.1)
|
|
(11)
|
|
(7)
|
|
Royalty
income
|
126
|
|
0.9
|
|
(30)
|
|
(28)
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
4,025
|
|
27.7
|
|
(1)
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Adjusted
profit before tax
|
3,732
|
|
|
|
-
|
|
9
|
|
Adjusted
profit after tax
|
2,982
|
|
|
|
2
|
|
12
|
|
Adjusted
profit attributable to shareholders
|
2,588
|
|
|
|
2
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Adjusted
earnings per share
|
52.7p
|
|
|
|
1
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Operating profit by business
|
H1 2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
4,052
|
|
49.2
|
|
(5)
|
|
1
|
|
Pharmaceuticals
R&D*
|
(1,231)
|
|
|
|
(10)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Total
Pharmaceuticals
|
2,821
|
|
34.2
|
|
(3)
|
|
4
|
|
Vaccines
|
696
|
|
27.9
|
|
(3)
|
|
10
|
|
Consumer
Healthcare
|
736
|
|
19.4
|
|
8
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
4,253
|
|
29.3
|
|
(1)
|
|
7
|
|
Corporate
& other unallocated costs
|
(228)
|
|
|
|
(3)
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
4,025
|
|
27.7
|
|
(1)
|
|
8
|
|
|
|
|
|
|
|
|
|
|
*
Operating profit of Pharmaceuticals R&D segment, which is the
responsibility of the President, Pharmaceuticals R&D. It
excludes ViiV Healthcare operating profit, which is reported within
the Pharmaceuticals segment. A more detailed breakdown of R&D
expenses is set out on page 36
|
|
Operating profit
Adjusted
operating profit was £4,025 million, 1% AER lower than in H1
2017 but 8% CER higher on a turnover increase of 4%. The Adjusted
operating margin of 27.7% was 0.1 percentage points higher at AER
than in H1 2017 and 1.1 percentage points higher on a CER basis.
This primarily reflected the impact of the Priority Review Voucher
utilised and expensed in H1 2017. Operating profit also benefited
from sales growth in all three businesses, a more favourable mix,
the benefits of prioritisation of R&D expenditure and continued
tight control of ongoing costs across all three businesses. This
was partly offset by continuing price pressure, particularly in
Respiratory, supply chain investments, the comparison with the
benefit in Q2 2017 of a settlement for lost third party supply
volume in Vaccines and investments in promotional product support,
particularly for new launches in Respiratory, HIV and Vaccines, as
well as a reduction in royalty income.
Cost of sales
Cost of
sales as a percentage of turnover was 29.3%, up 0.7 percentage
points at AER, but down 0.1 percentage points in CER terms compared
with H1 2017. This primarily reflected a more favourable product
mix in Pharmaceuticals, particularly the impact of higher HIV sales
as well as a further contribution from integration and
restructuring savings in all three businesses, offset by an adverse
comparison with the benefit of a settlement for lost third party
supply volume in H1 2017 in Vaccines, as well as continued adverse
pricing pressure in Pharmaceuticals, particularly in Respiratory,
and in Established Vaccines.
Selling, general and administration
SG&A
costs as a percentage of turnover were 31.8%, 0.2 percentage points
higher at AER than in H1 2017 but flat on a CER basis. The 4% (CER)
increase primarily reflected increased investment in promotional
product support, particularly for new launches in Respiratory, HIV
and Vaccines, offset by tight control of ongoing costs,
particularly in non-promotional spending across all three
businesses.
Research and development
R&D
expenditure was £1,755 million (12.1% of turnover),11% AER
lower than H1 2017 and 7% lower on a CER basis, primarily
reflecting the comparison with the impact of the Priority Review
Voucher in H1 2017, as well as the benefit of the prioritisation
initiatives started in Q3 2017. This was partly offset by increased
investment in the progression of a number of mid and late-stage
programmes, particularly in Oncology.
Royalty income
Royalty
income was £126 million (H1 2017: £180 million),
primarily reflecting the patent expiry of Cialis.
Operating profit by business
Pharmaceuticals
operating profit was £2,821 million, down 3% AER but up 4% CER
on a turnover increase of 1% CER. The operating margin of 34.2% was
0.2 percentage points higher at AER than in H1 2017 and 0.8
percentage points higher on a CER basis. This primarily reflected
the favourable comparison with the impact of the Priority Review
Voucher in H1 2017, as well as a more favourable product mix,
primarily driven by the growth in HIV sales, as well as benefits of
prioritisation within R&D. This was offset by increased
investment in new product support and the continued impact of lower
prices, particularly in Respiratory, and the broader transition of
the Respiratory portfolio as well as the reduction in royalty
income.
Vaccines
operating profit was £696 million, 3% AER lower than in H1
2017 and 10% higher at CER on a turnover increase of 14% CER. The
operating margin of 27.9% was 3.7 percentage points lower at AER
than in H1 2017 and 1.2 percentage points lower on a CER basis.
This was primarily driven by an unfavourable comparison with the
benefit of a settlement for lost third party supply volume recorded
in H1 2017, increased supply chain costs, and increased SG&A
resources to support new launches and business growth. This was
partly offset by improved product mix and continued restructuring
and integration benefits.
Consumer
Healthcare operating profit was £736 million, up 8% AER and
15% CER higher on a turnover increase of 2% CER. The operating
margin of 19.4% was 2.0 percentage points higher than in H1 2017
and 2.2 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.
Net finance costs
Net finance expense was £304 million compared with £345
million in H1 2017. The reduction primarily reflected the benefit
of a one-off accounting adjustment to the amortisation of long term
bond interest charges of £20m in Q1 2018, the
maturity
of older bonds refinanced at
lower interest rates as well as
the translation impact of exchange rate movements on the reported
Sterling costs of foreign currency denominated interest-bearing
instruments.
Taxation
Tax on Adjusted profit amounted to £750 million and
represented an effective Adjusted tax rate of 20.1% (H1 2017:
21.6%). See ‘Taxation’ on page 53 for further
details.
Non-controlling interests
The allocation of Adjusted earnings to non-controlling interests
amounted to £394 million (H1 2017: £373 million),
including the non-controlling interest allocations of Consumer
Healthcare profits of £118 million (H1 2017: £154
million) for the period up to 3 May 2018 when the buyout of
Novartis’ interest became unconditional, and the allocation
of ViiV Healthcare profits, of £246 million (H1 2017:
£194 million) including the impact of changes in the
proportions of preferential dividends due to each shareholder based
on the relative performance of different products in the six
months. H1 2017 also included the non-controlling interest
allocation of the Priority Review Voucher expensed in the six
months.
Earnings per share
Adjusted
EPS of 52.7p was up 1% AER, 11% CER, compared with an 8% CER
increase in Adjusted operating profit, primarily as a result of a
reduced non-controlling interest allocation of Consumer Healthcare
profits and a reduced Adjusted tax rate.
|
|
Currency impact on Q2 2018 and H1 2018 results
The Q2
2018 results are based on average exchange rates, principally
£1/$1.35, £1/€1.15 and £1/Yen 147. Comparative
exchange rates are given on page 54. The period-end exchange rates
were £1/$1.32, £1/€1.13 and £1/Yen
146.
In the
quarter, turnover was flat in AER terms but increased 4% CER. Total
EPS was 9.0p compared with a loss per share of 3.7p in Q2 2017 and
Adjusted EPS was 28.1p compared with 27.2p in Q2 2017, up 3% AER,
and up 10% CER. The negative currency impact primarily reflected
the strength of Sterling, particularly against the US$ and Yen,
relative to Q2 2017. Exchange gains or losses on the settlement of
intercompany transactions had a negligible impact of the negative
currency impact of seven percentage points on Adjusted
EPS.
In H1
2018, turnover reduced 1% in AER terms but increased 4% CER. Total
EPS was 20.2p compared with EPS of 17.7p in H1 2017 and Adjusted
EPS was 52.7p compared with 52.1p in H1 2017, up 1% AER, and up 11%
CER. The negative currency impact primarily reflected the strength
of Sterling, particularly against the US$ and Yen, relative to H1
2017. Exchange gains or losses on the settlement of intercompany
transactions had less than one percentage point negative impact of
the negative currency impact of ten percentage points on Adjusted
EPS.
|
|
Cash generation and conversion
|
|
Cash flow and net debt
|
|
|
Q2 2018
|
|
H1
2018
|
|
H1
2017
(revised)
|
|
|
|
|
|
|
|
|
Net
cash inflow from operating activities (£m)
|
1,362
|
|
2,225
|
|
2,152
|
|
Free
cash flow* (£m)
|
492
|
|
821
|
|
386
|
|
Free
cash flow growth (%)
|
>100
|
|
>100
|
|
>100
|
|
Free
cash flow conversion* (%)
|
>100
|
|
83
|
|
45
|
|
Net
debt** (£m)
|
23,935
|
|
23,935
|
|
14,800
|
|
*
|
Free
cash flow and free cash flow conversion are defined on page
39.
|
|
**
|
Net
debt is analysed on page 61.
|
|
Q2 2018
The net
cash inflow from operating activities for the quarter was
£1,362 million (Q2 2017: £1,008 million). The increase
primarily reflected improved operating profits and the phasing of
payments for returns and rebates, partly offset by a negative
currency impact on operating profit and increased working capital,
primarily reflecting a larger increase in seasonal and other
inventories compared with Q2 2017 particularly related to new
launches, as well as increased receivables following recent sales
growth.
Total
cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were £179
million, of which £158 million was recognised in cash flows
from operating activities and £21 million was recognised in
contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
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 39. Comparative figures have
been revised accordingly. Free cash flow was £492 million for
the quarter, including proceeds from disposals of intangible assets
of £18 million (Q2 2017: £264 million outflow, including
proceeds from disposals of intangible assets of £18 million).
The increase primarily reflected improved operating profit, the
favourable timing of payments for returns and rebates, lower
capital expenditure and the favourable comparison to the impact of
the Priority Review Voucher in Q2 2017 as well as reduced dividend
payments to non-controlling interests. This was partly offset by a
negative currency impact on operating profit and increased working
capital, primarily reflecting a larger increase in seasonal and
other inventories compared with Q2 2017 particularly related to new
product launches as well as increased receivables following recent
sales growth.
|
|
H1 2018
The net
cash inflow from operating activities for the six months was
£2,225 million (H1 2017: £2,152 million). The increase
primarily reflected improved operating profits, reduced
restructuring payments and the phasing of payments for returns and
rebates, partly offset by a negative currency impact on operating
profit and increased working capital, primarily reflecting a larger
increase in seasonal and other inventories compared with H1 2017
particularly related to new launches, as well as increased
receivables following recent sales growth.
Total
cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were £376
million, of which £332 million was recognised in cash flows
from operating activities and £44 million was recognised in
contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
Free
cash flow was £821 million for the six months, including
proceeds from disposals of intangible assets of £23 million
(H1 2017: £386 million, including proceeds from disposals of
intangible assets of £18 million). The increase primarily
reflected improved operating profits, reduced restructuring
payments, favourable timing of payments for returns and rebates,
lower capital expenditures including the favourable comparison to
the impact of the Priority Review Voucher in Q2 2017 as well as
reduced dividend payments to non-controlling interests. This was
partly offset by a negative currency impact on operating profit,
increased contingent consideration payments including the $450
million (£317 million) milestone to Novartis in Q1 2018 and
increased working capital reflecting a larger increase in seasonal
and other inventories compared with H1 2017 particularly related to
new product launches, as well as increased receivables following
recent sales growth.
|
|
Net debt
At 30
June 2018, net debt was £23.9 billion, compared with
£13.2 billion at 31 December 2017, comprising gross debt of
£28.0 billion and cash and liquid investments of £4.1
billion. Net debt increased due to the £9.3 billion
acquisition from Novartis of its stake in the Consumer Healthcare
Joint Venture in June 2018, an unfavourable exchange impact of
£0.4 billion from the translation of non-Sterling denominated
debt, and dividends paid to shareholders of £2.1 billion,
partly offset by increased free cash flow of £0.8 billion
including the milestone payment to Novartis.
At 30
June 2018, GSK had short-term borrowings (including overdrafts)
repayable within 12 months of £3.5 billion with loans of
£2.0 billion repayable in the subsequent year.
|
|
Working capital
|
|
|
30
June
2018
|
|
31
March
2018
|
|
30
December
2017
|
|
30
September
2017
|
|
30
June
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital conversion cycle* (days)
|
223
|
|
204
|
|
191
|
|
210
|
|
207
|
|
Working
capital percentage of turnover (%)
|
26
|
|
24
|
|
22
|
|
25
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Working
capital and working capital conversion cycle are defined on page
39.
|
|
The
increase of 19 days in Q2 2018 primarily reflected seasonal and
other inventory build behind recent launches, as well as an
increase in trade receivables as a result of recent sales growth,
particularly of new launches. It also reflects a reduced
denominator due to lower restructuring and impairment costs in 2018
and an increase of two days as a result of exchange
rates.
The
increase of 16 days compared with June 2017 primarily reflected the
increase in trade receivables as a result of recent sales growth,
particularly of new launches, as well as the full year impact of
the building of inventory for new product launches. In addition, it
was also impacted by the reduced denominator due to lower
restructuring and impairment costs in 2018 and an increase due to
exchange rates (compared with a five day reduction impacting June
2017).
|
|
Returns to shareholders
|
|
Quarterly dividends
The
Board has declared a second interim dividend for 2018 of 19 pence
per share (Q2 2017: 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 2018 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 October 2018. An annual
fee of $0.02 per ADS (or $0.005 per ADS per quarter) is charged by
the Depositary.
The
ex-dividend date will be 9 August 2018, with a record date of 10
August 2018 and a payment date of 11 October 2018.
|
|
|
Paid/
payable
|
|
Pence
per
share
|
|
£m
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
First
interim
|
12 July
2018
|
|
19
|
|
934
|
|
Second
interim
|
11 October
2018
|
|
19
|
|
934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
First
interim
|
13 July
2017
|
|
19
|
|
928
|
|
Second
interim
|
12
October 2017
|
|
19
|
|
929
|
|
Third
interim
|
11
January 2018
|
|
19
|
|
929
|
|
Fourth
interim
|
12
April 2018
|
|
23
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
3,916
|
|
|
|
|
|
|
|
|
GSK
made no share repurchases during the quarter. The company issued
0.9 million shares under employee share schemes for proceeds of
£12 million (Q2 2017: £13 million).
The
weighted average number of shares for Q2 2018 was 4,914 million,
compared with 4,887 million in Q2 2017.
|
|
Research and development
|
|
GSK
remains focused on delivering an improved return on its investment
in R&D. Sales contribution, reduced attrition, cost reduction
and time to market are all important drivers of an improving
internal rate of return. R&D expenditure is not determined as a
percentage of sales but instead capital is allocated using strict
returns based criteria depending on the pipeline opportunities
available.
