3rd Quarter Results - Part 1

RNS Number : 0195H

AstraZeneca PLC

30 October 2008

 

AstraZeneca PLC

Third Quarter and Nine Months Results 2008

- Robust third quarter performance.

-Third quarter sales increased by 3 percent at constant exchange rates (CER). Core EPS increased by 20 percent at CER to $1.32.

-Third quarter sales in Emerging Markets increased by 18 percent at CER to $1.1 billion. Sales in China increased by 35 percent.

-Crestor sales up 28 percent (CER) in the third quarter. US sales increased by 23 percent fuelled by atherosclerosis indication.  Crestor is the only branded statin to gain market share in the US this year. 

- Nine months sales increased by 3 percent and Core EPS by 8 percent at CER.

- Core EPS target for the year increased to reflect stronger operational and financial performance as well as additional currency benefit.

-Revised target range for Core EPS is $4.90 to $5.05.*

- No further share repurchases will take place in 2008 in order to maintain the flexibility to invest in the business.

   Financial Summary

Group	3rd Quarter 2008 $m	3rd Quarter 2007 $m	Actual %	CER %		9 Months 2008 $m	9 Months 2007 $m	Actual %	CER %
Sales	7,775	7,150	+9	+3		23,408	21,389	+9	+3
Reported
Operating Profit	2,522	2,022	+25	+19		7,252	6,165	+18	+8
Profit before Tax	2,443	1,888	+29	+22		6,865	6,146	+12	+1
Earnings per Share	$1.20	$0.91	+32	+24		$3.34**	$2.88	+16	+5
Core***
Operating Profit	2,771	2,298	+21	+15		8,273	6,981	+19	+10
Profit before Tax	2,692	2,164	+24	+18		7,886	6,962	+13	+4
Earnings per Share	$1.32	$1.04	+27	+20		$3.85	$3.28	+17	+8

*	For the fourth quarter of 2008 guidance is based on original assumptions for currency: fourth quarter 2007 average rates.
**	Included in Reported EPS for Nine Months 2008 is a $0.12 charge taken in Q1 08 for impairment of intangible assets related to Ethyol.
***	Core financial measures are supplemental non-IFRS measures which management believe useful to understanding the Company's performance; it is upon these measures that financial guidance for 2008 is based. See pages 8 and 9 for a reconciliation of Core to Reported financial measures.

David Brennan, Chief Executive Officer, said: 'AstraZeneca has delivered a robust set of results that deliver on our performance commitments despite an increasingly challenging environment for the pharmaceutical sector and business in general. We continue to make good progress on reshaping our cost base, including advancing innovation in our research and development activities with greater productivity and efficiency. I am pleased to be able to raise our financial guidance for the full year on the back of these results.' 

London, 30 October 2008

  Business Highlights All narrative in this section refers to growth rates at constant exchange rates (CER) unless otherwise indicated

Third Quarter 

Sales in the third quarter increased by 3 percent at CER, or 9 percent on an as reported basis. Sales in the US were unchanged, as the $141 million decline in sales of Toprol-XL from generic competition was offset by 5 percent growth in the rest of the US business. Sales in the Rest of World were up 6 percent. Sales in Established Markets were up 2 percent. The strong performance in Emerging Markets continues, with sales up 18 percent to $1,116 million, and this accounted for two thirds of the Rest of World sales increase.

Core operating profit in the third quarter was up 15 percent to $2,771 million, chiefly as a result of the sales increase, improvement in Core gross margin and R&D efficiencies. Reported operating profit increased by 19 percent to $2,522 million.

Core earnings per share in the third quarter were $1.32 compared with $1.04 in the third quarter 2007, a 20 percent increase at CER. In addition to the increase in Core operating profit, Core earnings per share benefited from lower net interest expense, the result of a fair value gain relating to certain long term bonds in issue, and a lower number of shares outstanding. Reported earnings per share in the third quarter were $1.20, an increase of 24 percent.

