3rd Quarter Results

GlaxoSmithKline PLC 22 October 2003 Issued: 22nd October 2003, London Results Announcement for the Third Quarter 2003 GSK DELIVERS STRONG QUARTERLY PERFORMANCE Q3 BUSINESS PERFORMANCE* EPS GROWTH OF 21% CER, 24% REPORTED GlaxoSmithKline plc (GSK) today announces its results for the third quarter ended 30th September 2003. The full UK GAAP results (statutory results) are presented under "Profit and loss account" on pages 6 and 7. The business performance and statutory results are summarised below and the commentary that follows is on a business performance basis unless otherwise stated. FINANCIAL RESULTS Q3 2003 Increase 9 months 2003 Increase £m CER % £% £m CER % £% Turnover 5,466 9 9 16,063 7 3 Business performance* Trading profit 1,752 13 13 5,450 14 9 Profit before tax 1,693 20 22 5,436 18 13 Earnings per share 20.7p 21 24 66.4p 20 15 Statutory results Trading profit 1,719 35 35 5,222 26 20 Profit before tax 1,660 47 50 5,211 31 25 Earnings per share 20.2p 48 51 63.5p 32 26 Q3 2003 HIGHLIGHTS* • Pharmaceutical turnover grew strongly, up 10% to £4.6 billion in the quarter, driven by US turnover growth of 14%. • GSK successfully launched two key products into the US market: - Levitra, for erectile dysfunction, has captured over 12% of new prescriptions in its 6th week on the market; - Wellbutrin XL, for depression, already represents 19% of new Wellbutrin prescriptions in its 5th week on the market. • Seretide/Advair, the world's leading treatment for asthma and GSK's largest product, continues to perform exceptionally well, with sales up 40% to £552 million in the quarter. • Generic competition to Paxil in the USA began on 8th September. This had a limited impact on the reported quarterly sales figures, but will adversely affect Q4 2003. • GSK's strong financial position is underlined by free cash flow of £1.8 billion in the quarter. * Business performance, which is the primary performance measure used by management, is presented after excluding merger items, integration and restructuring costs and disposals of businesses. Management believes that exclusion of these items provides a better comparison of business performance for the periods presented. Statutory results include these items. 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 previous year. All commentaries are on a business performance basis and in terms of CER unless otherwise stated. THIRD QUARTER PERFORMANCE 2003 Commenting on the performance for the quarter, JP Garnier, Chief Executive Officer, said: "We had an extremely good performance this quarter. Of course, the launch of generic Paxil late in the quarter will have an adverse impact on future sales. However, the continued strong growth of our key products, such as Advair and Avandia, and the successful US launches of Wellbutrin XL and Levitra, clearly demonstrate the commercial strength of our business. We are now looking forward to our R&D Day in December, where we will provide an update on the progress we are making with our promising pipeline." STRONG PHARMACEUTICAL SALES GROWTH • Turnover in the United States grew 14% to £2.5 billion. Excluding the effects of the initial stocking of newly launched products, and other trade related factors, underlying growth is estimated to be high single digits. • European sales grew by 3% to £1.2 billion in the quarter. Performance in the region continues to be negatively impacted by government reforms on healthcare spending. • Sales in International markets increased by 9% to £0.9 billion in the quarter, with good growth in Japan (+11%) and continued improvement in trading conditions in Mexico (+25%). BROAD PORTFOLIO OF FAST-GROWING PRODUCTS DRIVES GROWTH A broad portfolio of