The
R&D operations in Pharmaceuticals are broadly split into
Discovery activities and Development work, each supported by
specific and common infrastructure and other shared services where
appropriate. The new R&D strategy has redefined the allocation
of costs between Discovery and Development such that Discovery now
includes all phase I activities and Development includes phase II
activities onwards. Previously phase IIa activities were included
within Discovery. In addition, the methodology of allocating
projects by phase has been revised. Comparative information has
been revised accordingly. The impact on Q2 2017 was to increase
Discovery costs by £22 million and Facilities and central
support functions costs by £7 million and reduce Development
costs by £29 million. The impact on H1 2017 was to increase
Discovery costs by £7 million and Facilities and central
support functions costs by £13 million and reduce Development
costs by £20 million. R&D expenditure for Q2 2018 and H1
2018 is analysed below.
|
|
|
Q2 2018
£m
|
|
Q2
2017
(revised)
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Discovery
|
203
|
|
281
|
|
(28)
|
|
(25)
|
|
Development
|
300
|
|
422
|
|
(29)
|
|
(27)
|
|
Facilities
and central support functions
|
138
|
|
137
|
|
1
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
641
|
|
840
|
|
(24)
|
|
(21)
|
|
Vaccines
|
172
|
|
160
|
|
8
|
|
9
|
|
Consumer
Healthcare
|
55
|
|
53
|
|
4
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Adjusted
R&D
|
868
|
|
1,053
|
|
(18)
|
|
(15)
|
|
Amortisation
and impairment of
intangible
assets
|
35
|
|
27
|
|
|
|
|
|
Major
restructuring costs
|
20
|
|
170
|
|
|
|
|
|
Other
items
|
2
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Research and development
|
925
|
|
1,260
|
|
(27)
|
|
(25)
|
|
|
|
|
|
|
|
|
|
|
|
H1 2018
£m
|
|
H1
2017
(revised)
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Discovery
|
401
|
|
516
|
|
(22)
|
|
(19)
|
|
Development
|
622
|
|
756
|
|
(18)
|
|
(13)
|
|
Facilities
and central support functions
|
284
|
|
290
|
|
(2)
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
1,307
|
|
1,562
|
|
(16)
|
|
(12)
|
|
Vaccines
|
333
|
|
296
|
|
13
|
|
13
|
|
Consumer
Healthcare
|
115
|
|
114
|
|
1
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Adjusted
R&D
|
1,755
|
|
1,972
|
|
(11)
|
|
(7)
|
|
Amortisation
and impairment of
intangible
assets
|
45
|
|
47
|
|
|
|
|
|
Major
restructuring costs
|
23
|
|
185
|
|
|
|
|
|
Other
items
|
6
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Research and development
|
1,829
|
|
2,220
|
|
(18)
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
In Q2
2018, Adjusted R&D expenditure declined 18% AER, 15% CER, with
Pharmaceuticals down 24% AER, 21% CER primarily reflecting a
favourable comparison with the impact of the Priority Review
Voucher in Q2 2017. The decline in Discovery primarily reflected
the phasing of expenditure on specific programmes, including the
transfer of certain oncology assets into the development phase. The
increase in Vaccines R&D primarily reflected the benefit of
comparison with favourable phasing of expenditure in Q2
2017.
|
|
R&D pipeline
|
|
Pipeline news flow since Q1 2018:
|
|
|
|
|
|
Vaccines
|
|
|
Our
Vaccines business is one of the largest in the world with the
broadest portfolio of any company. The focus of GSK Vaccines
pipeline is to maintain GSK’s meningococcal meningitis market
leadership with both licensed and candidate vaccines. In addition,
we are pursuing a full RSV portfolio for infants, older adults and
maternal immunisation, with different approaches tailored to the
specific segments. This portfolio has the potential to deliver a
series of first and/or best in class vaccines. In addition, we
continue to leverage our unique technology platforms to target new,
emerging or remaining medical needs.
|
|
|
|
|
|
Bexsero
|
|
|
●
|
On 27
June 2018, GSK announced that the European Commission had approved
an alternative Bexsero
immunisation schedule requiring one less injection.
|
|
|
|
|
Respiratory
|
|
|
GSK has
led the way in developing innovative medicines to advance the
management of asthma and COPD for nearly 50 years. Over the last
five years we have launched six innovative medicines responding to
continued unmet patient need, despite existing therapies. This is
an industry-leading portfolio in terms of breadth, depth and
innovation, and we continue to invest to ensure we can bring the
right medicines to the right patients globally.
|
|
|
|
|
|
Trelegy
Ellipta
|
|
|
●
|
On 29
May 2018, GSK and Innoviva announced the submission of a regulatory
application to the Japanese Ministry of Health, Labour and Welfare
for once-daily Trelegy
Ellipta for adults with COPD. This is the first regulatory
filing to be made in Japan for a triple COPD therapy in a single
inhaler;
|
|
|
|
|
●
|
On 30
May 2018, Trelegy Ellipta
was filed in China for the treatment of adults with
COPD.
|
|
|
|
|
Nucala
|
|
|
●
|
On 21
May 2018, GSK presented new data from the longest study of an
anti-IL5 biologic treatment in severe eosinophilic asthma to be
reported. The study showed consistent reductions in exacerbations
and improvements in asthma control, with a safety profile similar
to previous clinical studies, in severe eosinophilic asthma
patients treated with Nucala over the long-term study
period;
|
|
|
|
|
●
|
In May
2018, Nucala was approved
in Japan for eosinophilic granulomatosis and polyangiitis
(EGPA).
|
|
|
|
|
Arnuity
Ellipta
|
|
|
●
|
On 21
May 2018, GSK announced US approval of Arnuity Ellipta for use in children
from 5 years old who suffer from asthma.
|
|
|
|
|
HIV/Infectious diseases
|
|
|
GSK has
a long-standing commitment to HIV and infectious diseases –
our scientists discovered amoxycillin, the widely used antibiotic,
over 40 years ago, and developed the first medicines approved to
treat HIV (AZT), HBV (lamivudine), herpes viruses (acyclovir) and
influenza (zanamivir). Today, we are investigating new medicines to
treat, prevent and possibly, ultimately cure HIV and other
infectious diseases. Our scientists are committed to developing
medicines that advance HIV care by exploring new treatment
paradigms (2-drug regimens), new modalities (long-acting
injectables) and new mechanisms of actions (including maturation
inhibitors and broadly neutralising antibodies).
|
|
|
|
|
|
Juluca
|
|
|
●
|
On 21
May 2018, ViiV Healthcare announced that the European Committee had
granted marketing authorisation for Juluca (dolutegravir/rilpivirine) for
the treatment of HIV. Juluca regulatory approvals were also
received from Health Canada in May and from the Australian
Therapeutic Goods Administration in June.
|
|
|
|
|
●
|
On 24
July 2018, ViiV Healthcare presented the SWORD 100-week data for
Juluca at the International
AIDS Conference in Amsterdam.
|
|
Dolutegravir + lamivudine
|
|
|
●
|
On 14
June 2018, ViiV Healthcare reported positive headline results from
its phase III GEMINI study programme. The studies are designed to
evaluate the safety and efficacy of a two-drug regimen (DTG+3TC)
compared with a three-drug regimen (DTG+TDF+FTC) in treatment naive
HIV-1 infected adults with baseline viral loads less than 500,000
copies per ml. The studies met their primary endpoint for
non-inferiority and no patient who experienced virologic failure in
either treatment arm developed treatment-emergent
resistance.
|
|
|
|
|
●
|
On 24
July 2018, ViiV Healthcare presented the 48 week GEMINI 1 and 2
studies at the International AIDS Conference in
Amsterdam.
|
|
|
|
|
Immuno-inflammation
|
|
|
Immuno-inflammatory
diseases are relatively common, chronic, debilitating conditions.
While diverse in presentation, they are collectively hallmarked by
impairment of quality of life and can lead to premature mortality.
There is significant unmet need for improved treatment options for
immuno-inflammatory diseases.
|
|
|
|
|
|
Benlysta
|
|
|
●
|
On 13
June 2018, GSK announced results from two new analyses showing low
rates of organ damage progression in patients with active systemic
lupus erythematosus (SLE) treated with Benlysta. These data were presented at
the 2018 Annual European College of Rheumatology
(EULAR).
|
|
|
|
|
●
|
Benlysta phase II data in paediatric patients with
childhood-onset systemic lupus erythematosus are in house and were
consistent with the adult IV and subcutaneous Benlysta studies. These data are
expected to be presented at a future scientific
congress.
|
|
|
|
|
Tapinarof
|
|
|
●
|
On 12
July 2018, GSK announced an agreement with Roivant Sciences and
Dermavant Sciences to divest tapinarof for the treatment of
psoriasis and atopic dermatitis and back-up programmes for a total
consideration of £250 million, including an initial payment of
£150 million and a potential future milestone payment of
£100 million.
|
|
|
|
|
3196165 (anti-GM-CSF)
|
|
|
●
|
Positive
phase IIb results for GSK3196165 in rheumatoid arthritis are
expected to be presented at a future scientific congress. The
Osteoarthritis indication has been terminated.
|
|
|
|
|
Oncology
|
|
|
Cancer
is one of the leading causes of death in the developed world. GSK
is focused on delivering transformational therapies for cancer
patients that may help to maximise their survival. GSK’s
pipeline is focused on immuno-oncology, cell therapy, and
epigenetics. Our goal is to achieve a sustainable flow of new
treatments for cancer patients based on a diversified portfolio of
investigational medicines utilising modalities such as small
molecules, antibodies, multi-specific molecules, adjuvants and
cells, either alone or in combination.
|
|
|
|
|
|
2857916 (BCMA antibody-drug conjugate)
|
|
|
●
|
In July
2018, the first potential medicine from GSK’s emerging
oncology pipeline advanced to late-stage development with the start
of DREAMM-2, the pivotal phase II study for GSK ‘916 in 4L
relapsed/ refractory multiple myeloma. Announced initial 2L study,
for use in combination with standard of care, to start in H2
2018.
|
|
|
|
|
3377794 (NY-ESO T-cell therapy)
|
|
|
●
|
On 24
July 2018, GSK and Adaptimmune announced the transition of the
development programme for GSK 3377794 , an NY-ESO SPEAR T-cell
therapy, to GSK. As a result of the transition, GSK assumes full
responsibility for future research, development, and potential
commercialisation of this pioneering therapy, and Adaptimmune will
receive $27.5 million (£21.2 million) from GSK.
|
|
|
|
|
Other
|
|
|
|
|
|
Daprodustat
|
|
|
●
|
In June
2018, enrolment completed in GSK’s phase III ASCEND-D study
of daprodustat (HIF-PHI) in dialysis patients with anaemia
associated with chronic kidney disease.
|
|
|
|
|
Tafenoquine
|
|
|
●
|
On 20
July 2018, GSK and Medicines for Malaria Venture announced that the
US FDA had approved, under priority review, single dose
Krintafel (tafenoquine) for
the radical cure of P. vivax malaria, the first new medicine for
this indication in 60 years.
|
|
Reporting definitions
|
|
GSK
uses a number of adjusted, non-IFRS, measures to report the
performance of its business. These measures are used by management
for planning and reporting purposes and in discussions with and
presentations to investment analysts and rating agencies and may
not be directly comparable with similarly described measures used
by other companies. Non-IFRS measures may be considered in addition
to, but not as a substitute for or superior to, information
presented in accordance with IFRS.
Total results
Total
reported results represent the Group’s overall performance.
However, these results can contain material unusual or
non-operational items that may obscure the key trends and factors
determining the Group’s operational performance. As a result,
GSK also reports Adjusted results, which is a non-IFRS
measure.
Adjusted results
GSK
believes that Adjusted results allow the key trends and factors
driving the Group’s performance to be more easily and clearly
identified by shareholders. The definition of Adjusted results, as
set out below, also aligns the Group’s results with the
majority of its peer companies and how they report
earnings.
Adjusted
results exclude the following items from Total results:
amortisation and impairment of intangible assets (excluding
computer software) and goodwill; major restructuring costs,(under
specific Board approved programmes that are structural and of a
significant scale), including those integration costs following
material acquisitions; significant legal charges (net of insurance
recoveries) and expenses on the settlement of litigation and
government investigations, transaction-related accounting
adjustments for significant acquisitions, and other items,
including disposals of associates, products and businesses and
other operating income other than royalty income, together with the
tax effects of all of these items and 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 Total and Adjusted
results.
As
Adjusted results may exclude significant costs, such as those from
major restructuring programmes or significant legal charges, they
should not be regarded as a complete picture of the Group’s
financial performance which is presented in its Total
results.
Reconciliations
between Total and Adjusted results, as set out on pages 19, 27 and
64 to 67, including detailed breakdowns of the key adjusting items,
are provided to shareholders to ensure full visibility and
transparency as they assess the Group’s
performance.
Free cash flow
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. This balances
with the expenditure on purchases of intangible assets, which is
deducted in calculating free cash flow, and makes the treatment of
intangible assets consistent with property, plant and equipment.
Free cash flow is now defined as the net cashinflow 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 61.
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.
Working capital conversion cycle
The
working capital conversion cycle is calculated as the number of
days sales outstanding plus days inventory outstanding, less days
purchases outstanding.
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. £%
or AER% represents growth at actual exchange rates.
|
|
Outlook assumptions and cautionary statements
|
|
|
|
Assumptions related to 2018 guidance and 2016-2020
outlook
In
outlining the expectations for 2018 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 and earnings expectations
assume no material interruptions to supply of the Group’s
products and no material mergers, acquisitions, disposals,
litigation costs or share repurchases for 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 2018 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 (£0.5 billion in annual sales) as announced on 26 July
2017.
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 today. 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, and following the
enactment of US tax reform, the Group’s medium-term effective
tax rate is expected to be in the region of 19-20% 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,
macroeconomic 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, 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 2017. 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.
|
|
Contacts
|
|
GSK – one of the
world’s leading research-based pharmaceutical and healthcare
companies – is committed to improving the quality of human
life by enabling people to do more, feel better and live longer.
