3rd Quarter & 9 Months Results - Part 1

ASTRAZENECA PLC 28 October 1999 Part 1 AstraZeneca PLC Nine Months Results 1999 'Strong momentum maintained' Nine Months Financial Highlights ---------------------------------------------------------------------------- Continuing Operations before Exceptional Items ----------- ------------------------------------------ Statutory Pro Forma Basis* Basis ----------- ------------------------------------------ Nine Months Nine Months Nine Months Constant 1999 1999 1998 Currency USDm USDm USDm % % Sales: Group 13,322 13,322 11,599 +15 +15 Healthcare 11,148 11,148 9,276 +20 +21 Operating Profit: Group 3,052 3,040 2,572 +18 +20 Healthcare 2,792 2,780 2,226 +25 +26 Profit before Tax 3,033 3,000 2,545 +18 +19 Earnings per Share USD1.20 USD1.18 USD1.00 +18 +19 ----------- ------------------------------------------ All narrative in this report refers to pro forma growth rates. Tom McKillop, Chief Executive, said: 'These results are further strong evidence that the merger is on track and we remain on target to achieve strong Healthcare double digit sales and profit growth for the year. ' - Healthcare sales up 20 per cent; US Healthcare sales up 29 per cent - Healthcare operating profit up 25 per cent - Agrochemicals sales down 7 per cent - Group operating margin increased to 22.9 per cent Group Statutory Basis (including Discontinued Operations and Exceptional Items) ------------------------- -------- Nine Months Nine Months 1999 1998 Reported USDm USDm % ------------------------- -------- Profit before Tax 2,065 2,752 -25 Earnings per Share (FRS3) USD0.74 USD1.07 -31 ------------------------- -------- * Pro forma Basis: see basis of calculation description on page 12. AstraZeneca PLC Third Quarter Results 1999 Third Quarter Financial Highlights ---------------------------------------------------------------------------- Continuing Operations before Exceptional Items ----------- ------------------------------------------ Statutory Pro Forma Basis* Basis ----------- ------------------------------------------ 3rd Quarter 3rd Quarter 3rd Quarter Constant 1999 1999 1998 Currency USDm USDm USDm % % Sales: Group 4,279 4,279 3,503 +22 +23 Healthcare 3,766 3,766 2,916 +29 +31 Operating Profit: Group 949 949 634 +50 +52 Healthcare 958 958 616 +56 +59 Profit before Tax 941 941 611 +54 +56 Earnings per Share USD0.37 USD0.37 USD0.25 +48 +51 ----------- ------------------------------------------ All narrative in this report refers to pro forma growth rates. - Healthcare sales up 29 per cent; US Healthcare sales up 57 per cent influenced by wholesaler buying patterns of Prilosec - Healthcare operating profit up 56 per cent - Agrochemicals sales down 13 per cent - Group operating margin increased to 22.2 per cent Group Statutory Basis (including Discontinued Operations and Exceptional Items) ------------------------- -------- 3rd Quarter 3rd Quarter 1999 1998 Reported USDm USDm % ------------------------- -------- Profit before Tax 723 663 +9 Earnings per Share (FRS3) USD0.27 USD0.26 +4 ------------------------- -------- * Pro forma Basis: see basis of calculation description on page 12. Media Enquiries: Steve Brown/Lucy Williams (London) (0171) 304 5033/5034 Mikael Widell/ Staffan Ternby (Sodertalje) (8) 553 26428/26107 Rachel Bloom (Wilmington) (302) 886 7858 Analyst/Investor Enquiries: Elizabeth Sutton/ Michael Olsson (London) (0171) 304 5101/5087 Staffan Ternby (Sodertalje) (8) 553 26107 Ed Seage (Wilmington) (302) 886 4065 Jorgen Winroth (Wayne) (609) 896 4148 Chief Executive Officer's Review of Operations ---------------------------------------------------------------------------- All narrative in this report refers to pro forma growth rates for the third quarter. The good performance at the half year has continued with attention focused on the key value drivers and priorities. In Healthcare the excellent growth in sales and profits benefited from a more even quarterly phasing of Prilosec sales in the USA compared to 1998. Indeed, Prilosec sales were even stronger than anticipated at the half year as a result of some increased stocking in response to a tight supply position during the quarter This will probably lead to somewhat softer sales in the fourth quarter. The annualised underlying growth in US prescriptions was 19.6 per cent (as at the end of August). Good progress is being made in the defence of Losec/Prilosec patents. An interlocutory injunction was obtained in Germany removing one generic product from the market and further actions are underway. The appeal against an earlier judgement in Australia is due to be heard in late November and an Israeli court has recently upheld the inventiveness of our formulation patent. Importantly, the four cases in the USA have been combined for pre-trial purposes and the judge's timetable now suggests that a decision is unlikely before 2001. The integration activities are on track; further detail is provided on page seven of this report. The review of R & D projects has been completed and a full presentation of the portfolio in December will display the progress made with priority projects and the strength of the overall portfolio. On 21 October the European regulatory filing was submitted for esomeprazole (H199) which will be particularly important in sustaining our leading position in gastroenterology. There are no signs of a significant improvement in Agrochemicals - Zeneca Agrochemicals' performance reflects this. Restructuring plans have resulted in the recent announcement of some 450 planned job losses and the outcome of the full restructuring programme, including projected savings and their associated costs, will be announced with the full year results. Preparations for Year 2000 are nearing completion and the company's systems