fast-growing, high-value products is driving pharmaceutical sales growth: • GSK's number one product, asthma treatment Seretide/Advair, continues to grow very strongly with sales of £552 million in the quarter (+40%) and £1.6 billion in the year to date (+39%). In the USA, quarterly Advair sales were up 57%, breaking £300 million for the first time. Performance was also strong in Europe, with Seretide continuing to grow market share giving sales of over £180 million, up 15%. The respiratory products Flixotide (sales of £166 million, down 8%) and Serevent (sales of £101 million, down 15%) continued to be impacted by the success of Seretide. Taken together, the three products grew 18% in the quarter. • Avandia and Avandamet, GSK's oral anti-diabetes products, continue to perform very well. Reported US sales growth of 60% to £197 million in the quarter benefited from a favourable comparison with the quarter last year that was impacted by wholesaler stocking patterns. The estimated underlying growth of Avandia was 21%. International sales of Avandia grew by 66% in the quarter. European sales grew 78% and should further benefit from EU approval for Avandamet, which is expected in Q4 2003. • Sales of Seroxat/Paxil, GSK's anti-depressant product, increased by 10% in the quarter to £542 million. In the USA, sales were 12% higher at £370m (including £110 million of Paxil CR, £225 million of Paxil IR and £35 million relating to GSK's supply agreement with Par/Pentech). Generic competition to Paxil in the USA began on 8th September. Although this had a limited impact on the reported quarterly sales figures, latest data (week-ending 10th October) indicates that generics have taken a 72% share of US Paxil IR prescriptions. Encouragingly, Paxil CR has maintained its share of total prescriptions in the US anti-depressant market since the generic launch and has just received FDA approval for Social Anxiety Disorder. Seroxat/Paxil performed well in International markets with sales growth of 26% in the quarter, driven by continued strong growth in Japan (+50%). • Total Wellbutrin sales increased 22% to £280m in the quarter. The uptake and conversion of new formulation Wellbutrin XL has been very rapid: XL has captured 19% of new Wellbutrin prescriptions in its 5th week on the market. Given its unique profile as the only once-daily anti-depressant with low incidences of sexual dysfunction and weight gain, the prospects for the further growth of Wellbutrin XL sales are extremely promising. • Levitra, GSK and Bayer's potent new treatment for erectile dysfunction, was approved and launched in the USA during the quarter. Levitra has made a strong start, already capturing more than 12% of new prescriptions in its 6th week on the market. During October, GSK and Bayer released important new data from the PROVEN study which demonstrated that men who were unresponsive to Viagra were three times more likely to complete sexual intercourse successfully on Levitra than on placebo. Levitra continues to make good progress in Europe, with steady gains in market share across the region. Several other key products contributed to the strong quarterly growth: • GSK's epilepsy treatment Lamictal performed very strongly with sales up 36% to £145 million. US sales rose by 44%, helped by FDA approval at the end of the second quarter for the use of Lamictal in the long term maintenance treatment of bi-polar disorder. • Valtrex sales for Herpes rose 26% to £128 million in the quarter. US sales were up 30% to £81 million. On 29th August, Valtrex received FDA approval to reduce the risk of transmission of genital herpes. • Estimated underlying sales of Coreg, GSK's alpha/beta blocker for the treatment of heart failure, grew 