For further information please visit www.gsk.com.
|
|
GSK enquiries:
|
|
|
|
|
UK
Media enquiries:
|
Simon
Steel
|
+44 (0)
20 8047 5502
|
(London)
|
|
|
Tim
Foley
|
+44 (0)
20 8047 5502
|
(London)
|
|
|
|
|
|
|
US
Media enquiries:
|
Sarah
Alspach
|
+1 202
715 1048
|
(Washington)
|
|
|
Sarah
Spencer
|
+1 215
751 3335
|
(Philadelphia)
|
|
|
|
|
|
|
Analyst/Investor
enquiries:
|
Sarah
Elton-Farr
|
+44 (0)
20 8047 5194
|
(London)
|
|
|
James
Dodwell
|
+44 (0)
20 8047 2406
|
(London)
|
|
|
Danielle
Smith
|
+44 (0)
20 8047 7562
|
(London)
|
|
|
Jeff
McLaughlin
|
+1 215
751 7002
|
(Philadelphia)
|
|
Registered in England & Wales:
No.
3888792
|
|
|
|
Registered Office:
980
Great West Road
Brentford,
Middlesex
TW8
9GS
|
|
Financial information
|
|
Income statements
|
|
|
Q2 2018
£m
|
|
Q2
2017
£m
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
|
|
|
|
|
|
|
|
|
TURNOVER
|
7,310
|
|
7,320
|
|
14,532
|
|
14,704
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(2,310)
|
|
(2,619)
|
|
(4,701)
|
|
(5,132)
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
5,000
|
|
4,701
|
|
9,831
|
|
9,572
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(2,457)
|
|
(2,379)
|
|
(4,768)
|
|
(4,831)
|
|
Research
and development
|
(925)
|
|
(1,260)
|
|
(1,829)
|
|
(2,220)
|
|
Royalty
income
|
73
|
|
98
|
|
126
|
|
180
|
|
Other
operating income/(expense)
|
(912)
|
|
(1,180)
|
|
(1,341)
|
|
(1,003)
|
|
|
|
|
|
|
|
|
|
|
OPERATING PROFIT/(LOSS)
|
779
|
|
(20)
|
|
2,019
|
|
1,698
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
27
|
|
15
|
|
47
|
|
36
|
|
Finance
expense
|
(194)
|
|
(192)
|
|
(356)
|
|
(386)
|
|
Profit
on disposal of associates
|
-
|
|
20
|
|
-
|
|
20
|
|
Share
of after tax profits/(losses) of
associates
and joint ventures
|
2
|
|
(1)
|
|
11
|
|
4
|
|
|
|
|
|
|
|
|
|
|
PROFIT/(LOSS) BEFORE TAXATION
|
614
|
|
(178)
|
|
1,721
|
|
1,372
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(139)
|
|
92
|
|
(487)
|
|
(235)
|
|
Tax rate %
|
22.6%
|
|
51.7%
|
|
28.3%
|
|
17.1%
|
|
|
|
|
|
|
|
|
|
|
PROFIT/(LOSS) AFTER TAXATION
FOR THE PERIOD
|
475
|
|
(86)
|
|
1,234
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
Profit
attributable to non-controlling
interests
|
34
|
|
94
|
|
244
|
|
271
|
|
Profit/(loss)
attributable to shareholders
|
441
|
|
(180)
|
|
990
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
475
|
|
(86)
|
|
1,234
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
EARNINGS/(LOSS) PER SHARE
|
9.0p
|
|
(3.7)p
|
|
20.2p
|
|
17.7p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings/(loss) per share
|
8.9p
|
|
(3.7)p
|
|
20.0p
|
|
17.6p
|
|
|
|
|
|
|
|
|
|
|
Statement of comprehensive income
|
|
|
Q2 2018
£m
|
|
Q2
2017
£m
|
|
|
|
|
|
|
Profit
for the period
|
475
|
|
(86)
|
|
|
|
|
|
|
Items that may be reclassified subsequently to income
statement:
|
|
|
|
|
Exchange
movements on overseas net assets and net investment
hedges
|
(438)
|
|
366
|
|
Fair
value movements on equity investments
|
|
|
-
|
|
Reclassification
of fair value movements on equity investments
|
-
|
|
(23)
|
|
Deferred
tax on fair value movements on equity investments
|
|
|
(2)
|
|
Deferred
tax reversed on reclassification of equity investments
|
-
|
|
10
|
|
Fair
value movements on cash flow hedges
|
157
|
|
-
|
|
Reclassification
of cash flow hedges to income statement
|
(134)
|
|
2
|
|
Deferred
tax on fair value movements on cash flow hedges
|
(24)
|
|
-
|
|
Deferred
tax reversed on reclassification of cash flow hedges
|
20
|
|
-
|
|
|
|
|
|
|
|
(419)
|
|
353
|
|
|
|
|
|
|
Items that will not be reclassified to income
statement:
|
|
|
|
|
Exchange
movements on overseas net assets of non-controlling
interests
|
20
|
|
(28)
|
|
Fair
value movements on equity investments
|
56
|
|
|
|
Deferred
tax on fair value movements on equity investments
|
(4)
|
|
|
|
Re-measurement
gains/(losses) on defined benefit plans
|
728
|
|
(49)
|
|
Tax on
re-measurement gains/(losses) on defined benefit plans
|
(132)
|
|
6
|
|
|
|
|
|
|
|
668
|
|
(71)
|
|
|
|
|
|
|
Other
comprehensive income for the period
|
249
|
|
282
|
|
|
|
|
|
|
Total
comprehensive income for the period
|
724
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income for the period attributable to:
|
|
|
|
|
Shareholders
|
670
|
|
130
|
|
Non-controlling
interests
|
54
|
|
66
|
|
|
|
|
|
|
|
724
|
|
196
|
|
|
|
|
|
|
Statement of comprehensive income
|
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
|
|
|
|
|
Profit
for the period
|
1,234
|
|
1,137
|
|
|
|
|
|
|
Items that may be reclassified subsequently to income
statement:
|
|
|
|
|
Exchange
movements on overseas net assets and net investment
hedges
|
(372)
|
|
562
|
|
Fair
value movements on equity investments
|
|
|
53
|
|
Reclassification
of fair value movements on equity investments
|
-
|
|
(27)
|
|
Deferred
tax on fair value movements on equity investments
|
|
|
(4)
|
|
Deferred
tax reversed on reclassification of equity investments
|
-
|
|
9
|
|
Fair
value movements on cash flow hedges
|
179
|
|
(2)
|
|
Reclassification
of cash flow hedges to income statement
|
(165)
|
|
2
|
|
Deferred
tax on fair value movements on cash flow hedges
|
(24)
|
|
(1)
|
|
Deferred
tax reversed on reclassification of cash flow hedges
|
20
|
|
-
|
|
|
|
|
|
|
|
(362)
|
|
592
|
|
|
|
|
|
|
Items that will not be reclassified to income
statement:
|
|
|
|
|
Exchange
movements on overseas net assets of non-controlling
interests
|
(8)
|
|
(1)
|
|
Fair
value movements on equity investments
|
153
|
|
|
|
Deferred
tax on fair value movements on equity investments
|
(13)
|
|
|
|
Re-measurement
gains on defined benefit plans
|
914
|
|
185
|
|
Tax on
re-measurement gains on defined benefit plans
|
(170)
|
|
(49)
|
|
|
|
|
|
|
|
876
|
|
135
|
|
|
|
|
|
|
Other
comprehensive income for the period
|
514
|
|
727
|
|
|
|
|
|
|
Total
comprehensive income for the period
|
1,748
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income for the period attributable to:
|
|
|
|
|
Shareholders
|
1,512
|
|
1,594
|
|
Non-controlling
interests
|
236
|
|
270
|
|
|
|
|
|
|
|
1,748
|
|
1,864
|
|
|
|
|
|
|
Pharmaceuticals turnover – three months ended 30 June
2018
|
|
|
Total
|
US
|
Europe
|
International
|
||||||||
|
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
||||||||
|
|
|
Growth
|
|
Growth
|
|
Growth
|
|
Growth
|
||||
|
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
||||
|
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Respiratory
|
1,696
|
(6)
|
(2)
|
837
|
(14)
|
(9)
|
379
|
5
|
5
|
480
|
2
|
7
|
|
Seretide/Advair
|
590
|
(30)
|
(28)
|
260
|
(45)
|
(43)
|
151
|
(17)
|
(17)
|
179
|
(6)
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellipta products
|
509
|
20
|
26
|
317
|
12
|
18
|
109
|
36
|
36
|
83
|
38
|
50
|
|
Anoro Ellipta
|
120
|
41
|
48
|
83
|
41
|
47
|
24
|
41
|
35
|
13
|
44
|
78
|
|
Arnuity Ellipta
|
10
|
25
|
38
|
9
|
13
|
13
|
-
|
-
|
-
|
1
|
-
|
-
|
|
Incruse Ellipta
|
74
|
48
|
54
|
48
|
41
|
50
|
20
|
54
|
54
|
6
|
100
|
100
|
|
Relvar/Breo Ellipta
|
279
|
(1)
|
4
|
156
|
(15)
|
(10)
|
61
|
22
|
24
|
62
|
29
|
35
|
|
Trelegy Ellipta
|
26
|
-
|
-
|
21
|
-
|
-
|
4
|
-
|
-
|
1
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nucala
|
141
|
93
|
>100
|
88
|
76
|
86
|
36
|
>100
|
>100
|
17
|
>100
|
>100
|
|
Avamys/Veramyst
|
69
|
6
|
11
|
-
|
-
|
-
|
22
|
(4)
|
-
|
47
|
9
|
14
|
|
Flixotide/Flovent
|
154
|
6
|
12
|
94
|
21
|
27
|
21
|
(9)
|
(4)
|
39
|
(11)
|
(7)
|
|
Ventolin
|
170
|
(5)
|
-
|
78
|
(9)
|
(6)
|
31
|
3
|
3
|
61
|
(3)
|
6
|
|
Other
|
63
|
(6)
|
(10)
|
-
|
-
|
-
|
9
|
29
|
-
|
54
|
(14)
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HIV
|
1,189
|
7
|
11
|
744
|
7
|
13
|
288
|
3
|
4
|
157
|
11
|
16
|
|
Epzicom/Kivexa
|
26
|
(59)
|
(56)
|
(1)
|
>(100)
|
>(100)
|
10
|
(69)
|
(69)
|
17
|
(29)
|
(21)
|
|
Juluca
|
24
|
-
|
-
|
23
|
-
|
-
|
1
|
-
|
-
|
-
|
-
|
-
|
|
Selzentry
|
29
|
-
|
-
|
13
|
-
|
8
|
9
|
(18)
|
(18)
|
7
|
40
|
20
|
|
Tivicay
|
407
|
20
|
25
|
256
|
15
|
21
|
92
|
18
|
19
|
59
|
51
|
62
|
|
Triumeq
|
682
|
5
|
9
|
448
|
2
|
7
|
170
|
15
|
16
|
64
|
7
|
12
|
|
Other
|
21
|
(43)
|
(46)
|
5
|
(55)
|
(73)
|
6
|
(45)
|
(45)
|
10
|
(31)
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immuno-inflammation
|
114
|
23
|
29
|
102
|
23
|
30
|
9
|
29
|
29
|
3
|
-
|
-
|
|
Benlysta
|
114
|
23
|
29
|
102
|
23
|
29
|
8
|
14
|
29
|
4
|
33
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established
Pharmaceuticals
|
1,230
|
(9)
|
(5)
|
188
|
(17)
|
(15)
|
308
|
(11)
|
(11)
|
734
|
(5)
|
1
|
|
Dermatology
|
104
|
(6)
|
(2)
|
-
|
-
|
-
|
39
|
(5)
|
(5)
|
65
|
(7)
|
-
|
|
Augmentin
|
127
|
(10)
|
(5)
|
-
|
-
|
-
|
37
|
(12)
|
(12)
|
90
|
(9)
|
(2)
|
|
Avodart
|
138
|
(14)
|
(11)
|
3
|
(25)
|
(25)
|
57
|
(32)
|
(32)
|
78
|
8
|
14
|
|
Coreg
|
12
|
(69)
|
(67)
|
12
|
(69)
|
(67)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Eperzan/Tanzeum
|
11
|
(52)
|
(51)
|
11
|
(53)
|
(51)
|
-
|
(49)
|
(49)
|
-
|
-
|
-
|
|
Imigran/Imitrex
|
36
|
(12)
|
(12)
|
14
|
(13)
|
(12)
|
15
|
(17)
|
(17)
|
7
|
-
|
-
|
|
Lamictal
|
164
|
10
|
13
|
82
|
14
|
19
|
27
|
(4)
|
(7)
|
55
|
12
|
16
|
|
Requip
|
22
|
(24)
|
(21)
|
2
|
(50)
|
(50)
|
7
|
(13)
|
(25)
|
13
|
(24)
|
(12)
|
|
Serevent
|
21
|
(9)
|
(9)
|
12
|
9
|
9
|
7
|
(12)
|
-
|
2
|
(50)
|
(75)
|
|
Seroxat/Paxil
|
42
|
(9)
|
(9)
|
-
|
-
|
-
|
10
|
-
|
(10)
|
32
|
(11)
|
(8)
|
|
Valtrex
|
30
|
(6)
|
(3)
|
5
|
-
|
-
|
8
|
-
|
-
|
17
|
(11)
|
(5)
|
|
Zeffix
|
16
|
(28)
|
(28)
|
-
|
-
|
-
|
2
|
-
|
-
|
14
|
(27)
|
(27)
|
|
Other
|
507
|
(4)
|
-
|
47
|
(10)
|
(9)
|
99
|
3
|
6
|
361
|
(5)
|
1
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Pharmaceuticals
|
4,229
|
(3)
|
1
|
1,871
|
(5)
|
-
|
984
|
(1)
|
(1)
|
1,374
|
(1)
|
4
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––––
|
––––––––
|
––––––––
|
–––––––––
|
––––––––
|
––––––––
|
–––––––––
|
––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals turnover – six months ended 30 June
2018
|
|
|
Total
|
US
|
Europe
|
International
|
||||||||
|
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
||||||||
|
|
|
Growth
|
|
Growth
|
|
Growth
|
|
Growth
|
||||
|
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
||||
|
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Respiratory
|
3,271
|
(6)
|
(1)
|
1,499
|
(14)
|
(7)
|
767
|
3
|
2
|
1,005
|
-
|
6
|
|
Seretide/Advair
|
1,156
|
(28)
|
(24)
|
489
|
(40)
|
(35)
|
317
|
(18)
|
(19)
|
350
|
(12)
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellipta products
|
895
|
22
|
29
|
524
|
13
|
22
|
212
|
39
|
37
|
159
|
37
|
47
|
|
Anoro Ellipta
|
217
|
48
|
56
|
143
|
44
|
56
|
48
|
55
|
52
|
26
|
53
|
71
|
|
Arnuity Ellipta
|
21
|
31
|
44
|
19
|
19
|
25
|
-
|
-
|
-
|
2
|
>100
|
>100
|
|
Incruse Ellipta
|
122
|
45
|
52
|
75
|
39
|
50
|
36
|
57
|
57
|
11
|
57
|
57
|
|
Relvar/Breo Ellipta
|
498
|
3
|
8
|
256
|
(13)
|
(6)
|
123
|
24
|
23
|
119
|
29
|
37
|
|
Trelegy Ellipta
|
37
|
-
|
-
|
31
|
-
|
-
|
5
|
-
|
-
|
1
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nucala
|
245
|
86
|
95
|
147
|
60
|
73
|
67
|
>100
|
>100
|
31
|
>100
|
>100
|
|
Avamys/Veramyst
|
167
|
7
|
12
|
-
|
-
|
-
|
42
|
(5)
|
(5)
|
125
|
11
|
18
|
|
Flixotide/Flovent
|
312
|
1
|
7
|
180
|
8
|
16
|
48
|
(6)
|
(6)
|
84
|
(8)
|
(1)
|
|
Ventolin
|
350
|
(11)
|
(5)
|
159
|
(22)
|