Nine Months

Sales for the nine months increased by 3 percent at CER, or 9 percent on an as reported basis. Sales in the US were unchanged as the sales decline in Toprol-XL was largely offset by the inclusion of MedImmune and modest growth in the rest of the US business. Sales in the Rest of World were up 6 percent. Sales in Established Markets were up 2 percent, with sales in Western Europe unchanged. Sales in Emerging Markets were up 16 percent.

Core operating profit increased by 10 percent to $8,273 million, as a result of improvements in gross margin and R&D efficiencies that more than offset the effect of lower other income and a slight increase in SG&A costs. Reported operating profit increased by 8 percent to $7,252 million.  

Core earnings per share for the nine months were $3.85, an increase of 8 percent. Reported earnings per share for the nine months were $3.34, a 5 percent increase compared to last year.  

Research and Development Update

A comprehensive update of the AstraZeneca R&D pipeline was presented in conjunction with the Half Year 2008 results and the pipeline table remains available on the Company's website, www.astrazeneca.com, under information for investors. 

Developments since this last update include:

	On 15 September, AstraZeneca and Targacept announced top line results from the first Phase IIb study of AZD3480 in Alzheimer's disease.  In the 12-week placebo-controlled study, known as the Sirocco trial, neither the active comparator donepezil nor AZD3480 met the trial's criteria for statistical significance on the primary outcome measure, ADAS-Cog (Alzheimer's Disease Assessment Scale - Cognition Subscale.)  Both results were impacted by an improvement in the placebo group. Analyses of the full data set from the Sirocco trial are ongoing. AstraZeneca and Targacept plan to discuss the data with leading medical experts and to present and publish more detailed results over the coming months.  A decision by AstraZeneca with respect to potential further development of AZD3480 is expected in December 2008.
	On 10 October, the Company announced that the US FDA approved Seroquel XR for the acute treatment of the depressive episodes associated with bipolar disorder, the manic and mixed episodes associated with bipolar I disorder and the maintenance treatment of bipolar I disorder as adjunctive therapy to lithium or divalproex.  Seroquel XR is the first medication approved by the FDA for the once-daily acute treatment of both depressive and manic episodes associated with bipolar disorder.
	Regulatory submissions for Seroquel XR for major depressive disorder are under review in the US and in Europe, as well as the US submission for use in generalised anxiety disorder (GAD). The European submission for GAD was announced on 21 October.
	In October 2008, AstraZeneca submitted an sNDA for Seroquel to the FDA for the treatment of schizophrenia in adolescents 13-17 years of age and for the treatment of acute manic episodes associated with bipolar I disorder in children and adolescents 10-17 years of age. Seroquel US Prescribing Information will be updated to include additional safety information for children and adolescents.  Seroquel is not currently indicated anywhere in the world for the paediatric population.
	On 2 September 2008, the US FDA announced that it had accepted the filing for ONGLYZATM (saxagliptin), which was submitted by AstraZeneca and its partner Bristol-Myers Squibb on 30 June.
	Preparations for the AZD0837 Phase III clinical programme are well underway. However, AstraZeneca is investigating a stability limitation with the AZD0837 tablets required for the Phase III clinical programme. As a consequence, the start of the programme will be delayed from the fourth quarter of 2008 until 2009. The start date will be confirmed once this stability limitation has been resolved.
	In October 2008, new marketing authorisation licenses were secured for Crestor in Germany, Spain, Poland, Norway and Malta.  Crestor is now approved for use in every country in the European Union.
	It has been confirmed that presentation of the first results of the Crestor JUPITER study will take place on 9 November at the American Heart Association 2008 Scientific Sessions in New Orleans, US.

Enhancing Productivity

In the third quarter, restructuring and synergy costs associated with the global programme to reshape the cost base were $117 million. This brings the cumulative charges since the inception of the programme to $1,331 million.