28% in the quarter. Reported sales, up 8% to £97 million, were adversely impacted by wholesaler stocking patterns. Overall, Coreg sales continue to benefit from data published in the recent COMET trial that showed a highly significant statistical difference in survival between Coreg and metoprolol in patients with heart failure. Other items: • GSK's HIV portfolio grew 4% to £375 million, with US HIV sales adversely impacted by wholesaler stocking patterns in the quarter. Trizivir continues to perform strongly with global sales up 19% to £92 million. Lexiva (the brand name for "908") was approved by the FDA on 20th October. Earlier this month, GSK filed its new fixed dose combination of Epivir+Ziagen - this will be the first one pill, once daily dual HIV therapy on the US market. • Sales of Augmentin declined 12% to £177 million in the quarter due to continued generic competition. Total anti-bacterials sales of £420 million were down 5%. • Sales of the emesis treatment Zofran rose 19% to £199 million. • Vaccine sales (£284 million, down 8%) were partly impacted by comparison to a strong quarter last year. GSK's paediatric vaccines Infanrix/Pediarix performed very strongly with global sales up 21% to £83 million (US sales up 71% to £31 million). • During the quarter GSK announced an agreement with Yamanouchi Pharmaceutical Co., Ltd. to co-promote Vesicare, for the treatment of urinary incontinence, in the USA. The FDA issued an approvable letter for Vesicare on 20th October. CONSUMER HEALTHCARE SALES OF £832 MILLION UP 4% Sales grew 5% in Europe, 5% in International and 1% in North America. Sales of Over-the-counter medicines were £380 million, the same level as last year. Sales of smoking control and gastro-intestinal products declined 10% and 8% respectively, primarily as a result of private label competition in the USA. Sales of dermatological products acquired earlier this year helped to offset these declines. Oral care sales were up 5% to £278 million, boosted by the launch of Aquafresh Extreme Clean in the USA. Sales of Nutritional healthcare products grew 11% to £174 million, led by sales of Lucozade which grew 22%. FINANCIAL REVIEW Trading profit and earnings per share Business performance trading profit grew 13% to £1,752 million on turnover growth of 9%. The trading margin improved 1.1 percentage points to 32.1% compared with 31.0% in Q3 2002. This improvement came from cost of sales, partly offset by higher SG&A costs. Cost of sales reduced by 1.3 percentage points on sales, this benefit principally coming from continued merger, manufacturing restructuring, favourable mix and other cost savings. SG&A expenditure grew 12%, reflecting increased selling costs to support new product launches, asset write downs and provisions for legal claims against the Group. Operating profit growth of 20% for the quarter was higher than trading profit growth of 13% due to lower other operating expenses than in the same quarter last year. Business performance EPS of 20.7 pence in the quarter increased 21% in CER terms and 24% in sterling terms. The adverse impact of the weakening US dollar was offset by a strengthening of the Euro. Statutory results, which include merger and manufacturing restructuring costs, delivered a trading profit of £1,719 million on turnover of £5,466 million. Taken together with other expenses, taxation and product divestments this resulted in EPS of 20.2 pence compared with 13.4 pence in the third quarter of 2002. Merger and manufacturing restructuring costs were lower in the quarter than in Q3 2002, reflecting movement towards the completion of these programmes. The sterling based growth in EPS of 51% was higher than the CER based growth in business