(16)
|
65
|
-
|
(2)
|
126
|
1
|
10
|
|
Other
|
146
|
(10)
|
(7)
|
-
|
-
|
-
|
16
|
7
|
-
|
130
|
(13)
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HIV
|
2,237
|
7
|
12
|
1,373
|
5
|
14
|
587
|
9
|
8
|
277
|
7
|
14
|
|
Epzicom/Kivexa
|
63
|
(56)
|
(54)
|
2
|
(90)
|
(90)
|
24
|
(66)
|
(66)
|
37
|
(26)
|
(20)
|
|
Juluca
|
34
|
-
|
-
|
33
|
-
|
-
|
1
|
-
|
-
|
-
|
-
|
-
|
|
Selzentry
|
58
|
(13)
|
(9)
|
28
|
(15)
|
(6)
|
18
|
(14)
|
(14)
|
12
|
(8)
|
(8)
|
|
Tivicay
|
755
|
18
|
25
|
484
|
14
|
24
|
180
|
22
|
20
|
91
|
28
|
39
|
|
Triumeq
|
1,288
|
9
|
14
|
814
|
2
|
10
|
352
|
25
|
23
|
122
|
16
|
23
|
|
Other
|
39
|
(37)
|
(37)
|
12
|
(52)
|
(56)
|
12
|
(29)
|
(29)
|
15
|
(25)
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immuno-inflammation
|
214
|
16
|
24
|
191
|
14
|
23
|
17
|
31
|
31
|
6
|
20
|
40
|
|
Benlysta
|
214
|
16
|
25
|
191
|
15
|
23
|
17
|
31
|
31
|
6
|
20
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established
Pharmaceuticals
|
2,516
|
(9)
|
(5)
|
378
|
(24)
|
(19)
|
640
|
(9)
|
(11)
|
1,498
|
(5)
|
2
|
|
Dermatology
|
211
|
(6)
|
(1)
|
1
|
-
|
-
|
78
|
(5)
|
(6)
|
132
|
(7)
|
1
|
|
Augmentin
|
291
|
(2)
|
4
|
-
|
-
|
-
|
92
|
(3)
|
(5)
|
199
|
(1)
|
8
|
|
Avodart
|
279
|
(13)
|
(10)
|
6
|
(33)
|
(22)
|
121
|
(28)
|
(28)
|
152
|
6
|
12
|
|
Coreg
|
27
|
(64)
|
(61)
|
27
|
(64)
|
(61)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Eperzan/Tanzeum
|
24
|
(53)
|
(49)
|
23
|
(54)
|
(51)
|
1
|
(40)
|
(41)
|
-
|
-
|
-
|
|
Imigran/Imitrex
|
68
|
(28)
|
(27)
|
26
|
(43)
|
(41)
|
30
|
(12)
|
(12)
|
12
|
(14)
|
(14)
|
|
Lamictal
|
310
|
(2)
|
4
|
153
|
(5)
|
2
|
53
|
(2)
|
(4)
|
104
|
4
|
10
|
|
Requip
|
43
|
(23)
|
(20)
|
4
|
(50)
|
(50)
|
13
|
(7)
|
(14)
|
26
|
(24)
|
(15)
|
|
Serevent
|
41
|
(16)
|
(12)
|
22
|
(15)
|
(8)
|
15
|
(12)
|
(12)
|
4
|
(33)
|
(33)
|
|
Seroxat/Paxil
|
82
|
(10)
|
(7)
|
-
|
-
|
-
|
20
|
5
|
-
|
62
|
(14)
|
(8)
|
|
Valtrex
|
58
|
(8)
|
(3)
|
8
|
(11)
|
-
|
15
|
-
|
-
|
35
|
(10)
|
(5)
|
|
Zeffix
|
35
|
(27)
|
(25)
|
-
|
-
|
-
|
3
|
-
|
-
|
32
|
(27)
|
(25)
|
|
Other
|
1,047
|
(4)
|
1
|
108
|
(6)
|
(1)
|
199
|
(3)
|
(4)
|
740
|
(5)
|
2
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Pharmaceuticals
|
8,238
|
(4)
|
1
|
3,441
|
(7)
|
-
|
2,011
|
-
|
(1)
|
2,786
|
(2)
|
5
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––––
|
––––––––
|
––––––––
|
–––––––––
|
––––––––
|
––––––––
|
–––––––––
|
––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vaccines turnover – three months ended 30 June
2018
|
|
|
Total
|
US
|
Europe
|
International
|
||||||||
|
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
||||||||
|
|
|
Growth
|
|
Growth
|
|
Growth
|
|
Growth
|
||||
|
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
||||
|
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Meningitis
|
184
|
(8)
|
(3)
|
77
|
(7)
|
(2)
|
76
|
(22)
|
(22)
|
31
|
63
|
95
|
|
Bexsero
|
124
|
(11)
|
(6)
|
37
|
(8)
|
(3)
|
70
|
(20)
|
(20)
|
17
|
55
|
100
|
|
Menveo
|
49
|
(12)
|
(7)
|
40
|
(7)
|
(2)
|
4
|
(43)
|
(43)
|
5
|
(17)
|
-
|
|
Other
|
11
|
>100
|
>100
|
-
|
-
|
-
|
2
|
(33)
|
(33)
|
9
|
>100
|
>100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Influenza
|
17
|
(19)
|
(14)
|
(1)
|
>(100)
|
>(100)
|
1
|
(75)
|
(75)
|
17
|
-
|
6
|
|
Fluarix, FluLaval
|
17
|
(19)
|
(14)
|
(1)
|
>(100)
|
>(100)
|
1
|
(75)
|
(75)
|
17
|
-
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shingles
|
167
|
-
|
-
|
150
|
-
|
-
|
-
|
-
|
-
|
17
|
-
|
-
|
|
Shingrix
|
167
|
-
|
-
|
150
|
-
|
-
|
-
|
-
|
-
|
17
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established Vaccines
|
885
|
(1)
|
1
|
260
|
12
|
16
|
316
|
8
|
9
|
309
|
(16)
|
(14)
|
|
Infanrix, Pediarix
|
149
|
(4)
|
(3)
|
49
|
(14)
|
(12)
|
72
|
(6)
|
(5)
|
28
|
27
|
27
|
|
Boostrix
|
121
|
(19)
|
(17)
|
61
|
2
|
7
|
45
|
(12)
|
(12)
|
15
|
(62)
|
(62)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hepatitis
|
210
|
35
|
41
|
119
|
40
|
46
|
60
|
25
|
29
|
31
|
41
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rotarix
|
105
|
11
|
12
|
17
|
6
|
6
|
25
|
9
|
9
|
63
|
13
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synflorix
|
100
|
(34)
|
(33)
|
-
|
-
|
-
|
12
|
9
|
9
|
88
|
(37)
|
(36)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priorix, Priorix Tetra, Varilrix
|
83
|
5
|
6
|
-
|
-
|
-
|
45
|
10
|
10
|
38
|
(1)
|
2
|
|
Cervarix
|
16
|
(11)
|
(11)
|
-
|
-
|
-
|
7
|
(13)
|
(13)
|
9
|
(10)
|
(10)
|
|
Other
|
101
|
18
|
20
|
14
|
(6)
|
3
|
50
|
51
|
45
|
37
|
(5)
|
2
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Vaccines
|
1,253
|
13
|
16
|
486
|
54
|
61
|
393
|
-
|
-
|
374
|
(7)
|
(3)
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vaccines turnover – six months ended 30 June
2018
|
|
|
Total
|
US
|
Europe
|
International
|
||||||||
|
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––
|
||||||||
|
|
|
Growth
|
|
Growth
|
|
Growth
|
|
Growth
|
||||
|
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
|
–––––––––––––––––––––––
|
||||
|
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Meningitis
|
364
|
(7)
|
(2)
|
132
|
2
|
10
|
175
|
(13)
|
(15)
|
57
|
(5)
|
13
|
|
Bexsero
|
263
|
(1)
|
3
|
68
|
1
|
9
|
162
|
(5)
|
(7)
|
33
|
22
|
56
|
|
Menveo
|
86
|
(23)
|
(16)
|
64
|
3
|
11
|
9
|
(61)
|
(61)
|
13
|
(50)
|
(42)
|
|
Other
|
15
|
-
|
-
|
-
|
-
|
-
|
4
|
(50)
|
(50)
|
11
|
57
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Influenza
|
26
|
(24)
|
(18)
|
(2)
|
33
|
33
|
2
|
(60)
|
(60)
|
26
|
(19)
|
(12)
|
|
Fluarix, FluLaval
|
26
|
(24)
|
(18)
|
(2)
|
33
|
33
|
2
|
(60)
|
(60)
|
26
|
(19)
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shingles
|
277
|
-
|
-
|
252
|
-
|
-
|
-
|
-
|
-
|
25
|
-
|
-
|
|
Shingrix
|
277
|
-
|
-
|
252
|
-
|
-
|
-
|
-
|
-
|
25
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established Vaccines
|
1,824
|
(1)
|
2
|
593
|
7
|
16
|
605
|
5
|
4
|
626
|
(12)
|
(9)
|
|
Infanrix, Pediarix
|
355
|
(9)
|
(5)
|
155
|
(15)
|
(8)
|
145
|
(9)
|
(10)
|
55
|
15
|
23
|
|
Boostrix
|
221
|
(15)
|
(12)
|
107
|
(6)
|
2
|
82
|
(9)
|
(10)
|
32
|
(44)
|
(42)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hepatitis
|
405
|
26
|
32
|
231
|
36
|
46
|
119
|
20
|
20
|
55
|
4
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rotarix
|
235
|
(2)
|
1
|
64
|
(9)
|
(1)
|
54
|
20
|
18
|
117
|
(7)
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synflorix
|
199
|
(30)
|
(30)
|
-
|
-
|
-
|
25
|
-
|
-
|
174
|
(33)
|
(33)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priorix, Priorix Tetra, Varilrix
|
160
|
2
|
3
|
-
|
-
|
-
|
85
|
9
|
7
|
75
|
(4)
|
(2)
|
|
Cervarix
|
68
|
94
|
97
|
-
|
-
|
-
|
12
|
(20)
|
(20)
|
56
|
>100
|
>100
|
|
Other
|
181
|
22
|
24
|
36
|
>100
|
>100
|
83
|
30
|
27
|
62
|
(9)
|
(5)
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
Vaccines
|
2,491
|
10
|
14
|
975
|
44
|
55
|
782
|
-
|
(1)
|
734
|
(8)
|
(5)
|
|
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
30 June 2018
£m
|
|
30 June
2017
£m
|
|
31
December 2017
£m
|
|
ASSETS
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
Property,
plant and equipment
|
10,823
|
|
10,662
|
|
10,860
|
|
Goodwill
|
5,778
|
|
5,864
|
|
5,734
|
|
Other
intangible assets
|
17,294
|
|
18,465
|
|
17,562
|
|
Investments
in associates and joint ventures
|
202
|
|
250
|
|
183
|
|
Other
investments
|
1,067
|
|
1,013
|
|
918
|
|
Deferred
tax assets
|
3,472
|
|
4,348
|
|
3,796
|
|
Derivative
financial instruments
|
36
|
|
-
|
|
8
|
|
Other
non-current assets
|
1,919
|
|
1,205
|
|
1,413
|
|
|
|
|
|
|
|
|
Total non-current assets
|
40,591
|
|
41,807
|
|
40,474
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Inventories
|
5,943
|
|
5,743
|
|
5,557
|
|
Current
tax recoverable
|
252
|
|
196
|
|
258
|
|
Trade
and other receivables
|
6,559
|
|
6,196
|
|
6,000
|
|
Derivative
financial instruments
|
85
|
|
65
|
|
68
|
|
Liquid
investments
|
81
|
|
85
|
|
78
|
|
Cash
and cash equivalents
|
4,046
|
|
3,986
|
|
3,833
|
|
Assets
held for sale
|
78
|
|
155
|
|
113
|
|
|
|
|
|
|
|
|
Total current assets
|
17,044
|
|
16,426
|
|
15,907
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
57,635
|
|
58,233
|
|
56,381
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Short-term
borrowings
|
(3,470)
|
|
(6,612)
|
|
(2,825)
|
|
Contingent
consideration liabilities
|
(806)
|
|
(855)
|
|
(1,076)
|
|
Trade
and other payables
|
(12,545)
|
|
(19,580)
|
|
(20,970)
|
|
Derivative
financial instruments
|
(84)
|
|
(96)
|
|
(74)
|
|
Current
tax payable
|
(771)
|
|
(929)
|
|
(995)
|
|
Short-term
provisions
|
(522)
|
|
(716)
|
|
(629)
|
|
|
|
|
|
|
|
|
Total current liabilities
|
(18,198)
|
|
(28,788)
|
|
(26,569)
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
Long-term
borrowings
|
(24,592)
|
|
(12,259)
|
|
(14,264)
|
|
Corporation
tax payable
|
(394)
|
|
-
|
|
(411)
|
|
Deferred
tax liabilities
|
(1,214)
|
|
(1,971)
|
|
(1,396)
|
|
Pensions
and other post-employment benefits
|
(3,210)
|
|
(3,886)
|
|
(3,539)
|
|
Other
provisions
|
(658)
|
|
(713)
|
|
(636)
|
|
Derivative
financial instruments
|
-
|
|
(1)
|
|
-
|
|
Contingent
consideration liabilities
|
(5,364)
|
|
(5,188)
|
|
(5,096)
|
|
Other
non-current liabilities
|
(982)
|
|
(1,003)
|
|
(981)
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
(36,414)
|
|
(25,021)
|
|
(26,323)
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
(54,612)
|
|
(53,809)
|
|
(52,892)
|
|
|
|
|
|
|
|
|
NET ASSETS
|
3,023
|
|
4,424
|
|
3,489
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
Share
capital
|
1,343
|
|
1,343
|
|
1,343
|
|
Share
premium account
|
3,042
|
|
3,008
|
|
3,019
|
|
Retained
earnings
|
(2,680)
|
|
(5,854)
|
|
(6,477)
|
|
Other
reserves
|
1,974
|
|
2,314
|
|
2,047
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
3,679
|
|
811
|
|
(68)
|
|
|
|
|
|
|
|
|
Non-controlling
interests
|
(656)
|
|
3,613
|
|
3,557
|
|
|
|
|
|
|
|
|
TOTAL EQUITY
|
3,023
|
|
4,424
|
|
3,489
|
|
|
|
|
|
|
|
|
Statement of changes in equity
|
|
|
Share
capital
£m
|
Share
premium
£m
|
Retained
earnings
£m
|
Other
reserves
£m
|
Share-
holder’s
equity
£m
|
Non-
controlling
interests
£m
|
Total
equity
£m
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
990
|
|
990
|
244
|
1,234
|
|
Other
comprehensive income for the period
|
|
|
377
|
145
|
522
|
(8)
|
514
|
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Total
comprehensive income for the period
|
|
|
1,367
|
145
|
1,512
|
236
|
1,748
|
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Distributions
to non-controlling interests
|
|
|
|
|
|
(350)
|
(350)
|
|
Changes
in non-controlling interests
|
|
|
|
|
|
(2)
|
(2)
|
|
Contributions
from non-controlling interests
|
|
|
|
|
|
21
|
21
|
|
Derecognition
of non-controlling interests in
Consumer
Healthcare Joint Venture
|
|
|
4,118
|
|
4,118
|
(4,118)
|
-
|
|
Dividends
to shareholders
|
|
|
(2,059)
|
|
(2,059)
|
|
(2,059)
|
|
Shares
issued
|
-
|
23
|
|
|
23
|
|
23
|
|
Realised
profits on disposal of equity
investments
|
|
|
65
|
(65)
|
-
|
|
-
|
|
Write-down
on shares held by ESOP Trusts
|
|
|
(135)
|
135
|
-
|
|
-
|
|
Share-based
incentive plans
|
|
|
168
|
|
168
|
|
168
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
At 30 June 2018
|
1,343
|
3,042
|
(2,680)
|
1,974
|
3,679
|
(656)
|
3,023
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1