The Company remains on track to deliver two-thirds of the total programme benefits of $1.4 billion per annum by the end of this year, with the full savings to be realised by 2010.  

Future Prospects 

The Company has increased its target range for Core earnings per share for the full year to between $4.90 and $5.05 reflecting stronger operational and financial performance, chiefly from improved gross margin and lower expenditures in R&D arising from efficiency improvements, as well as the $0.06 per share of additional currency benefits realised in the third quarter relative to the currency assumptions upon which the targets were based (i.e. fourth quarter 2007 average exchange rates).

For the fourth quarter of 2008, guidance is based on the original assumptions for currency, being fourth quarter 2007 average exchange rates.

This revised target takes no account of the likelihood that average exchange rates for the remainder of 2008 may differ from the fourth quarter 2007 average rates upon which our guidance is based. The Company's estimate of the sales and earnings sensitivity to movements of our major currencies versus the US dollar was provided in conjunction with the full year 2007 results announcement, and remains available on the AstraZeneca website.

Sales 

All narrative in this section refers to growth rates at constant exchange rates (CER) unless otherwise indicated

Gastrointestinal

	Third Quarter		CER %	Nine Months		CER %
	2008 $m	2007 $m		2008 $m	2007 $m
Nexium	1,315	1,293	-2	3,876	3,913	-5
Losec/Prilosec	249	268	-15	791	845	-15
Total	1,589	1,581	-4	4,733	4,818	-7

	In the US, Nexium sales in the third quarter were $779 million, an 8 percent decline compared with last year. Dispensed retail tablet volume grew by 3 percent compared with the third quarter last year. The back-loaded phasing of lower price realisation over the course of last year continues to give rise to a significant price variance, although in the third quarter this has narrowed to around ten percent. Further narrowing of this price variance is anticipated in the fourth quarter.
	Nexium sales in the US in the nine months were down 12 percent to $2,269 million.
	Nexium sales in other markets in the third quarter were up 11 percent to $536 million, on a 22 percent sales increase in Emerging Markets and a 7 percent increase in Established Markets.
	Nexium sales in other markets were up 8 percent for the nine months to $1,607 million.
	The Company continues to expect a mid-single digit decline for worldwide sales of Nexium for the full year.
	Prilosec sales in the US were down 30 percent in the third quarter and 19 percent year to date as a result of the recent introduction of generic competition for the 40mg dosage form.
	Sales of Losec in the Rest of World markets were down 11 percent in the third quarter and 13 percent for the nine months.

Cardiovascular

	Third Quarter		CER %	Nine Months		CER %
	2008 $m	2007 $m		2008 $m	2007 $m
Crestor	922	691	+28	2,610	1,997	+24
Seloken /Toprol-XL	204	328	-42	600	1,229	-55
Atacand	386	320	+12	1,120	934	+10
Plendil	65	66	-9	201	205	-10
Zestril	60	72	-24	184	228	-27
Total	1,782	1,621	+4	5,160	5,029	-4

	In the US, Crestor sales in the third quarter were $420 million, a 23 percent increase over last year, fuelled by promotion of the atherosclerosis indication. While generic simvastatin continues to gain share in the US statin market, Crestor is the only branded statin to gain share during 2008; Crestor share of total prescriptions increased to 9.3 percent in September, up 0.7 points since December 2007.  Crestor prescriptions increased by 12.3 percent compared with third quarter 2007, nearly three times the market rate.
	US sales for Crestor for the nine months increased 14 percent to $1,188 million.
	Crestor sales in the Rest of World were up 33 percent to $502 million in the third quarter, on good growth in Western Europe (up 19 percent), Emerging Markets (up 37 percent), Canada (up 26 percent) and Japan (up 79 percent).
	Crestor sales in the Rest of World were up 34 percent in the nine months to $1,422 million.
	US sales of the Toprol-XL product range, which includes sales of the authorised generic, were down 66 percent in the third quarter to $72 million. Generic products accounted for 89 percent of dispensed prescriptions in the third quarter.
	Sales of Seloken in other markets in the third quarter were up 3 percent to $132 million, as good growth in China (up 37 percent) and other Emerging Markets more than offset the decline in Western Europe.
	US sales of Atacand in the third quarter were up 3 percent to $67 million. Sales in the Rest of World were up 14 percent to $319 million.