performance EPS as a result of lower merger and restructuring costs and a marginal benefit from currencies. Currencies The third quarter 2003 results are based on average exchange rates of £1/$1.61 and £1/Euro 1.43 which compare with average rates for the third quarter of 2002 of £1/$1.54 and £1/Euro 1.58. Exchange rates at 30th September were £1/ $1.66 and £1/Euro 1.43. If exchange rates were to hold at these levels the adverse impact on reported EPS growth for 2003 would be 4-5%. Dividend The Board has declared a third interim dividend of 9 pence per share. This compares with a dividend of 9 pence per share for Q3 2002. The equivalent dividend receivable by ADR holders is 30.018 cents per ADS based on an exchange rate of £1/$1.66766. The dividend will have an ex-dividend date of 29th October 2003 and will be paid on 6th January 2004 to shareholders and to ADR holders of record on 31st October 2003. Earnings guidance for 2003 GSK's earnings guidance for 2003 is high single digit or better percentage growth in business performance earnings per share at constant exchange rates. Share buy-back programme In October 2002 GSK commenced a new £4 billion share buy-back programme. Of this new programme, £219 million was accounted for in 2002, £262 million in the first quarter of 2003, £275 million in the second quarter and £299 million in the third quarter. The exact amount and timing of future purchases will be determined by the company and is dependent on market conditions and other factors. GlaxoSmithKline - 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 company information including a copy of this announcement and details of the company's updated product development pipeline, visit GSK at www.gsk.com. Enquiries: UK Media Martin Sutton (020) 8047 5502 David Mawdsley (020) 8047 5502 Chris Hunter-Ward (020) 8047 5502 US Media Nancy Pekarek (215) 751 7709 Mary Anne Rhyne (919) 483 2839 Patricia Seif (215) 751 7709 European Analyst / Investor Duncan Learmouth (020) 8047 5540 Philip Thomson (020) 8047 5543 Anita Kidgell (020) 8047 5542 US Analyst / Investor Frank Murdolo (215) 751 7002 Tom Curry (215) 751 5419 Brand names appearing in italics throughout this document are trade marks of GSK or associated companies with the exception of Levitra, a trade mark of Bayer AG and Vesicare, a trade mark of Yamanouchi Pharmaceutical Co., Ltd. Cautionary statement regarding forward-looking statements Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, the company cautions investors that any forward-looking statements or projections made by the company, including those made in this Announcement, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Factors that may affect the Group's operations are described under 'Risk Factors' in the Operating and Financial Review and Prospects in the company's Annual Report on Form 20-F for 2002. PROFIT AND LOSS ACCOUNT Three months ended 30th September 2003 Merger, restructuring and disposal of businesses Business performance Statutory -------------------- -------------- ------------- Q3 2003 Q3 2002 Growth Q3 2003 Q3 2002 Q3 2003 Q3 2002 £m £m CER% £m £m £m £m --- --- --- --- --- --- --- Turnover: Pharmaceuticals 4,634 4,222 10 - - 4,634 4,222 Consumer Healthcare 832 797 4 - - 832 797 --- --- --- --- --- --- TURNOVER 5,466 5,019 9 - - 5,466 5,019 Cost of sales (1,063) (1,041) - (67) (88) (1,130) (1,129) --- --- --- --- --- --- Gross profit 4,403 3,978 11 (67) (88) 4,336 3,890 Selling, general and administration (1,970) (1,782) 12 34 (131) (1,936) (1,913) Research and development (681) (641) 6 - (65) (681) (706) --- --- --- --- --- --- Trading profit: Pharmaceuticals 1,578 1,410 11 (27) (267) 1,551 1,143 Consumer Healthcare 174 145 26 (6) (17) 168 128 --- --- --- --- --- --- TRADING PROFIT 1,752 1,555 13 (33) (284) 1,719 1,271 Other operating income/(expense) (33) (145) - - (33) (145) --- --- --- --- --- --- Operating profit 1,719 1,410 20 (33) (284) 1,686 1,126 Business disposals - - - 6 - 6 Profits of associates 20 20 - - 20 20 --- --- --- --- --- --- Profit before interest 1,739 1,430 (33) (278) 1,706 1,152 Net interest payable (46) (42) - - (46) (42) --- --- --- --- --- --- PROFIT BEFORE TAXATION 1,693 1,388 20 (33) (278) 1,660 1,110 Taxation (466) (375) 9 86 (457) (289) --- --- --- --- --- --- Profit after taxation 1,227 1,013 19 (24) (192) 1,203 821 Minority interests (30) (31) - - (30) (31) Preference share dividends (3) (5) - - (3) (5) --- --- --- --- --- --- EARNINGS 1,194 977 20 (24) (192) 1,170 785 --- --- --- --- --- --- EARNINGS PER SHARE 20.7p 16.7p 21 20.2p 13.4p --- --- --- --- Diluted earnings per share 20.1p 13.4p --- --- To illustrate "Business performance", which is the primary measure used by management, merger items, integration and restructuring costs and disposals of businesses have been excluded and an adjusted EPS presented. Statutory results include these items. Appropriations of profit attributable to shareholders are set out under "Appropriations" on page 13. PROFIT AND LOSS ACCOUNT Nine months ended 30th September 2003 Merger, restructuring and disposal of businesses Business performance Statutory -------------------- -------------- ------------- 9 months 9 months 9 months 9 months 9 months 9 months 2003 2002 Growth 2003 2002 2003 2002 £m £m CER% £m £m £m £m --- --- --- --- --- --- --- Turnover: Pharmaceuticals 13,666 13,196 7 - - 13,666 13,196 Consumer Healthcare 2,397 2,348 4 - - 2,397 2,348 --- --- --- --- --- --- TURNOVER 16,063 15,544 7 - - 16,063 15,544 Cost of sales (3,072) (3,168) (3) (233) (188) (3,305) (3,356) --- --- --- --- --- --- Gross profit 12,991 12,376 9 (233) (188) 12,758 12,188 Selling, general and administration (5,586) (5,502) 5 19 (355) (5,567) (5,857) Research and development (1,955) (1,885) 6 (14) (110) (1,969) (1,995) --- --- --- --- --- --- Trading profit: Pharmaceuticals 5,018 4,628 14 (209) (617) 4,809 4,011 Consumer Healthcare 432 361 24 (19) (36) 413 325 --- --- --- --- --- --- TRADING PROFIT 5,450 4,989 14 (228) (653) 5,222 4,336 Other operating income/(expense) 34 (134) - - 34 (134) --- --- --- --- --- --- Operating profit 5,484 4,855 18 (228) (653) 5,256 4,202 Business disposals - - 3 6 3 6 Product divestments - - - 12 - 12 Profits of associates 70 58 - - 70 58 --- --- --- --- --- --- Profit before interest 5,554 4,913 (225) (635) 5,329 4,278 Net interest payable (118) (105) - - (118) (105) --- --- --- --- --- --- PROFIT BEFORE TAXATION 5,436 4,808 18 (225) (635) 5,211 4,173 Taxation (1,495) (1,298) 60 199 (1,435) (1,099) --- --- --- --- --- --- Profit after taxation 3,941 3,510 17 (165) (436) 3,776 3,074 Minority interests (71) (79) - - (71) (79) Preference share dividends (11) (15) - - (11) (15) --- --- --- --- --- --- EARNINGS 3,859 3,416 18 (165) (436) 3,694 2,980 --- --- --- --- --- --- EARNINGS PER SHARE 66.4p 57.6p 20 63.5p 50.2p --- --- --- --- Diluted earnings per share 63.3p 50.0p --- --- Weighted average number of shares 5,816 5,933 5,816 5,933 (millions) --- --- --- --- To illustrate "Business performance", which is the primary measure used by management, merger items, integration and restructuring costs and disposals of businesses have been excluded and an adjusted EPS presented. Statutory results include these items. Appropriations of profit attributable to shareholders are set out under "Appropriations" on page 13. PHARMACEUTICAL TURNOVER Three months ended 30th September 2003 Total USA Europe International ------------- ------------- ------------ ------------ £m CER% £m CER% £m CER% £m CER% ----- ----- ----- ----- ----- ----- ---- ----- CENTRAL NERVOUS SYSTEM 1,243 13 910 14 206 5 127 15 Depression 822 14 643 16 89 (6) 90 26 Seroxat/Paxil 542 10 370 12 89 (6) 83 26 Wellbutrin 280 22 273 22 - - 7 24 Migraine 221 4 162 4 44 5 15 3 Imigran/Imitrex 199 3 150 3 36 3 13 2 Naramig/Amerge 22 10 12 8 8 14 2 8 Lamictal 145 36 84 44 50 29 11 6 Requip 26 20 13 20 12 18 1 37 Zyban 18 (25) 7 (39) 7 7 4 (31) RESPIRATORY 1,056 14 546 20 343 3 167 16 Seretide/Advair, Flixotide/Flovent, Serevent 819 18 437 25 273 7 109 23 Seretide/Advair 552 40 316 57 182 15 54 39 Flixotide/Flovent 166 (8) 77 (11) 47 (10) 42 1 Serevent 101 (15) 44 (30) 44 (4) 13 56 Flixonase/Flonase 127 4 103 3 12 9 12 4 Ventolin 66 7 1 > 100 32 (3) 33 10 Becotide 25 (17) - - 22 (17) 3 (18) ANTI-VIRALS 586 4 290 1 177 8 119 8 HIV 375 4 197 (4) 137 17 41 13 Combivir 146 2 74 (7) 53 14 19 17 Trizivir 92 19 54 12 35 32 3 31 Epivir 75 4 38 (3) 27 15 10 12 Retrovir 11 12 5 (20) 4 > 100 2 - Ziagen 43 (12) 22 (18) 15 (8) 6 8 Agenerase 8 (32) 4 (38) 3 (4) 1 (42) Herpes 170 9 85 23 36 (7) 49 - Valtrex 128 26 81 30 22 8 25 31 Zovirax 42 (24) 4 (48) 14 (23) 24 (19) Zeffix 32 7 2 (12) 4 (13) 26 13 ANTI-BACTERIALS 420 (5) 107 (28) 172 8 141 7 Augmentin 177 (12) 54 (37) 76 8 47 9 Zinnat/Ceftin 57 11 4 (24) 26 7 27 21 Fortum 46 (3) 7 (25) 23 (1) 16 7 Amoxil 27 (10) 5 (34) 8 (25) 14 16 VACCINES 284 (8) 70 (1) 132 (11) 82 (10) Hepatitis 102 (18) 39 (23) 45 (22) 18 15 Infanrix/Pediarix 83 21 31 71 38 18 14 (26) ONCOLOGY AND EMESIS 249 9 182 10 40 - 27 23 Zofran 199 19 148 23 32 - 19 22 Hycamtin 29 53 21 82 6 - 2 18 METABOLIC 283 54 197 60 33 67 53 30 Avandia, Avandamet 241 61 197 60 19 78 25 66 CARDIOVASCULAR AND UROGENITAL 226 36 156 43 44 15 26 39 Coreg 97 8 92 7 - - 5 49 Levitra 25 - 20 - 3 - 2 - Avodart 8 - 6 - 2 - - - OTHER 287 (4) 26 1 80 (18) 181 2 Zantac 80 (2) 18 7 22 (18) 40 3 ------------- -------------- ------------- ------------ 4,634 10 2,484 14 1,227 3 923 9 ------------- -------------- ------------- ------------ Pharmaceutical turnover includes co-promotion income. PHARMACEUTICAL TURNOVER Nine months ended 30th September 2003 Total USA Europe International ------------- ------------- ------------ ------------ £m CER% £m CER% £m CER% £m CER% ----- ----- ----- ----- ----- ----- ---- ----- CENTRAL NERVOUS SYSTEM 3,490 12 2,505 13 623 3 362 17 Depression 2,278 14 1,742 15 282 (4) 254 28 Seroxat/Paxil 1,552 9 1,035 10 282 (4) 235 28 Wellbutrin 726 24 707 24 - - 19 31 Migraine 638 2 464 2 129 - 45 11 Imigran/Imitrex 572 3 427 3 106 - 39 11 Naramig/Amerge 66 (1) 37 (3) 23 1 6 9 Lamictal 410 33 234 41 144 26 32 9 Requip 72 14 36 18 33 7 3 41 Zyban 55 (28) 22 (33) 22 - 11 (47) RESPIRATORY 3,246 14 1,673 22 1,072 2 501 14 Seretide/Advair, Flixotide/Flovent, Serevent 2,446 17 1,294 24 841 6 311 20 Seretide/Advair 1,597 39 894 55 552 16 151 42 Flixotide/Flovent 519 (7) 242 (8) 151 (11) 126 - Serevent 330 (13) 158 (22) 138 (7) 34 26 Flixonase/Flonase 450 17 352 19 43 - 55 11 Ventolin 196 2 4 (17) 99 (4) 93 8 Becotide 82 (17) - - 69 (15) 13 (26) ANTI-VIRALS 1,767 8 880 8 543 8 344 9 HIV 1,140 9 612 6 413 14 115 14 Combivir 442 4 228 (1) 161 10 53 17 Trizivir 288 31 172 27 106 37 10 42 Epivir 223 6 115 5 80 6 28 10 Retrovir 34 (7) 15 (9) 12 (12) 7 3 Ziagen 128 4 67 - 46 8 15 11 Agenerase 25 (22) 15 (26) 8 (4) 2 (23) Herpes 499 8 242 18 114 (1) 143 (2) Valtrex 370 27 235 30 66 11 69 31 Zovirax 129 (26) 7 (72) 48 (14) 74 (20) Zeffix 95 11 7 (6) 12 (7) 76 16 ANTI-BACTERIALS 1,306 (19) 358 (48) 549 1 399 9 Augmentin 574 (35) 197 (60) 244 (1) 133 10 Zinnat/Ceftin 176 (1) 16 (30) 92 4 68 4 Fortum 139 (7) 21 (17) 71 (8) 47 - Amoxil 88 (2) 18 (15) 26 (29) 44 31 VACCINES 833 2 216 5 