January 2017
|
1,342
|
2,954
|
(5,392)
|
2,220
|
1,124
|
3,839
|
4,963
|
|
|
|
|
|
|
|
|
|
|
Profit
for the period
|
|
|
866
|
|
866
|
271
|
1,137
|
|
Other
comprehensive income for the period
|
|
|
698
|
30
|
728
|
(1)
|
727
|
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Total
comprehensive income for the period
|
|
|
1,564
|
30
|
1,594
|
270
|
1,864
|
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Distributions
to non-controlling interests
|
|
|
|
|
|
(494)
|
(494)
|
|
Dividends
to shareholders
|
|
|
(2,049)
|
|
(2,049)
|
|
(2,049)
|
|
Changes
in non-controlling interests
|
|
|
|
|
|
(2)
|
(2)
|
|
Shares
issued
|
1
|
44
|
|
|
45
|
|
45
|
|
Shares
acquired by ESOP Trusts
|
|
10
|
70
|
(141)
|
(61)
|
|
(61)
|
|
Write-down
on shares held by ESOP Trusts
|
|
|
(205)
|
205
|
-
|
|
-
|
|
Share-based
incentive plans
|
|
|
158
|
|
158
|
|
158
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
At 30
June 2017
|
1,343
|
3,008
|
(5,854)
|
2,314
|
811
|
3,613
|
4,424
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Cash flow statement – six months ended 30 June
2018
|
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
|
|
|
|
|
|
|
Profit after tax
|
1,234
|
|
1,137
|
|
|
Tax on
profits
|
487
|
|
235
|
|
|
Share
of after tax profits of associates and joint ventures
|
(11)
|
|
(4)
|
|
|
Profit
on disposal of interest in associates
|
-
|
|
(20)
|
|
|
Net
finance expense
|
309
|
|
350
|
|
|
Depreciation,
amortisation and other adjusting items
|
673
|
|
1,413
|
|
|
Increase
in working capital
|
(1,123)
|
|
(976)
|
|
|
Contingent
consideration paid
|
(605)
|
|
(263)
|
|
|
Increase
in other net liabilities (excluding contingent consideration
paid)
|
2,063
|
|
837
|
|
|
|
|
|
|
|
|
Cash generated from operations
|
3,027
|
|
2,709
|
|
|
Taxation
paid
|
(802)
|
|
(557)
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities
|
2,225
|
|
2,152
|
|
|
|
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
(541)
|
|
(639)
|
|
|
Proceeds
from sale of property, plant and equipment
|
22
|
|
125
|
|
|
Purchase
of intangible assets
|
(189)
|
|
(389)
|
|
|
Proceeds
from sale of intangible assets
|
23
|
|
18
|
|
|
Purchase
of equity investments
|
(37)
|
|
(56)
|
|
|
Proceeds
from sale of equity investments
|
78
|
|
44
|
|
|
Contingent
consideration paid
|
(97)
|
|
(40)
|
|
|
Disposal
of businesses
|
29
|
|
223
|
|
|
Proceeds
from disposal of interest in associates
|
-
|
|
37
|
|
|
Investment
in associates and joint ventures
|
(4)
|
|
(6)
|
|
|
Interest
received
|
44
|
|
35
|
|
|
Dividends
from associates and joint ventures
|
39
|
|
2
|
|
|
|
|
|
|
|
|
Net cash outflow from investing activities
|
(633)
|
|
(646)
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
Issue
of share capital
|
23
|
|
45
|
|
|
Shares
acquired by ESOP Trusts
|
-
|
|
(61)
|
|
|
Increase
in short-term loans
|
448
|
|
386
|
|
|
Increase
in long-term loans
|
10,048
|
|
-
|
|
|
Net
repayment of obligations under finance leases
|
(12)
|
|
(13)
|
|
|
Purchase
of non-controlling interests
|
(9,301)
|
|
-
|
|
|
Interest
paid
|
(376)
|
|
(384)
|
|
|
Dividends
paid to shareholders
|
(2,059)
|
|
(2,049)
|
|
|
Distributions
to non-controlling interests
|
(350)
|
|
(494)
|
|
|
Contributions
from non-controlling interests
|
21
|
|
-
|
|
|
Other
financing items
|
85
|
|
96
|
|
|
|
|
|
|
|
|
Net cash outflow from financing activities
|
(1,473)
|
|
(2,474)
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and bank overdrafts in the
period
|
119
|
|
(968)
|
|
|
|
|
|
|
|
|
Cash
and bank overdrafts at beginning of the period
|
3,600
|
|
4,605
|
|
|
Exchange
adjustments
|
(34)
|
|
(46)
|
|
|
Increase/(decrease)
in cash and bank overdrafts
|
119
|
|
(968)
|
|
|
|
|
|
|
|
|
Cash and bank overdrafts at end of the period
|
3,685
|
|
3,591
|
|
|
|
|
|
|
|
|
Cash
and bank overdrafts at end of the period comprise:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
4,046
|
|
3,986
|
|
|
Overdrafts
|
(361)
|
|
(395)
|
|
|
|
|
|
|
|
|
3,685
|
|
3,591
|
|
|
|
|
|
|
|
|
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
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
|
|
|
Q2 2018
£m
|
|
Q2
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
4,229
|
|
4,357
|
|
(3)
|
|
1
|
|
Vaccines
|
1,253
|
|
1,111
|
|
13
|
|
16
|
|
Consumer
Healthcare
|
1,828
|
|
1,852
|
|
(1)
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
turnover
|
7,310
|
|
7,320
|
|
-
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Operating profit by segment
|
|||||||
|
|
Q2 2018
£m
|
|
Q2
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
2,111
|
|
2,152
|
|
(2)
|
|
3
|
|
Pharmaceuticals
R&D
|
(619)
|
|
(688)
|
|
(10)
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
including R&D
|
1,492
|
|
1,464
|
|
2
|
|
7
|
|
Vaccines
|
357
|
|
374
|
|
(5)
|
|
3
|
|
Consumer
Healthcare
|
352
|
|
328
|
|
7
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
2,201
|
|
2,166
|
|
2
|
|
7
|
|
Corporate
and other unallocated costs
|
(99)
|
|
(83)
|
|
19
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,102
|
|
2,083
|
|
1
|
|
7
|
|
Adjusting
items
|
(1,323)
|
|
(2,103)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating profit/(loss)
|
779
|
|
(20)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
27
|
|
15
|
|
|
|
|
|
Finance
costs
|
(194)
|
|
(192)
|
|
|
|
|
|
Profit
on disposal of associates
|
-
|
|
20
|
|
|
|
|
|
Share
of after tax profits/(losses) of associates
and
joint ventures
|
2
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before taxation
|
614
|
|
(178)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Turnover by segment
|
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
8,238
|
|
8,546
|
|
(4)
|
|
1
|
|
Vaccines
|
2,491
|
|
2,263
|
|
10
|
|
14
|
|
Consumer
Healthcare
|
3,803
|
|
3,895
|
|
(2)
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
turnover
|
14,532
|
|
14,704
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Operating profit by segment
|
|||||||
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
4,052
|
|
4,270
|
|
(5)
|
|
1
|
|
Pharmaceuticals
R&D
|
(1,231)
|
|
(1,366)
|
|
(10)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
including R&D
|
2,821
|
|
2,904
|
|
(3)
|
|
4
|
|
Vaccines
|
696
|
|
715
|
|
(3)
|
|
10
|
|
Consumer
Healthcare
|
736
|
|
679
|
|
8
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
4,253
|
|
4,298
|
|
(1)
|
|
7
|
|
Corporate
and other unallocated costs
|
(228)
|
|
(236)
|
|
(3)
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
4,025
|
|
4,062
|
|
(1)
|
|
8
|
|
Adjusting
items
|
(2,006)
|
|
(2,364)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating profit
|
2,019
|
|
1,698
|
|
19
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
47
|
|
36
|
|
|
|
|
|
Finance
costs
|
(356)
|
|
(386)
|
|
|
|
|
|
Profit
on disposal of associates
|
-
|
|
20
|
|
|
|
|
|
Share
of after tax profits of associates
and
joint ventures
|
11
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
before taxation
|
1,721
|
|
1,372
|
|
25
|
|
49
|
|
|
|
|
|
|
|
|
|
|
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
2017.
At 30
June 2018, the Group’s aggregate provision for legal and
other disputes (not including tax matters described under
‘Taxation’ below) was £0.2 billion (31 December
2017: £0.2 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 development since the date of the
Annual Report 2017 and the Q1 2018 results.
Developments
with respect to tax matters are described in ‘Taxation’
below.
|
|
Taxation
Issues
related to taxation are described in the ‘Taxation’
note in the Annual Report 2017. 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.
In the
quarter, tax on Adjusted profits amounted to £388 million and
represented an effective Adjusted tax rate of 20.0% (Q2 2017:
21.2%). The tax on Total profits amounted to £139 million and
represented an effective tax rate of 22.6% (Q2 2017: 51.7%). The
reduction in the effective tax rate in comparison to Q2 2017 is
driven primarily by lower non taxable charges associated with the
Consumer Healthcare Joint Venture put option.
In H1
2018, tax on Adjusted profits amounted to £750 million and
represented an effective Adjusted tax rate of 20.1% (H1 2017:
21.6%). The charge for taxation on Total profits amounted to
£487 million and represented an effective tax rate of 28.3%
(H1 2017: 17.1%).
The
Group’s balance sheet at 30 June 2018 included a current tax
payable liability of £771 million, a non-current tax payable
liability of £394 million and a tax recoverable asset of
£252 million.
|
|
Additional information
|
|
Accounting policies and basis of preparation
|
|
This
unaudited Results Announcement contains condensed financial
information for the three and six months ended 30 June 2018, is
prepared in accordance with the Disclosure and Transparency Rules
(DTR) of the Financial Conduct Authority and IAS 34 ‘Interim
financial reporting’ and should be read in conjunction with
the Annual Report 2017, 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 2017, except for the implementation of
IFRS 15 ‘Revenue from contracts with customers’ and
IFRS 9 ‘Financial instruments’ from 1 January 2018.
These new Standards have not had a material impact on the reported
results of the Group.
GSK has
adopted IFRS 15 applying the modified retrospective approach, with
a cumulative adjustment to decrease equity at 1 January 2018 by
£4 million. In accordance with the requirements of the
standard, where the modified retrospective approach is adopted,
prior year results are not restated. IFRS 15 provides a single,
principles-based approach to the recognition of revenue from all
contracts with customers. It focuses on the identification of
performance obligations in a contract and requires revenue to be
recognised when or as those performance obligations are
satisfied.
GSK has
adopted IFRS 9 retrospectively, but with certain permitted
exceptions. As a result, prior year results are also not restated,
but a cumulative adjustment has been made to decrease equity at 1
January 2018 by £11 million, primarily reflecting an increase
in the expected credit loss provision on trade receivables of
£15 million. A net transfer of £288 million between
retained earnings and other reserves has also been made. This
primarily reflects prior impairments of equity investments that had
previously been charged to the income statement. IFRS 9 replaces
the majority of IAS 39 and covers the classification, measurement
and de-recognition of financial assets and financial liabilities,
introduces a new impairment model for financial assets based on
expected losses rather than incurred losses and provides a new
hedge accounting model.
IFRS 16
‘Leases’ is required to be implemented by the Group
from 1 January 2019. The new standard will replace IAS 17
‘Leases’ and will require lease liabilities and
“right of use” assets to be recognised on the balance
sheet for almost all leases. This is expected to result in a
significant increase in both assets and liabilities recognised on
the balance sheet. The costs of operating leases currently included
within operating costs will be split and the financing element of
the charge will be reported within finance expense. The Group is
assessing the potential impact of the new standard.