are expected to be fully compliant. The focus is now on managing contingencies. Our aim remains to have as normal a year end as possible despite some early signs of pressure to build up stocks, particularly in Cardiovascular medicines. The expectation remains for strong Healthcare double digit sales and profits growth for the year, excluding any Year 2000 stocking effects. Healthcare ---------------------------------------------------------------------------- All narrative in this section refers to pro forma growth rates for the third quarter at constant currency. Sales grew by 31 per cent (16 per cent excluding Losec/Prilosec); operating profits were up 59 per cent. Gastrointestinal ---------------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- Losec/Prilosec 1,539 965 +61 4,387 3,433 +29 ----------------------------------------------------- Total 1,551 977 +61 4,423 3,466 +29 ----------------------------------------------------- - As indicated, percentage growth was influenced by the uneven phasing of Prilosec sales in 1998. Supply difficulties experienced at the beginning of the quarter this year were resolved but as a result wholesaler and retail inventories are estimated to be around USD100 to USD125 million above normal - US annualised prescription growth to end August for Prilosec remains strong at 19.6 per cent - PPI class continues to gain market share of the US anti-secretory market - around 60 per cent by end August - Generic competition in Germany for Losec resulted in a 37 per cent decline in sales in the quarter Cardiovascular -------------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- Zestril 322 268 +21 924 779 +20 Seloken 152 123 +26 409 328 +25 Plendil 112 73 +56 328 268 +22 Atacand 43 12 +258 116 24 +387 ----------------------------------------------------- Total 876 722 +23 2,546 2,145 +19 ----------------------------------------------------- - Zestril growth is slightly overstated due to advanced wholesaler purchasing ahead of a late August price increase; underlying annualised prescription growth to end August was 17.8 per cent - Fourth quarter Zestril sales growth is likely to be weak due to strong comparative quarter ahead of price increases - Seloken and Plendil both achieved good prescription growth in the USA - Atacand US market share over five per cent - Some evidence of consumer stocking of hypertensives ahead of millennium following advice to consumers in the US press Respiratory ----------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- Pulmicort 169 156 +12 539 494 +10 Accolate 35 50 -28 109 124 -11 Rhinocort 38 39 - 137 119 +16 Oxis 22 11 +109 63 28 +129 ----------------------------------------------------- Total 306 302 +4 992 918 +9 ----------------------------------------------------- - Demand for Pulmicort in the USA remains strong - Supply constraints in the USA for Pulmicort remain but are starting to ease - Accolate paediatric approval in the USA provides potential for increase in sales - Accolate comparable quarter in 1998 influenced by stocking ahead of price increase - Rhinocort Aqua approval in the USA provides potential for ongoing growth - Oxis continued strong growth Oncology -------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- Casodex 79 55 +46 245 171 +44 Arimidex 37 28 +39 100 86 +18 Nolvadex 142 126 +11 429 390 +9 Zoladex 161 157 +1 492 458 +6 ----------------------------------------------------- Total 425 370 +14 1,284 1,117 +14 ----------------------------------------------------- - Continued strong performance of Casodex in all markets - First line data for Arimidex presented in September should secure future long-term growth - Latest market research on Nolvadex indicates around 20 per cent of US new prescriptions are for 'reduction of risk of breast cancer' - Zoladex sales growth was muted by a highly competitive environment in the US market Specialist/Hospital ------------------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- Seroquel 66 25 +168 161 44 +268 Zomig 49 30 +66 135 62 +120 Merrem 37 31 +32 114 96 +28 Diprivan 137 134 +4 464 457 +3 Xylocaine 56 58 -3 184 174 +4 Marcaine 21 19 +11 63 59 +7 ----------------------------------------------------- Total 535 470 +15 1,657 1,405 +19 ----------------------------------------------------- - Continued strong acceptance of Seroquel, particularly in the USA - Zomig is instrumental in the expansion of the triptan market in the USA and France - Diprivan growth in Japan, particularly expansion into ICU, and the Far East partially offset by nine per cent decline in the USA following the launch of a generic formulation in April Others ------ ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- Astra Tech 27 24 +13 82 72 +15 Salick Health Care 46 51 -10 164 153 +7 ----------------------------------------------------- Geographic (Pharmaceuticals) ---------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- USA 1,937 1,213 +60 5,407 4,168 +30 Europe 1,221 1,150 +10 3,889 3,460 +13 Japan 164 126 +7 468 387 +6 RoW 398 376 +13 1,220 1,108 +16 ----------------------------------------------------- - USA comparative sales growth affected by the pattern of Prilosec sales in 1998 (as highlighted above) - Continued strong growth in France, up 25 per cent - Japan continuing to outperform market growth Operating Margin (Pharmaceuticals) ---------------- - Pharmaceuticals operating margin, before exceptional items, for the nine months increased to 25.5 per cent due to the high volume of Prilosec sales achieved in the quarter - Pharmaceuticals margins of around 24 per cent are still anticipated for the year Agrochemicals ---------------------------------------------------------------------------- All growth rates in this section are at constant currency and exclude the effects