366 - 251 3 Hepatitis 315 (12) 118 (18) 144 (12) 53 5 Infanrix/Pediarix 260 30 98 56 110 20 52 8 ONCOLOGY AND EMESIS 770 15 576 18 122 1 72 15 Zofran 587 22 439 29 94 - 54 14 Hycamtin 84 23 58 32 19 1 7 15 METABOLIC 788 24 555 23 83 32 150 21 Avandia, Avandamet 679 27 555 23 48 47 76 53 CARDIOVASCULAR AND UROGENITAL 576 25 376 28 128 8 72 33 Coreg 265 25 254 24 - - 11 39 Levitra 30 - 20 - 7 - 3 - Avodart 12 - 9 - 3 - - - OTHER 890 (9) 83 (19) 265 (17) 542 (2) Zantac 252 (10) 63 9 71 (25) 118 (9) ------------- ------------- ------------- ------------- 13,666 7 7,222 9 3,751 2 2,693 9 ------------- ------------- ------------- ------------- Pharmaceutical turnover includes co-promotion income. Pharmaceutical turnover in the period increased by 10% compared with the third quarter of 2002, which in CER terms represented additional turnover of £421 million. An analysis of turnover between new products (those launched in a major market within the last five years), franchise products (established products), and other products (now less actively promoted) is set out below: Q3 2003 -------------------------------------------- £m % total CER% CER £m --------- --------- --------- --------- New 1,172 25 36 312 Franchise 2,575 56 7 168 Other 887 19 (6) (59) --------- --------- --------- --------- 4,634 100 10 421 --------- --------- --------- --------- The growth of the new products, notably Seretide/Advair, Infanrix, Pediarix and Trizivir, and the franchise products, Wellbutrin, Zofran, and Valtrex, more than offset the decline of older products such as Augmentin, Zovirax and Zantac. New products accounted for 25% of total pharmaceutical turnover. GSK records co-promotion income within turnover, and the nature of co-promotion activities are such that no cost of sales is recorded. Co-marketing sales are recorded within turnover as sales of GSK products and cost of sales reflects the purchase cost of the products sold. Co-promotion income amounted to £24 million in the quarter. CONSUMER HEALTHCARE TURNOVER Three months ended 30th September 2003 ---------------------- £m CER% --------- --------- Over-the-counter medicines 380 - Analgesics 88 4 Dermatological 58 27 Gastro-intestinal 70 (8) Respiratory tract 33 (2) Smoking control 74 (10) Natural wellness support 42 2 Oral care 278 5 Nutritional healthcare 174 11 --------- --------- Total 832 4 --------- --------- Nine months ended 30th September 2003 ---------------------- £m CER% --------- --------- Over-the-counter medicines 1,126 4 Analgesics 252 4 Dermatological 181 35 Gastro-intestinal 210 (1) Respiratory tract 98 9 Smoking control 222 (5) Natural wellness support 122 5 Oral care 799 2 Nutritional healthcare 472 9 --------- --------- Total 2,397 4 --------- --------- FINANCIAL REVIEW - PROFIT AND LOSS ACCOUNT Trading profit - business performance Q3 2003 Q3 2002 2002 ------------------ ----------------- Growth ------ £m % of turnover £m % of turnover CER% £m ------ ------ ------ ------ ------ ------ Turnover 5,466 100 5,019 100 9 21,212 Cost of sales (1,063) (19.4) (1,041) (20.7) - (4,243) Selling, general and administration (1,970) (36.0) (1,782) (35.5) 12 (7,543) Research and development (681) (12.5) (641) (12.8) 6 (2,732) ------ ------ ------ ------ ------ ------ Trading profit - business performance 1,752 32.1 1,555 31.0 13 6,694 ------ ------ ------ ------ ------ ------ Overall the trading margin improved 1.1 percentage points compared with the same quarter last year, and trading profit grew 13%. The improvement in margin came from cost of sales partly offset by higher SG&A expenses. Cost of sales reduced as a percentage of turnover as a result of benefits arising from merger, manufacturing restructuring, favourable mix and other