Respiratory and Inflammation

	Third Quarter		CER %	Nine Months		CER %
	2008 $m	2007 $m		2008 $m	2007 $m
Symbicort	501	371	+25	1,490	1,139	+19
Pulmicort	304	286	+3	1,098	1,007	+5
Rhinocort	72	80	-14	244	267	-13
Accolate	18	19	-5	55	57	-5
Oxis	18	18	-11	56	64	-23
Total	951	813	+10	3,069	2,655	+8

	Symbicort sales in the US were $64 million in the third quarter. Trial rates among target specialists are now 85 percent; these specialists are starting nearly 29 percent of patients new to combination therapy on Symbicort. The trial rate among target primary care physicians has increased to 48 percent and primary care physicians are now using Symbicort in one out of six patients newly starting combination therapy. Overall, Symbicort share of new prescriptions for fixed combinations reached 10.6 percent in the week ending 17 October, with market share among patients newly starting combination treatment running well ahead of this, at 18.4 percent.
	Symbicort sales in other markets were $437 million, 9 percent ahead of the third quarter last year on a 6 percent increase in Western Europe and a 19 percent increase in Emerging Markets.
	US sales for Pulmicort were up 7 percent to $196 million in the third quarter.  Pulmicort Respules sales were up 2 percent in the quarter and were up 11 percent for the nine months.
	On 24 September, Ivax Pharmaceuticals' (IVAX) (now known as Teva Pharmaceutical Industries Ltd.) Motion for Summary Judgement of no infringement of AstraZeneca's patents covering Pulmicort Respules was denied. The Court has set a 12 January 2009 start date for the trial.
	Sales of Pulmicort in the Rest of World in the third quarter were down 4 percent to $108 million.

Oncology

	Third Quarter		CER %	Nine Months		CER %
	2008 $m	2007 $m		2008 $m	2007 $m
Arimidex	486	425	+9	1,406	1,256	+6
Casodex	300	324	-14	974	965	-7
Zoladex	295	273	-	860	797	-2
Iressa	67	55	+13	192	168	+5
Faslodex	67	54	+17	188	156	+12
Nolvadex	20	20	-5	62	59	-5
Ethyol *	3	19	-84	23	27	n/m
Total	1,256	1,189	-1	3,759	3,480	-

*	Sales of this MedImmune product were consolidated in AstraZeneca accounts from 1 June 2007. As a result, the prior year to date reflects four months' sales.

	In the US, sales of Arimidex were up 16 percent in the third quarter to $193 million. Total prescriptions increased by 1 percent year on year in the first nine months in what was essentially an unchanged total market for hormonal treatments for breast cancer. Sales for the nine months in the US were up 14 percent.
	Arimidex sales in other markets were up 5 percent in the third quarter to $293 million, but were unchanged for the nine months.
	Casodex sales in the US were down 1 percent in the third quarter to $71 million, and down 2 percent for the nine months. On 22 September, the Company announced that the US FDA has granted an additional six-month period of exclusivity to market Casodex for its licensed advanced prostate cancer indication until 1 April 2009.
	Casodex sales in Rest of World in the third quarter were down 18 percent to $229 million as a result of generic competition in some markets in Western Europe. Sales for the nine months were down 9 percent to $759 million.
	Worldwide sales of Iressa increased by 13 percent in the third quarter, chiefly as a result of a 56 percent increase in sales in China. Third quarter sales in Japan were up 4 percent.
	Faslodex sales in the third quarter were up 12 percent in the US and increased by 21 percent in other markets.