of acquisitions and disposals. For the nine months, sales decreased by seven per cent; operating profit decreased by 19 per cent, and excluding the ISK integration costs charged in 1998, by 27 per cent. Products -------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- Non Selective Herbicides 164 181 -9 533 550 -3 Selective Herbicides 100 129 -24 590 735 -20 Total Herbicides 264 310 -16 1,123 1,285 -13 Insecticides 100 120 -16 330 383 -14 Fungicides 115 117 -1 590 522 +13 ----------------------------------------------------- Total 492 565 -13 2,104 2,258 -7 ----------------------------------------------------- - Sales of Herbicides in the third quarter were down due to the enforcement of tight credit policies following the economic difficulties in Latin America - Low insect infestation in the North American market and lower sales in Latin America resulted in reduced Insecticide sales in the quarter - Continued strong growth from Amistar in the quarter, up 57 per cent Geographic ---------- ----------------------------------------------------- Third Quarter Nine Months ----------------------------------------------------- 1999 1998 CER% 1999 1998 CER% ----------------------------------------------------- North America 151 146 +2 727 825 -12 Europe 122 145 -13 755 745 +1 Latin America 137 187 -25 302 396 -23 RoW 82 87 -13 320 292 +7 ----------------------------------------------------- Total 492 565 -13 2,104 2,258 -7 ----------------------------------------------------- - North American sales up two per cent in the third quarter reflecting increased Fungicide sales in turf and selected crops - Sales in Europe were down in the quarter due to lower desiccation sales and reduced demand in Central and Eastern Europe - RoW sales down in the quarter ahead of a move to direct distribution in Japan Research and Development ------------------------ An agreement was completed with Japan Tobacco, on 1 October 1999, for biotechnology rice research. On 11 August 1999 the business announced a gene research collaboration with US-based Maxygen. Operating Margin ---------------- For the nine months operating margin reduced from 16.1 per cent to 13.2 per cent mainly due to the overall reduction in sales. Advanta ------- Contribution for the nine months from Advanta remains reduced due to depressed agricultural conditions. Year 2000 Compliance Project ---------------------------------------------------------------------------- - Almost all projects to confirm compliance of IT and embedded systems have been completed - Attention is now focused on finalisation of contingency plans and actions to reduce risk - A 'Millennium Communication Centre' is to be set up to co-ordinate information and ensure appropriate action through the date change period The estimated final cost of AstraZeneca's Year 2000 programme remains at USD166 million, of which USD145 million had been spent up to the end of September, including USD32 million this year. The projected total includes a contingency allowance which may not be required. Exceptional Items ---------------------------------------------------------------------------- - Exceptional charges increased by USD214 million in the third quarter to USD1.036 billion for the nine months - USD202 million reflects progress in developing the detailed integration plans arising from the merger, taking the charge to date to USD332 million - USD12 million relates to the programme initiated in 1998 to rationalise Astra's US operations following the Astra Merck restructuring Synergies ---------------------------------------------------------------------------- - Programme on track - USD100 million of synergy benefits expected to be delivered by the end of the year and target of USD500 million to be delivered by the end of 2000 - Synergy targets have been fully allocated through the organisation and implementation plans will be finalised by the end of November - Approximately 60 per cent of synergy benefits are manpower related with the balance coming from purchasing, IS, infrastructure rationalisation and site closures - The cost synergies represent 11 per cent of the total Pharmaceuticals 1998 cost base which is being used as the baseline for comparison. Approximately half of the target savings are expected to be realised in Europe (around 15 per cent of the cost base), around 20 per cent in North America (around six per cent of the cost base) and the balance in the rest of the world - Approximately two thirds of the benefits are expected to be realised through S,G & A (17 per cent of the 1998 cost base), around 25 per cent from R & D (10 per cent of 1998 expenditure) and the balance from production and distribution - The estimate of the total programme cost is expected to be completed by the year end and the majority of the restructuring charges to be recorded by the end of the year Taxation ---------------------------------------------------------------------------- - An effective tax rate of 30 per cent on continuing operations before exceptional items - Only limited tax relief available on exceptional items because of the nature of these costs and the element of goodwill within them Cash Flow ---------------------------------------------------------------------------- - USD1.26 billion of net cash generated from operations, before exceptional items, in the third quarter - Capital expenditure for the third quarter totalled USD339 million - Outlays on exceptional items and tax of USD114 million and USD135 million respectively - Net cash inflow of almost USD700 million for the third quarter - At 30 September cash and short term investments exceeded borrowing by USD2.7 billion Tom McKillop Chief Executive Officer MORE TO FOLLOW QRTAILFAIRLTFAA

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