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 2017 were published
in the Annual Report 2017, 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:
|
|
|
Q2 2018
|
|
Q2
2017
|
|
H1 2018
|
|
H1
2017
|
|
2017
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
Average
rates:
|
|
|
|
|
|
|
|
|
|
||
|
|
|
US$/£
|
1.35
|
|
1.29
|
|
1.37
|
|
1.27
|
|
1.30
|
|
|
|
Euro/£
|
1.15
|
|
1.15
|
|
1.14
|
|
1.16
|
|
1.15
|
|
|
|
Yen/£
|
147
|
|
143
|
|
149
|
|
142
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Period-end
rates:
|
|
|
|
|
|
|
|
|
|
||
|
|
|
US$/£
|
1.32
|
|
1.30
|
|
1.32
|
|
1.30
|
|
1.35
|
|
|
|
Euro/£
|
1.13
|
|
1.14
|
|
1.13
|
|
1.14
|
|
1.13
|
|
|
|
Yen/£
|
146
|
|
146
|
|
146
|
|
146
|
|
152
|
|
During
Q2 2018, average Sterling exchange rates were stronger against the
US Dollar and the Yen, but flat against the Euro compared with the
same period in 2017. During the six months ended 30 June 2018,
average Sterling exchange rates were stronger against the US Dollar
and the Yen, but weaker against the Euro, compared with the same
period in 2017. Period-end Sterling exchange rates were stronger
against the US Dollar, flat against the Yen, but weaker against the
Euro compared with the 2017 year end rates.
|
|
Weighted average number of shares
|
|
|
|
|
|
Q2 2018
millions
|
|
Q2
2017
millions
|
|
|
|
|
|
|
Weighted
average number of shares – basic
|
4,914
|
|
4,887
|
|
Dilutive
effect of share options and share awards
|
47
|
|
-
|
|
|
|
|
|
|
Weighted
average number of shares – diluted
|
4,961
|
|
4,887
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
|
|
|
H1 2018
millions
|
|
H1
2017
millions
|
|
|
|
|
|
|
Weighted
average number of shares – basic
|
4,909
|
|
4,882
|
|
Dilutive
effect of share options and share awards
|
46
|
|
42
|
|
|
|
|
|
|
Weighted
average number of shares – diluted
|
4,955
|
|
4,924
|
|
|
|
|
|
|
At 30
June 2018, 4,915 million shares were in free issue (excluding
Treasury shares and shares held by the ESOP Trusts). This compares
with 4,888 million shares at 30 June 2017.
|
|
Net assets
|
|
The
book value of net assets decreased by £466 million from
£3,489 million at 31 December 2017 to £3,023 million at
30 June 2018. This primarily reflected the dividends paid in the
period exceeding Total profit for the period and re-measurement
gains on defined benefit plans.
The
carrying value of investments in associates and joint ventures at
30 June 2018 was £202 million (31 December 2017: £183
million), with a market value of £379 million (31 December
2017: £372 million).
At 30
June 2018, the net deficit on the Group’s pension plans was
£765 million compared with £1,505 million at 31 December
2017. The decrease in the net deficit primarily arose from
increases in the rates used to discount UK pension liabilities from
2.5% to 2.8%, and US pension liabilities from 3.6% to 4.2% together
with a decrease in the UK inflation rate from 3.2% to 3.1%, partly
offset by lower asset values.
At 30
June 2018, the post-retirement benefits provision was £1,374
million compared with £1,496 million at 31 December 2017. The
decrease in the provision was primarily due to the increase in the
US discount rate from 3.6% to 4.2%.
At 30
June 2018, trade and other payables were £12,545 million
compared with £20,970 million at 31 December 2017. The
decrease primarily reflected the elimination of the Consumer
Healthcare Joint Venture put option following the buyout of
Novartis’ interest in the Consumer Healthcare Joint Venture
on 1 June 2018. The buyout was funded by issuing bonds with
maturity rates of between two and twelve years, in both the US and
Europe, which raised $6 billion and €2.5 billion
respectively. Committed bank facilities financed the remaining
amount of the $13 billion transaction.
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 £1,299 million (31
December 2017: £1,304 million).
Contingent
consideration amounted to £6,170 million at 30 June 2018 (31
December 2017: £6,172 million), of which £5,879 million
(31 December 2017: £5,542 million) represented the estimated
present value of amounts payable to Shionogi relating to ViiV
Healthcare and £243 million (31 December 2017: £584
million) represented the estimated present value of contingent
consideration payable to Novartis related to the Vaccines
acquisition following a milestone payment of $450 million made to
Novartis in January 2018.
The
liability due to Shionogi included £234 million in respect of
preferential dividends. The liability for preferential dividends
due to Pfizer at 30 June 2018 was £16 million (31 December
2017: £17 million). An explanation of the accounting for the
non-controlling interests in ViiV Healthcare is set out on page
62.
Of the
contingent consideration payable (on a post-tax basis) at 30 June
2018, £806 million (31 December 2017: £1,076 million) is
expected to be paid within one year. The consideration payable for
the acquisition of the Shionogi-ViiV Healthcare joint venture and
the Novartis Vaccines business is expected to be paid over a number
of years. As a result, the total estimated liabilities are
discounted to their present values, on a post-tax basis using
post-tax discount rates. The Shionogi-ViiV Healthcare contingent
consideration liability is discounted at 8.5% and the Novartis
Vaccines contingent consideration liability is discounted partly at
8% and partly at 9%.
|
|
The
liabilities for the Pfizer put option and the contingent
consideration at 30 June 2018 have been calculated based on the
closing exchange rates, primarily US$1.32/£1 and Euro
€1.13/£1. The sensitivities for each of the largest
contingent consideration liabilities and the Pfizer put option are
set out on pages 59 and 60.
Movements
in these exchange rates would have the following approximate
effects on the put option liability.
|
|
Increase/(decrease) in liability
|
|
|
|
|
|
|
ViiV
Healthcare
put
option
|
|
|
|
|
|
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
5 cent
appreciation of US Dollar
|
|
|
|
|
|
|
35
|
|
5 cent
depreciation of US Dollar
|
|
|
|
|
|
|
(33)
|
|
10 cent
appreciation of US Dollar
|
|
|
|
|
|
|
73
|
|
10 cent
depreciation of US Dollar
|
|
|
|
|
|
|
(63)
|
|
5 cent
appreciation of Euro
|
|
|
|
|
|
|
22
|
|
5 cent
depreciation of Euro
|
|
|
|
|
|
|
(20)
|
|
10 cent
appreciation of Euro
|
|
|
|
|
|
|
47
|
|
10 cent
depreciation of Euro
|
|
|
|
|
|
|
(39)
|
|
|
|
|
|
|
|
|
|
|
Movements in contingent consideration are as follows:
|
|||
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
|
|
|
|
|
Contingent
consideration at beginning of the period
|
6,172
|
|
5,896
|
|
Re-measurement
through income statement
|
700
|
|
450
|
|
Cash
payments: operating cash flows
|
(605)
|
|
(263)
|
|
Cash
payments: investing activities
|
(97)
|
|
(40)
|
|
|
|
|
|
|
Contingent
consideration at end of the period
|
6,170
|
|
6,043
|
|
|
|
|
|
|
The re-measurements of contingent consideration in the six months
reflected updated forecasts, exchange rate movements and the unwind
of the discounts on the liabilities. The cash settlement in the
period included £376 million (H1 2017: £299 million) of
payments to Shionogi in relation to ViiV Healthcare and the
£317 million milestone payment to Novartis relating to the
non-US sales of Bexsero. These payments are deductible for tax
purposes.
|
|
At 30
June 2018, the ESOP Trusts held 45.7 million GSK shares against the
future exercise of share options and share awards. The carrying
value of £273 million has been deducted from other reserves.
The market value of these shares was £699
million.
At 30
June 2018, the company held 414.6 million Treasury shares at a cost
of £5,800 million, which has been deducted from retained
earnings.
|
|
Contingent liabilities
|
|
There
were contingent liabilities at 30 June 2018 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 and tax disputes to which the Group is a
party are set out on page 53.
|
|
Financial instruments fair value disclosures
|
|
Certain of the Group's financial instruments are measured at fair
value. The following tables categorise these financial assets and
liabilities by the valuation methodology applied in determining
their fair value. Where possible, quoted prices in active markets
are used (Level 1). Where such prices are not available, the asset
or liability is classified as Level 2, provided all significant
inputs to the valuation model used are based on observable market
data. If one or more of the significant inputs to the valuation
model is not based on observable market data, the instrument is
classified as Level 3.
|
|
At 30 June 2018
|
Level
1
£m
|
|
Level
2
£m
|
|
Level
3
£m
|
|
Total
£m
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value
|
|
|
|
|
|
|
|
|
Financial
assets at fair value through other
comprehensive
income (FVTOCI):
|
|
|
|
|
|
|
|
|
Other
investments designated at FVTOCI
|
596
|
|
-
|
|
414
|
|
1,010
|
|
Trade
and other receivables classified as FVTOCI
|
-
|
|
1,390
|
|
39
|
|
1,429
|
|
Financial
assets mandatorily at fair value through
profit
or loss (FVTPL):
|
|
|
|
|
|
|
|
|
Other
non-current assets
|
-
|
|
677
|
|
38
|
|
715
|
|
Other
investments at FVTPL
|
-
|
|
-
|
|
57
|
|
57
|
|
Trade
and other receivables classified at FVTPL
|
-
|
|
73
|
|
-
|
|
73
|
|
Cash
and cash equivalents
|
1,826
|
|
-
|
|
-
|
|
1,826
|
|
Derivatives
designated and effective as hedging
instruments
|
-
|
|
33
|
|
-
|
|
33
|
|
Held
for trading derivatives that are not in
designated
hedging relationship
|
-
|
|
80
|
|
9
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
2,422
|
|
2,253
|
|
557
|
|
5,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value
|
|
|
|
|
|
|
|
|
Financial
liabilities mandatorily at fair value through
profit
or loss (FVTPL):
|
|
|
|
|
|
|
|
|
Contingent
consideration liabilities
|
-
|
|
-
|
|
(6,170)
|
|
(6,170)
|
|
Derivatives
designated and effective as hedging
instruments.
|
-
|
|
(42)
|
|
-
|
|
(42)
|
|
Held
for trading derivatives that are not in
designated
hedging relationship
|
-
|
|
(41)
|
|
(1)
|
|
(42)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83)
|
|
(6,171)
|
|
(6,254)
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2017
|
Level
1
£m
|
|
Level
2
£m
|
|
Level
3
£m
|
|
Total
£m
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value
|
|
|
|
|
|
|
|
|
Available-for-sale
financial assets:
|
|
|
|
|
|
|
|
|
Liquid
investments
|
77
|
|
1
|
|
-
|
|
78
|
|
Other
investments
|
535
|
|
-
|
|
383
|
|
918
|
|
Other
non-current assets
|
-
|
|
-
|
|
38
|
|
38
|
|
Financial
assets at fair value through profit or loss:
|
|
|
|
|
|
|
|
|
Other
non-current assets
|
-
|
|
382
|
|
44
|
|
426
|
|
Trade
and other receivables
|
-
|
|
-
|
|
42
|
|
42
|
|
Derivatives
designated as at fair value through
profit
or loss
|
-
|
|
5
|
|
-
|
|
5
|
|
Derivatives
classified as held for trading under
IAS
39
|
-
|
|
62
|
|
9
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
612
|
|
450
|
|
516
|
|
1,578
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2017
|
Level
1
£m
|
|
Level
2
£m
|
|
Level
3
£m
|
|
Total
£m
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value
|
|
|
|
|
|
|
|
|
Financial
liabilities at fair value through profit or loss:
|
|
|
|
|
|
|
|
|
Contingent
consideration liabilities
|
-
|
|
-
|
|
(6,172)
|
|
(6,172)
|
|
Derivatives
designated as at fair value through
profit
or loss
|
-
|
|
(26)
|
|
-
|
|
(26)
|
|
Derivatives
classified as held for trading under
IAS
39
|
-
|
|
(47)
|
|
(1)
|
|
(48)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
(73)
|
|
(6,173)
|
|
(6,246)
|
|
|
|
|
|
|
|
|
|
|
Movements
in the six months to 30 June 2018 and the six months to 30 June
2017 for financial instruments measured using Level 3 valuation
methods are presented below:
|
|
|
Financial
assets
£m
|
|
Financial
liabilities
£m
|
|
|
|
|
|
|
At 1
January 2018
|
516
|
|
(6,173)
|
|
Gains/(losses)
recognised in the income statement
|
8
|
|
(700)
|
|
Gains
recognised in other comprehensive income
|
3
|
|
-
|
|
Additions
|
99
|
|
-
|
|
Disposals
|
(8)
|
|
-
|
|
Payments
in the period
|
(43)
|
|
702
|
|
Transfers
from Level 3
|
(28)
|
|
-
|
|
Exchange
|
10
|
|
-
|
|
|
|
|
|
|
At 30 June 2018
|
557
|
|
(6,171)
|
|
|
|
|
|
|
At 1
January 2017
|
411
|
|
(5,897)
|
|
Losses
recognised in the income statement
|
(1)
|
|
(450)
|
|
Gains
recognised in other comprehensive income
|
11
|
|
-
|
|
Additions
|
57
|
|
-
|
|
Disposals
|
(37)
|
|
-
|
|
Payments
in the period
|
-
|
|
303
|
|
Transfers
from Level 3
|
(11)
|
|
-
|
|
Exchange
|
(16)
|
|
-
|
|
|
|
|
|
|
At 30 June 2017
|
414
|
|
(6,044)
|
|
|
|
|
|
|
Net losses of £692 million (H1 2017: net losses of £451
million) and net losses of £1 million (H1 2017: net losses of
£4 million) attributable to Level 3 financial instruments held
at the end of the period were reported in other operating income
and other comprehensive income respectively.
At 30 June 2018, financial liabilities measured using Level 3
valuation methods included £5,879 million of contingent
consideration for the acquisition in 2012 of the former
Shionogi-ViiV Healthcare joint venture. This consideration is
expected to be paid over a number of years and will vary in line
with the future performance of specified products and movements in
certain foreign currencies. Financial liabilities also included
£243 million of contingent consideration for the acquisition
of the Novartis Vaccines business in 2015. This consideration is
expected to be paid over a number of years and will vary in line
with the future performance of specified products, the achievement
of certain milestone targets and movements in certain foreign
currencies. The financial liabilities are measured at the present
value of expected future cash flows, the most significant inputs to
the valuation models being future sales forecasts, the discount
rate, the Sterling/US Dollar exchange rate and the probability of
success in achieving milestone targets.
|
|
The table below shows, on an indicative basis, the income statement
and balance sheet sensitivity to reasonably possible changes in key
inputs to the valuation of the largest contingent consideration
liabilities.
|
|
|
Shionogi
–
ViiV
Healthcare
|
|
Novartis
Vaccines
|
|
Increase/(decrease) in financial liability
|
£m
|
|
£m
|
|
|
|
|
|
|
10%
increase in sales forecasts
|
588
|
|
52
|
|
10%
decrease in sales forecasts
|
(589)
|
|
(52)
|
|
1% (100
basis points) increase in discount rate
|
(246)
|
|
(16)
|
|
1% (100
basis points) decrease in discount rate
|
262
|
|
19
|
|
5%
increase in probability of milestone success
|
|
|
6
|
|
5%
decrease in probability of milestone success
|
|
|
(6)
|
|
5 cent
appreciation of US Dollar
|
174
|
|
(5)
|
|
5 cent
depreciation of US Dollar
|
(163)
|
|
5
|
|
10 cent
appreciation of US Dollar
|
364
|
|
(11)
|
|
10 cent
depreciation of US Dollar
|
(314)
|
|
9
|
|
5 cent
appreciation of Euro
|
54
|
|
13
|
|
5 cent
depreciation of Euro
|
(52)
|
|
(11)
|
|
10 cent
appreciation of Euro
|
114
|
|
26
|
|
10 cent
depreciation of Euro
|
(97)
|
|
(22)
|
|
|
|
|
|
|
The Group transfers financial instruments between different levels
in the fair value hierarchy when, as a result of an event or change
in circumstances, the valuation methodology applied in determining
their fair values alters in such a way that it meets the definition
of a different level. There were no transfers between the Level 1
and Level 2 fair value measurement categories in the period.