Neuroscience

	Third Quarter		CER %	Nine Months		CER %
	2008 $m	2007 $m		2008 $m	2007 $m
Seroquel	1,130	1,055	+4	3,292	2,941	+8
Zomig	115	107	+2	336	320	-2
Total	1,476	1,371	+3	4,342	3,891	+6

	In the US, Seroquel sales were down 1 percent to $749 million in the third quarter compared with the third quarter last year, which included around $80 million of initial stocking sales for Seroquel XR. Adjusting for this effect, sales growth would have been around 10 percent. Total prescriptions were up 7 percent in the quarter, with 43 percent of the growth attributable to Seroquel XR.  Seroquel is the market leading antipsychotic, with a total prescription share of 31.7 percent in September 2008.
	Seroquel sales in other markets increased by 18 percent to $381 million in the third quarter, with sales in Western Europe up 20 percent. Sales in Rest of World for the nine months were up 18 percent.
	On 10 October, the Company announced that the US FDA approved Seroquel XR for the acute treatment of the depressive episodes associated with bipolar disorder, the manic and mixed episodes associated with bipolar I disorder and the maintenance treatment of bipolar I disorder as adjunctive therapy to lithium or divalproex.
	Sales of Zomig in the third quarter were up 9 percent in the US and were down 3 percent in other markets.

Infection and Other

	Third Quarter		CER %	Nine Months		CER %
	2008 $m	2007 $m		2008 $m	2007 $m
Synagis*	124	122	+1	724	138	n/m
Merrem	241	186	+23	680	558	+14
FluMist*	71	-	n/m	71	-	n/m
Total	494	371	+28	1,646	899	n/m

*	Sales of these MedImmune products were consolidated in AstraZeneca accounts from 1 June 2007. As a result, the prior year to date reflects four months' sales.

	Synagis sales, which have a pronounced seasonal pattern (with modest sales in the second and third quarters of the year), were $124 million in the third quarter.
	FluMist recorded sales of $71 million in the quarter. There were no sales in the third quarter last year as the timing of regulatory approvals pushed sales into the fourth quarter.

Geographic Sales

	Third Quarter		CER %	Nine Months		CER %
	2008 $m	2007 $m		2008 $m	2007 $m
North America	3,519	3,485	+1	10,705	10,515	+1
US	3,199	3,199	-	9,726	9,701	-
Established ROW*	3,140	2,791	+2	9,453	8,297	+2
Emerging ROW	1,116	874	+18	3,250	2,577	+16

*	Established ROW comprises Western Europe (including France, UK, Germany, Italy, Sweden, and others), Japan, Australia and New Zealand.

	In the US, sales were unchanged in the third quarter resulting from the loss of $141 million of Toprol-XL sales to generic competition. Excluding Toprol-XL, sales increased by 5 percent in the US.
	Sales in the Established Rest of World segment were up 2 percent in the third quarter. Sales in Western Europe were unchanged, as growth in Crestor, Seroquel and Symbicort were offset by declines in Casodex and Losec. Sales in Japan were up 5 percent, chiefly on continued growth for Crestor.
	Sales in Emerging Markets were up 18 percent in the third quarter to more than $1.1 billion. The key contributors to sales growth were Cardiovascular and Oncology portfolios, as well as Nexium. Sales in China were up 35 percent.

Operating and Financial Review

All narrative in this section refers to growth rates at constant exchange rates (CER) unless otherwise indicated

Third Quarter  

All financial figures, except earnings per share, are in $ millions. Weighted average shares in millions.

	Reported 2008	Restructuring and Synergy Costs	MedImmune Amortisation	Ethyol Impairment	Merck Amortisation	Core  2008	Core 2007	Actual %	CER %
Sales	7,775	-	-	-	-	7,775	7,150	9	3
Cost of Sales	(1,529)	72	-	-	-	(1,457)	(1,405)
Gross Margin	6,246	72	-	-	-	6,318	5,745	10	6
% sales	80.3%					81.3%	80.3%	+1.0	+1.7
Distribution	(79)	-	-	-	-	(79)	(59)	34	30
% sales	1.0%					1.0%	0.8%	-0.2	-0.3
R&D	(1,291)	30	-	-	-	(1,261)	(1,327)	(5)	(7)
% sales	16.6%					16.2%	18.6%	+2.4	+1.9
SG&A	(2,486)	15	76	-	26	(2,369)	(2,258)	5	1
% sales	32.0%					30.5%	31.6%	+1.1	+0.8
Other Income	132	-	30	-	-	162	197	(18)	(16)
% sales	1.7%					2.1%	2.8%	-0.7	-0.5
Operating Profit	2,522	117	106	-	26	2,771	2,298	21	15
% sales	32.4%					35.7%	32.1%	+3.6	+3.6
Net Finance Expense	(79)	-	-	-	-	(79)	(134)
Profit before Tax	2,443	117	106	-	26	2,692	2,164	24	18
Taxation	(705)	(34)	(31)	-	-	(770)	(613)
Profit after Tax	1,738	83	75	-	26	1,922	1,551	24	17
Minority Interests	(8)	-	-	-	-	(8)	(8)
Net Profit	1,730	83	75	-	26	1,914	1,543	24	17
Weighted Average Shares	1,452	1,452	1,452	-	1,452	1,452	1,486
Earnings per Share	1.20	0.06	0.05	-	0.01	1.32	1.04	27	20

Sales increased by 9 percent on a reported basis and by 3 percent on a constant currency basis. Currency movements increased sales by 6 percent.  

Core gross margin of 81.3 percent in the third quarter was 1.7 percentage points higher than last year in constant currency terms. Principal contributors were lower payments to Merck (1.0 percentage points), continued efficiency gains and mix factors (1.1 percentage points) with partial offset from higher royalty payments (0.4 percentage points).

Core R&D expenditure was $1,261 million in the third quarter, 7 percent below last year as a result of good progress on the delivery of R&D productivity initiatives, restructuring benefits, portfolio changes and lower charges relating to intangible asset impairments.  

Core SG&A costs of $2,369 million were 1 percent higher than the third quarter of 2007 as operational efficiencies and benefits from the Company's productivity initiatives largely offset increased investment in our Emerging Markets.

Core other income of $162 million was $35 million lower than the third quarter in 2007, chiefly on expected lower one-time gains.

Core operating profit was $2,771 million, an increase of 15 percent at CER or up 21 percent on an as reported basis. Currency movements increased Core operating profit by 6 percent. In comparison with last year, the dollar was 9 percent weaker against the euro (increasing sales and costs), 7 percent weaker against the Swedish krona (increasing costs), but 7 percent stronger against sterling (reducing costs).  On a constant currency basis, Core operating margin increased by 3.6 percentage points to 35.7 percent of sales, chiefly a result of improvements in gross margin, lower R&D expense and efficiencies in SG&A with partial offset from lower other income.

Core earnings per share in the third quarter were $1.32, up 20 percent at CER, as the increase in Core operating profit was supplemented by lower net interest expense and the benefit of a lower number of shares in issue. Core earnings per share on an as reported basis increased 27 percent. 

Reported operating profit was up 19 percent at CER to $2,522 million and reported earnings per share were $1.20.

Nine Months

All financial figures in table, except earnings per share, are in $ millions. Weighted average shares in millions.