Transfers from Level 3 relate to equity investments in companies
which were listed on stock exchanges during the
period.
|
|
The following methods and assumptions were used to measure the fair
value of the significant financial instruments carried at fair
value on the balance sheet:
|
|
|
|
|
|
●
|
Liquid
investments (applicable to 31 December 2017 only) – based on
quoted market prices or calculated based on observable inputs in
the case of marketable securities; based on principal amounts in
the case of non-marketable securities because of their short
repricing periods
|
|
|
|
|
●
|
Cash
and cash equivalents carried at fair value (applicable from 1
January 2018) – based on net asset value of the
funds
|
|
|
|
|
●
|
Other
investments – equity investments traded in an active market
determined by reference to the relevant stock exchange quoted bid
price; other equity investments determined by reference to the
current market value of similar instruments or by reference to the
discounted cash flows of the underlying net assets
|
|
|
|
|
●
|
Contingent
consideration for business acquisitions and divestments –
based on present values of expected future cash flows
|
|
|
|
|
●
|
Interest
rate swaps, foreign exchange forward contracts, swaps and options
– based on the present value of contractual cash flows or
option valuation models using market-sourced data (exchange rates
or interest rates) at the balance sheet date
|
|
|
|
|
●
|
Company-owned
life insurance policies – based on cash surrender
value
|
|
|
|
|
●
|
Trade
receivables carried at fair value – based on invoiced
amount.
|
|
There are no material differences between the carrying value of the
Group's other financial assets and liabilities and their estimated
fair values, with the exception of bonds, for which the carrying
values and fair values are set out in the table below:
|
|
|
30 June 2018
|
|
31
December 2017
|
||||
|
|
|
|
|
|
|
|
|
|
|
Carrying
value
£m
|
|
Fair
value
£m
|
|
Carrying
value
£m
|
|
Fair
value
£m
|
|
|
|
|
|
|
|
|
|
|
Bonds
in a designated hedging relationship
|
(6,524)
|
|
(6,649)
|
|
(4,315)
|
|
(4,405)
|
|
Other
bonds
|
(14,474)
|
|
(16,708)
|
|
(11,894)
|
|
(14,743)
|
|
|
|
|
|
|
|
|
|
|
|
(20,998)
|
|
(23,357)
|
|
(16,209)
|
|
(19,148)
|
|
|
|
|
|
|
|
|
|
|
The following methods and assumptions are used to estimate the fair
values of financial assets and liabilities which are not measured
at fair value on the balance sheet:
|
|
|
|
|
|
●
|
Liquid
investments (applicable from 1 January 2018) – approximates
to the carrying amount
|
|
|
|
|
●
|
Cash
and cash equivalents carried at amortised cost – approximates
to the carrying amount
|
|
|
|
|
●
|
Short-term
loans, overdrafts and commercial paper – approximates to the
carrying amount because of the short maturity of these
instruments
|
|
|
|
|
●
|
Long-term
loans – based on quoted market prices in the case of European
and US Medium term notes and other fixed rate borrowings (a Level 1
fair value measurement); approximates to the carrying amount in the
case of floating rate bank
loans and other loans
|
|
|
|
|
●
|
Receivables
and payables, including put options, carried at amortised cost
– approximates to the carrying amount
|
|
|
|
|
●
|
Lease
obligations – approximates to the carrying
amount.
|
|
Put option
Other
payables in Current liabilities includes the present value of the
expected redemption amount of the Pfizer put option over its
non-controlling interest in ViiV Healthcare of £1,299 million.
Forecast exchange rates are consistent with market rates at 30 June
2018. This includes a number of assumptions around future sales and
profit forecasts, multiples and forecast exchange rates. The
forecast exchange rates used are consistent with market rates at 30
June 2018.
The table below shows on an indicative basis the income statement
and balance sheet sensitivity to reasonably possible changes in the
key inputs to the measurement of these liabilities.
|
|
Increase/(decrease) in financial liability
|
|
|
ViiV
Healthcare
put
option
£m
|
|
|
|
|
|
|
10%
increase in sales forecasts
|
|
|
146
|
|
10%
decrease in sales forecasts
|
|
|
(146)
|
|
1% (100
basis points) increase in discount rate
|
|
|
(49)
|
|
1% (100
basis points) decrease in discount rate
|
|
|
54
|
|
|
|
|
|
|
Reconciliation of cash flow to movements in net debt
|
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
|
|
|
|
|
Net
debt at beginning of the period
|
(13,178)
|
|
(13,804)
|
|
|
|
|
|
|
Increase/(decrease)
in cash and bank overdrafts
|
119
|
|
(968)
|
|
Net
increase in short-term loans
|
(448)
|
|
(386)
|
|
Increase
in long-term loans
|
(10,048)
|
|
-
|
|
Net
repayment of obligations under finance leases
|
12
|
|
13
|
|
Exchange
adjustments
|
(398)
|
|
350
|
|
Other
non-cash movements
|
6
|
|
(5)
|
|
|
|
|
|
|
Increase
in net debt
|
(10,757)
|
|
(996)
|
|
|
|
|
|
|
Net
debt at end of the period
|
(23,935)
|
|
(14,800)
|
|
|
|
|
|
|
Net debt analysis
|
|
|
30 June 2018
£m
|
|
30 June
2017
£m
|
|
31
December
2017
£m
|
|
|
|
|
|
|
|
|
Liquid
investments
|
81
|
|
85
|
|
78
|
|
Cash
and cash equivalents
|
4,046
|
|
3,986
|
|
3,833
|
|
Short-term
borrowings
|
(3,470)
|
|
(6,612)
|
|
(2,825)
|
|
Long-term
borrowings
|
(24,592)
|
|
(12,259)
|
|
(14,264)
|
|
|
|
|
|
|
|
|
Net
debt at end of the period
|
(23,935)
|
|
(14,800)
|
|
(13,178)
|
|
|
|
|
|
|
|
|
Free cash flow reconciliation
|
|
|
Q2 2018
£m
|
|
H1
2018
£m
|
|
H1
2017
(revised)
£m
|
|
|
|
|
|
|
|
|
Net
cash inflow from operating activities
|
1,362
|
|
2,225
|
|
2,152
|
|
Purchase
of property, plant and equipment
|
(283)
|
|
(541)
|
|
(639)
|
|
Proceeds
from sale of property, plant and equipment
|
13
|
|
22
|
|
125
|
|
Purchase
of intangible assets
|
(92)
|
|
(189)
|
|
(389)
|
|
Proceeds
from disposals of intangible assets
|
18
|
|
23
|
|
18
|
|
Net
finance costs
|
(252)
|
|
(332)
|
|
(349)
|
|
Dividends
from joint ventures and associates
|
-
|
|
39
|
|
2
|
|
Contingent
consideration paid (reported in investing
activities)
|
(25)
|
|
(97)
|
|
(40)
|
|
Distributions
to non-controlling interests
|
(270)
|
|
(350)
|
|
(494)
|
|
Contributions
from non-controlling interests
|
21
|
|
21
|
|
-
|
|
|
|
|
|
|
|
|
Free
cash flow
|
492
|
|
821
|
|
386
|
|
|
|
|
|
|
|
|
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
|
|
Non-controlling interests in ViiV Healthcare
|
|
Trading profit allocations
Because
ViiV Healthcare is a subsidiary of the Group, 100% of its operating
results (turnover, operating profit, profit after tax) are included
within the Group income statement and then a portion of the
earnings is allocated to the non-controlling interests owned by the
other shareholders, in line with their respective equity
shareholdings (Pfizer 11.7% and Shionogi 10%). Each of the
shareholders, including GSK, is also entitled to preferential
dividends 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
of ViiV Healthcare allocated to each shareholder will change. In
particular, the increasing sales of Tivicay and Triumeq have a favourable impact on the
proportion of the preferential dividends that is allocated to GSK.
GSK was entitled to approximately 80% of the Adjusted earnings of
ViiV Healthcare for 2017. Re-measurements of the liabilities for
the preferential dividends allocated to Pfizer and Shionogi are
included within other operating income.
Acquisition-related arrangements
As part
of the agreement reached to acquire Shionogi’s interest in
the former Shionogi-ViiV Healthcare joint venture in 2012, ViiV
Healthcare agreed to pay additional consideration to Shionogi
contingent on the performance of the products being developed by
that joint venture, principally dolutegravir. The liability for
this contingent consideration was estimated and recognised in the
balance sheet at the date of acquisition. Subsequent
re-measurements are reflected within other operating income/expense
and within Adjusting items in the income statement.
Cash
payments are made to Shionogi by ViiV Healthcare each quarter which
reduce the balance sheet liability and are hence not recorded in
the income statement. The payments are calculated based on the
sales performance of the relevant products in the previous quarter
and are reflected in the cash flow statement partly in operating
cash flows and partly within investing activities. The tax relief
on these payments is reflected in the Group’s Adjusting items
as part of the tax charge. The part of each payment relating to the
original estimate of the fair value of the contingent consideration
on the acquisition of the Shionogi-ViiV Healthcare joint venture in
2012 of £659 million is reported within investing activities
in the cash flow statement and the part of each payment relating to
the increase in the liability since the acquisition is reported
within operating cash flows.
|
|
Movements
in contingent consideration payable to Shionogi are as
follows:
|
|
|
H1 2018
£m
|
|
H1
2017
£m
|
|
|
|
|
|
|
Contingent
consideration at beginning of the period
|
5,542
|
|
5,304
|
|
Re-measurement
through income statement
|
713
|
|
346
|
|
Cash
payments: operating cash flows
|
(332)
|
|
(261)
|
|
Cash
payments: investing activities
|
(44)
|
|
(38)
|
|
|
|
|
|
|
Contingent
consideration at end of the period
|
5,879
|
|
5,351
|
|
|
|
|
|
|
Of the
contingent consideration payable (on a post-tax basis) to Shionogi
at 30 June 2018, £777 million (30 June 2017: £605
million) is expected to be paid within one year.
|
|
Exit rights
Pfizer
may request an IPO of ViiV Healthcare at any time and if either GSK
does not consent to such IPO or an offering is not completed within
nine months, Pfizer could require GSK to acquire its shareholding.
Under the original agreements, GSK had the unconditional right, so
long as it made no subsequent distribution to its shareholders, to
withhold its consent to the exercise of the Pfizer put option and,
as a result, in accordance with IFRS, GSK did not recognise a
liability for the put option on its balance sheet. However, during
Q1 2016, GSK notified Pfizer that it had irrevocably given up this
right and accordingly recognised the liability for the put option
on the Group’s balance sheet during Q1 2016 at an initial
value of £1,070 million. Consistent with this revised
treatment, at the end of Q1 2016 GSK also recognised liabilities
for the future preferential dividends anticipated to become payable
to Pfizer and Shionogi on the Group’s balance
sheet.
|
|
The
closing balances of the liabilities related to Pfizer’s
shareholding are as follows:
|
|
|
30 June 2018
£m
|
|
31
December
2017
£m
|
|
|
|
|
|
|
Pfizer
put option
|
1,299
|
|
1,304
|
|
Pfizer
preferential dividend
|
16
|
|
17
|
|
|
|
|
|
|
Under
the original agreements, Shionogi could also have requested GSK to
acquire its shareholding in ViiV Healthcare in six month windows
commencing in 2017, 2020 and 2022. GSK had the unconditional right,
so long as it made no subsequent distribution toits shareholders,
to withhold its consent to the exercise of the Shionogi put option
and, as a result, GSK did not recognise a liability for the put
option on its balance sheet. However, during Q1 2016, GSK notified
Shionogi that it had irrevocably given up this right and
accordingly recognised the liability for the put option on the
Group’s balance sheet during Q1 2016 at an initial value of
£926 million. In Q4 2016, Shionogi irrevocably agreed to waive
its put option and as a result GSK de-recognised the liability for
this put option on the Group’s balance sheet directly to
equity. The value of the liability was £1,244 million when it
was de-recognised.