	Reported 2008	Restructuring and Synergy Costs	MedImmune Amortisation	Ethyol Impairment	Merck Amortisation	Core 2008	Core 2007	Actual %	CER %
Sales	23,408	-	-	-	-	23,408	21,389	9	3
Cost of Sales	(4,486)	128	-	-	-	(4,358)	(4,278)
Gross Margin	18,922	128	-	-	-	19,050	17,111	11	5
% sales	80.8%					81.4%	80.0%	+1.4	+1.3
Distribution	(220)	-	-	-	-	(220)	(181)	22	15
% sales	0.9%					0.9%	0.9%	-	-0.1
R&D	(3,824)	116	-	-	-	(3,708)	(3,693)	-	(3)
% sales	16.3%					15.8%	17.3%	+1.5	+1.1
SG&A	(8,057)	121	232	257	77	(7,370)	(6,850)	8	3
% sales	34.4%					31.5%	32.0%	+0.5	+0.2
Other Income	431	-	90	-	-	521	594	(12)	(12)
% sales	1.8%					2.2%	2.8%	-0.6	-0.4
Operating Profit	7,252	365	322	257	77	8,273	6,981	19	10
% sales	31.0%					35.4%	32.6%	+2.8	+2.1
Net Finance Expense	(387)	-	-	-	-	(387)	(19)
Profit before Tax	6,865	365	322	257	77	7,886	6,962	13	4
Taxation	(1,994)	(106)	(94)	(77)	-	(2,271)	(2,010)
Profit after Tax	4,871	259	228	180	77	5,615	4,952	13	4
Minority Interests	(18)	-	-	-	-	(18)	(23)
Net Profit	4,853	259	228	180	77	5,597	4,929	14	5
Weighted Average Shares	1,455	1,455	1,455	1,455	1,455	1,455	1,505
Earnings per Share	3.34	0.18	0.16	0.12	0.05	3.85	3.28	17	8

Sales increased by 9 percent on a reported basis and by 3 percent on a constant currency basis. Currency movements increased sales by 6 percent. 

Core gross margin of 81.4 percent in the first nine months was 1.3 percentage points higher than last year. Principal drivers were lower payments to Merck (1.2 percentage points), continued efficiency gains and mix factors (0.9 percentage points), partially offset by higher royalty payments (0.8 percentage points).

Core R&D costs of $3,708 million were down 3 percent over last year. The inclusion of MedImmune expense was largely offset by improved productivity and efficiency, restructuring benefits, portfolio changes and lower charges relating to intangible asset impairments.

Core SG&A costs of $7,370 million were 3 percent higher than the first nine months of 2007 due chiefly to the inclusion of MedImmune, increased investment in our Emerging Markets and some higher legal expenses.

Core other income of $521 million was $73 million below last year with expected lower one-time gains and royalty income being only partially offset by MedImmune's licensing and royalty income streams.

Core operating profit of $8,273 million was up 10 percent at CER or 19 percent on an as reported basis. Currency movements increased Core operating profit by 9 percent. On a constant currency basis, Core operating margin increased by 2.1 percentage points to 35.4 percent of sales as improvements in gross margin, lower R&D costs and SG&A efficiencies more than compensated for lower other operating income.

Core earnings per share in the first nine months were $3.85, an increase of 8 percent at CER, as the increase in Core operating profit and the benefit of a lower number of shares outstanding was partially offset by increased net interest expense. Core earnings per share on a reported basis increased 17 percent.

Reported operating profit of $7,252 million was up 8 percent, against 10 percent on a Core basis. This is in part a result of the first quarter Ethyol impairment charge and nine months of MedImmune-related amortisation, versus a four month charge incurred in the prior year period, being only partially offset by lower restructuring and synergy costs in the first nine months of 2008.

Reported earnings per share in the first nine months were $3.34, an increase of 5 percent at CER. Including the currency benefit, reported earnings per share increased 16 percent.

Finance Income and Expense

Net finance expense was $387 million for the year to September, ($79 million for quarter three), versus $19 million in the first nine months of 2007 ($134 million for quarter three 2007). Key drivers were the interest payable on additional borrowings alongside reduced interest received on the lower average cash holdings arising as a result of the acquisition of MedImmune.  

Net finance expense in the third quarter also included a net fair value gain of $43 million relating to two long-term bonds. These bonds are swapped to floating interest rates and accounted for using the fair value option under IFRS. Under this accounting treatment both the bonds and the related interest rate swaps are measured at fair value, with changes in fair value reported in the Income Statement. The fair value of each instrument reflects changes in market interest rates, which broadly offset, but the bonds will also reflect changes in credit spreads. As such, the widening credit spreads seen during the quarter have reduced the fair value of the bonds, resulting in the net gain noted above. The Company anticipates that this gain will largely reverse as credit markets stabilise. 

Taxation

The effective tax rate for the third quarter was 28.9 percent (2007 28.4 percent) and 29.0 percent for the first nine months (2007 29.2 percent). For the full year the tax rate is currently anticipated to be around 29.5 percent, the same as for 2007.

Cash Flow

Cash generated from operating activities was $5,951 million in the nine months, compared with $4,512 million in 2007. The increase of $1,439 million was principally driven by an increase in operating profit before depreciation, amortisation and impairment costs of $1,476 million, a decrease in tax payments of $545 million, an increase in interest payments of $286 million and a decrease in non-cash items of $483 million (mainly provisions and exchange on intercompany transactions). The increase in working capital requirements was $187 million lower than in 2007.

Net cash outflows from investing activities were $3,424 million in the nine months compared with $14,460 million in 2007. Stripping out acquisitions of $14,814 million, the increase in cash outflow of $3,778 million is due primarily to the payment of $2,630 million to Merck as part of the partial retirement, a reduction in the inflow from the movement in short term investments and fixed deposits of $847 million, and a decrease in interest received of $164 million. 

Cash distributions to shareholders were $3,224 million through dividend payments of $2,739 million and net share repurchases of $485 million. 

Debt and Capital Structure

As at 30 September 2008, outstanding gross debt (including loans, short-term borrowings and overdrafts) was $13,372 million (31 December: $15,156 million), of which $2,546 million is due within one year (31 December: $4,280 million). When due, the Company currently anticipates repaying this debt from current cash balances of $3,541 million and business cash flows, without the need to refinance. Outstanding net debt of $9,749 million has increased by $637 million from 31 December, principally as a result of the cash outflows described above.

The $650 million Floating Rate Note, issued in 2007 and maturing in September 2009 has been reclassified as due within one year (carrying value $649 million). As described at the half year, the Company issued a further EUR 500 million 18-month bond during July as part of its refinancing programme, the proceeds of which have been used to refinance maturing commercial paper.

Dividends and Share Repurchases

During the third quarter, 8.4 million shares were repurchased for cancellation at a cost of $395 million, bringing the total repurchases for the year to date to 13.4 million shares at a total cost of $603 million. In the year to date, 2.9 million shares were issued in consideration of share option exercises for a total of $118 million.

The total number of shares in issue at 30 September 2008 was 1,447 million.

The Board has decided that no further share repurchases will take place in 2008 in order to maintain the flexibility to invest in the business. The Board will update share repurchase plans for 2009 in light of anticipated market conditions and business development opportunities in conjunction with the full year 2008 financial results announcement in January.

Calendar

29 January 2009	Announcement of fourth quarter and full year 2008 results
30 April 2009	Announcement of first quarter 2009 results
30 April 2009	Annual General Meeting
30 July 2009	Announcement of second quarter and half year 2009 results
29 October 2009	Announcement of third quarter and nine months 2009 results

David Brennan

Chief Executive Officer

Media Enquiries:	Neil McCrae/Chris Sampson (London)	[phone]/5130
	Earl Whipple (Wilmington)	[phone]
	Anne-Charlotte Knutsson (Södertälje)	(8) 553 213 75
Analyst/Investor Enquiries	Mina Blair/Karl Hard (London)	[phone]/5322
	Jonathan Hunt (London)	[phone]
	Peter Vozzo (MedImmune)	[phone]
	Ed Seage/Jörgen Winroth (US)	[phone]/[phone]

 

END

 

 

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