GSK
also has a call option over Shionogi’s shareholding in ViiV
Healthcare, which under the original agreements was exercisable in
six month windows commencing in 2027, 2030 and 2032. GSK has now
irrevocably agreed to waive the first two exercise windows, but the
last six month window in 2032 remains. As this call option is at
fair value, it has no value for accounting purposes.
|
|
Adjusted results reconciliations
|
|
The
reconciliations between Total results and Adjusted results for Q2
2018 and Q2 2017 and also H1 2018 and H1 2017 are set out
below.
|
|
Income statement – Adjusted results
reconciliation
Three months ended 30 June 2018
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal
and
other
items
£m
|
Adjusted
results
£m
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Turnover
|
7,310
|
|
|
|
|
|
7,310
|
|
Cost of
sales
|
(2,310)
|
128
|
1
|
99
|
3
|
|
(2,079)
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Gross
profit
|
5,000
|
128
|
1
|
99
|
3
|
|
5,231
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(2,457)
|
|
2
|
39
|
70
|
12
|
(2,334)
|
|
Research
and development
|
(925)
|
10
|
25
|
20
|
|
2
|
(868)
|
|
Royalty
income
|
73
|
|
|
|
|
|
73
|
|
Other
operating income/(expense)
|
(912)
|
|
|
|
949
|
(37)
|
-
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Operating profit
|
779
|
138
|
28
|
158
|
1,022
|
(23)
|
2,102
|
|
|
|
|
|
|
|
|
|
|
Net
finance costs
|
(167)
|
|
|
1
|
|
1
|
(165)
|
|
Profit
on disposal of associates
|
-
|
|
|
|
|
|
-
|
|
Share
of after tax profits of
associates
and joint ventures
|
2
|
|
|
|
|
|
2
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit before taxation
|
614
|
138
|
28
|
159
|
1,022
|
(22)
|
1,939
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(139)
|
(24)
|
(5)
|
(38)
|
(197)
|
15
|
(388)
|
|
Tax rate %
|
22.6%
|
|
|
|
|
|
20.0%
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit after taxation
|
475
|
114
|
23
|
121
|
825
|
(7)
|
1,551
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit
attributable to
non-controlling
interests
|
34
|
|
|
|
136
|
|
170
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to
shareholders
|
441
|
114
|
23
|
121
|
689
|
(7)
|
1,381
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
9.0p
|
2.3p
|
0.4p
|
2.5p
|
14.0p
|
(0.1)p
|
28.1p
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
shares
(millions)
|
4,914
|
|
|
|
|
|
4,914
|
|
|
––––––––––––
|
|
|
|
|
|
––––––––––––
|
|
Adjusted results exclude the above items from Total results as GSK
believes that Adjusted results are more representative of the
performance of the Group’s operations and allow the key
trends and factors driving performance to be more easily and
clearly identified by shareholders. For a fuller explanation of
Adjusted results, see ‘Reporting definitions’ on page
39.
|
|
Income statement – Adjusted results
reconciliation
Three months ended 30 June 2017
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal
and
other
items
£m
|
Adjusted
results
£m
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Turnover
|
7,320
|
|
|
|
|
|
7,320
|
|
Cost of
sales
|
(2,619)
|
142
|
279
|
195
|
15
|
|
(1,988)
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Gross
profit
|
4,701
|
142
|
279
|
195
|
15
|
|
5,332
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(2,379)
|
|
|
75
|
|
10
|
(2,294)
|
|
Research
and development
|
(1,260)
|
11
|
16
|
170
|
|
10
|
(1,053)
|
|
Royalty
income
|
98
|
|
|
|
|
|
98
|
|
Other
operating income/(expense)
|
(1,180)
|
|
|
|
1,211
|
(31)
|
-
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Operating profit
|
(20)
|
153
|
295
|
440
|
1,226
|
(11)
|
2,083
|
|
|
|
|
|
|
|
|
|
|
Net
finance costs
|
(177)
|
|
|
1
|
|
|
(176)
|
|
Profit
on disposal of associates
|
20
|
|
|
|
|
(20)
|
-
|
|
Share
of after tax losses of
associates
and joint ventures
|
(1)
|
|
|
|
|
|
(1)
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
(Loss)/profit before taxation
|
(178)
|
153
|
295
|
441
|
1,226
|
(31)
|
1,906
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
92
|
(36)
|
(97)
|
(151)
|
(98)
|
(115)
|
(405)
|
|
Tax rate %
|
51.7%
|
|
|
|
|
|
21.2%
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
(Loss)/profit after taxation
|
(86)
|
117
|
198
|
290
|
1,128
|
(146)
|
1,501
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit
attributable to
non-controlling
interests
|
94
|
|
|
|
80
|
|
174
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit attributable to
shareholders
|
(180)
|
117
|
198
|
290
|
1,048
|
(146)
|
1,327
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
(Loss)/earnings per share
|
(3.7)p
|
2.4p
|
4.1p
|
5.9p
|
21.5p
|
(3.0)p
|
27.2p
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
shares
(millions)
|
4,887
|
|
|
|
|
|
4,887
|
|
|
––––––––––––
|
|
|
|
|
|
––––––––––––
|
|
Adjusted results exclude the above items from Total results as GSK
believes that Adjusted results are more representative of the
performance of the Group’s operations and allow the key
trends and factors driving performance to be more easily and
clearly identified by shareholders. For a fuller explanation of
Adjusted results, see ‘Reporting definitions’ on page
39.
|
|
Income statement – Adjusted results
reconciliation
Six months ended 30 June 2018
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal
and
other
items
£m
|
Adjusted
results
£m
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Turnover
|
14,532
|
|
|
|
|
|
14,532
|
|
Cost of
sales
|
(4,701)
|
267
|
28
|
142
|
6
|
|
(4,258)
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Gross
profit
|
9,831
|
267
|
28
|
142
|
6
|
|
10,274
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(4,768)
|
|
2
|
58
|
70
|
18
|
(4,620)
|
|
Research
and development
|
(1,829)
|
20
|
25
|
23
|
|
6
|
(1,755)
|
|
Royalty
income
|
126
|
|
|
|
|
|
126
|
|
Other
operating income/(expense)
|
(1,341)
|
|
|
|
1,383
|
(42)
|
-
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Operating profit
|
2,019
|
287
|
55
|
223
|
1,459
|
(18)
|
4,025
|
|
|
|
|
|
|
|
|
|
|
Net
finance costs
|
(309)
|
|
|
2
|
|
3
|
(304)
|
|
Share
of after tax profits of
associates
and joint ventures
|
11
|
|
|
|
|
|
11
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit before taxation
|
1,721
|
287
|
55
|
225
|
1,459
|
(15)
|
3,732
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(487)
|
(56)
|
(9)
|
(55)
|
(177)
|
34
|
(750)
|
|
Tax rate %
|
28.3%
|
|
|
|
|
|
20.1%
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit after taxation
|
1,234
|
231
|
46
|
170
|
1,282
|
19
|
2,982
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit
attributable to
non-controlling
interests
|
244
|
|
|
|
150
|
|
394
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to
shareholders
|
990
|
231
|
46
|
170
|
1,132
|
19
|
2,588
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
20.2p
|
4.7p
|
0.9p
|
3.5p
|
23.0p
|
0.4p
|
52.7p
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
shares
(millions)
|
4,909
|
|
|
|
|
|
4,909
|
|
|
––––––––––––
|
|
|
|
|
|
––––––––––––
|
|
Adjusted results exclude the above items from Total results as GSK
believes that Adjusted results are more representative of the
performance of the Group’s operations and allow the key
trends and factors driving performance to be more easily and
clearly identified by shareholders. For a fuller explanation of
Adjusted results, see ‘Reporting definitions’ on page
39.
|
|
Income statement – Adjusted results
reconciliation
Six months ended 30 June 2017
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal
and
other
items
£m
|
Adjusted
results
£m
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Turnover
|
14,704
|
|
|
|
|
|
14,704
|
|
Cost of
sales
|
(5,132)
|
273
|
314
|
299
|
37
|
|
(4,209)
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Gross
profit
|
9,572
|
273
|
314
|
299
|
37
|
|
10,495
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(4,831)
|
|
|
122
|
|
68
|
(4,641)
|
|
Research
and development
|
(2,220)
|
22
|
25
|
185
|
|
16
|
(1,972)
|
|
Royalty
income
|
180
|
|
|
|
|
|
180
|
|
Other
operating income/(expense)
|
(1,003)
|
|
|
|
1,281
|
(278)
|
-
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Operating profit
|
1,698
|
295
|
339
|
606
|
1,318
|
(194)
|
4,062
|
|
|
|
|
|
|
|
|
|
|
Net
finance costs
|
(350)
|
|
|
2
|
|
3
|
(345)
|
|
Profit
on disposal of associates
|
20
|
|
|
|
|
(20)
|
-
|
|
Share
of after tax profits of
associates
and joint ventures
|
4
|
|
|
|
|
|
4
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit before taxation
|
1,372
|
295
|
339
|
608
|
1,318
|
(211)
|
3,721
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(235)
|
(67)
|
(110)
|
(189)
|
(124)
|
(79)
|
(804)
|
|
Tax rate %
|
17.1%
|
|
|
|
|
|
21.6%
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit after taxation
|
1,137
|
228
|
229
|
419
|
1,194
|
(290)
|
2,917
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
Profit
attributable to
non-controlling
interests
|
271
|
|
|
|
102
|
|
373
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to
shareholders
|
866
|
228
|
229
|
419
|
1,092
|
(290)
|
2,544
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
17.7p
|
4.7p
|
4.7p
|
8.6p
|
22.4p
|
(6.0)p
|
52.1p
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
shares
(millions)
|
4,882
|
|
|
|
|
|
4,882
|
|
|
––––––––––––
|
|
|
|
|
|
––––––––––––
|
|
Adjusted results exclude the above items from Total results as GSK
believes that Adjusted results are more representative of the
performance of the Group’s operations and allow the key
trends and factors driving performance to be more easily and
clearly identified by shareholders. For a fuller explanation of
Adjusted results, see ‘Reporting definitions’ on page
39
|
|
Principal risks and uncertainties
The
principal risks and uncertainties affecting the Group are those
described under the headings below. These are detailed in the
‘Principal risks and uncertainties’ section of the
Annual Report 2017.
|
|
Patient
safety
|
Failure
to appropriately collect, review, follow up, or report adverse
events from all potential sources, and to act on any relevant
findings in a timely manner.
|
|
|
|
|
Product
quality
|
Failure
to comply with current Good Manufacturing Practices or inadequate
controls and governance of quality in the supply chain covering
supplier standards, manufacturing and distribution of
products.
|
|
|
|
|
Financial
controls and reporting
|
Failure
to comply with current tax laws or incurring significant losses due
to treasury activities; failure to report accurate financial
information in compliance with accounting standards and applicable
legislation.
|
|
|
|
|
Anti-Bribery
and Corruption (ABAC)
|
Failure
of GSK employees, consultants and third parties to comply with our
ABAC principles and standards, as well as with all applicable
legislation.
|
|
|
|
|
Commercial
practices
|
Failure
to engage in commercial activities that are consistent with the
letter and spirit of legal, industry or the Group’s
requirements relating to marketing and communications about our
medicines and associated therapeutic areas; appropriate
interactions with healthcare professionals and patients, and
legitimate and transparent transfer of value.
|
|
|
|
|
Research
practices
|
Failure
to adequately conduct ethical and sound pre-clinical and clinical
research. In addition, failure to engage in scientific activities
that are consistent with the letter and spirit of the law,
industry, or the Group’s requirements and failure to secure
adequate patent protection for the Group’s
products.
|
|
|
|
|
Environment,
health & safety and sustainability (EHSS)
|
Failure
to manage EHSS risks in line with the Group’s objectives,
policies and relevant laws and regulations.
|
|
|
|
|
Information
protection
|
The
risk to the Group’s business activities if information
becomes disclosed to those not authorised to see it, or if
information or systems fail to be available or are corrupted,
typically because of cybersecurity threats, although accident or
malicious insider action may be contributory causes. This also
includes the risk of failure to collect, secure, and use personal
information in accordance with data privacy laws.
|
|
|
|
|
Supply
continuity and crisis management
|
Failure
to deliver a continuous supply of compliant finished product;
inability to respond effectively to a crisis incident in a timely
manner to recover and sustain critical operations, including key
supply chains.
|
|
|
|
|
Third
party oversight risk
|
Failure
to maintain adequate governance and oversight over third party
relationships and failure of third parties to meet their
contractual, regulatory, confidentiality or other
obligations.
|
|
Directors’ responsibility statement
The
Board of Directors approved this Half-yearly Financial Report on 25
July 2018.
The
Directors confirm that to the best of their knowledge the unaudited
condensed financial information has been prepared in accordance
with IAS 34 as adopted by the European Union and that the interim
management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8.
After
making enquiries, the Directors considered it appropriate to adopt
the going concern basis in preparing this Half-yearly Financial
Report.
The
Directors of GlaxoSmithKline plc are as follows:
|
|
|
|
|
|
Sir
Philip Hampton
|
Non-Executive
Chairman, Nominations Committee Chair
|
|
Emma
Walmsley
|
Chief
Executive Officer (Executive Director)
|
|
Simon
Dingemans
|
Chief
Financial Officer (Executive Director)
|
|
Dr Hal
Barron
|
Chief
Scientific Officer and President, R&D (Executive
Director)
|
|
Vindi
Banga
|
Senior
Independent Non-Executive Director
|
|
Dr
Vivienne Cox, CBE
|
Independent
Non-Executive Director
|
|
Lynn
Elsenhans
|
Independent
Non-Executive Director, Corporate Responsibility Committee
Chair
|
|
Dr
Laurie Glimcher
|
Independent
Non-Executive Director
|
|
Dr
Jesse Goodman
|
Independent
Non-Executive Director, Science Committee Chair
|
|
Judy
Lewent
|
Independent
Non-Executive Director, Audit & Risk Committee
Chair
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Urs
Rohner
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Independent
Non-Executive Director, Remuneration Committee Chair
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By
order of the Board
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Emma
Walmsley
Chief
Executive Officer
25 July
2018
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Simon
Dingemans
Chief
Financial Officer
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Independent review report to GlaxoSmithKline plc
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Report on the condensed financial information
We have
been engaged by GlaxoSmithKline plc (the ‘Company’) to
review the condensed financial information (the “interim
financial statements”) in the Results Announcement of the
Company for the three and six months ended 30 June
2018.
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What we have reviewed
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The
interim financial statements comprise:
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the
income statement and statement of comprehensive income for the
three and six month periods ended 30 June 2018 on pages 42 to
44;
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the
balance sheet as at 30 June 2018 on page 48;
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the
statement of changes in equity for the six month period then ended
on page 49;
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the
cash flow statement for the six month period then ended on page 50
and;
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the
accounting policies and basis of preparation and the explanatory
notes to the interim financial statements on pages 45 to 47, 51 to
60 and 62 to 63.
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We have
read the other information contained in the Results Announcement,
including the non-IFRS measures contained on pages 45 to 47, 51 to
60 and 62 to 63, and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This
report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
“Review of Interim Financial Information Performed by the
Independent Auditor of the Entity” issued by the Financial
Reporting Council. 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 the Company, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Results Announcement of the Company in accordance
with the Disclosure and Transparency Rules of the United
Kingdom’s Financial Conduct Authority.
As
disclosed in Note 1, the annual financial statements of the Company
are prepared in accordance with IFRSs as adopted by the European
Union. The interim financial statements included in this Results
Announcement have been prepared in accordance with International
Accounting Standard 34 “Interim Financial Reporting” as
adopted by the European Union.
Our responsibility
Our
responsibility is to express to the Company a conclusion on the
interim financial statements 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 Financial Reporting Council 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 interim financial statements in the Results
Announcement for the three and six months ended 30 June 2018 are
not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom’s Financial Conduct Authority.
Deloitte LLP
Statutory
Auditor
London,
United Kingdom
25 July
2018
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GlaxoSmithKline plc
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(Registrant)
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Date: July
25, 2018
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By: VICTORIA
WHYTE
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Victoria Whyte
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Authorised
Signatory for and on
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behalf
of GlaxoSmithKline plc
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