savings. A small pricing benefit was largely offset by the exchange impact. Selling, general and administration costs grew 12% reflecting increased selling costs to support new product launches, asset write downs and provisions for legal claims against the Group. Research and development (R&D) increased by 6% reflecting increased activity. Pharmaceuticals R&D expenditure represented 14.2% of pharmaceutical turnover in the period. Profit before tax - business performance Q3 2003 Q3 2002 2002 £m £m £m ---- ---- ---- Trading profit 1,752 1,555 6,694 Other operating income/(expense) (33) (145) (111) Profits of associates 20 20 75 Net interest payable (46) (42) (141) ---- ---- ---- Profit before tax - business performance 1,693 1,388 6,517 ---- ---- ---- Other operating income/(expense) includes litigation costs and provisions relating to legal claims on withdrawn products, product withdrawals and anti-trust matters, equity investment carrying value adjustments arising from stock market price changes, royalty income, product disposals and equity investment sales. Merger items, integration and restructuring costs and disposal of subsidiaries Q3 2003 Q3 2002 2002 £m £m £m ---- ---- ---- Merger integration costs (34) (228) (851) Manufacturing and other restructuring 7 (39) (121) Block Drug integration costs (6) (17) (60) ---- ---- ---- Effect on operating profit (33) (284) (1,032) Product divestments - - 11 Business disposal - 6 10 ---- ---- ---- Effect on profit before tax (33) (278) (1,011) ---- ---- ---- Merger integration costs are declining as the programme nears its completion in the third year post merger. Manufacturing and other restructuring charges principally relate to production plant closures. Taxation - total Q3 2003 Q3 2002 2002 £m £m £m ---- ---- ---- Business performance (466) (375) (1,760) Merger items, integration and restructuring costs 9 86 299 and disposal of subsidiaries ---- ---- ---- Taxation - total (457) (289) (1,461) ---- ---- ---- The charge for taxation on business performance profit for the nine months represents an effective tax rate of 27.5% which is the expected rate for the year. This represents an increase compared with the effective rate of 27.0% in 2002 due to changes in the geographic mix of profits. The credit for taxation on merger, restructuring and business disposals reflects the estimated actual tax rate applicable to the transactions in the territories in which they arise. Transfer pricing issues are described in the 'Taxation' note to the Financial Statements included in the Annual Report for 2002. Developments since the date of that report are as follows. With respect to the claims of the Internal Revenue Service (IRS) for all years since 1989, which are described in the note, the US and UK tax authorities have concluded discussions under the mutual agreement provisions of the double taxation convention between the two countries without reaching agreement. As stated in previous updates, there continues to be a wide difference of views between the company and the IRS. The company is in discussions with the Appeals Division of the IRS, now regarding years 1997-2000, but the dispute in respect of 1989-1996 will now proceed to the US Tax Court. The company is awaiting statutory notices from the IRS. GlaxoSmithKline uses the best advice in determining its transfer pricing methodology and in seeking to manage transfer pricing issues to a satisfactory conclusion and, on the basis of external professional advice, continues to believe that it has made adequate provision for the liabilities likely to arise from open assessments. Earnings Q3 2003 Q3 2002 2002 £m £m £m Net profit attributable to shareholders ---- ---- ---- Earnings 1,170 785 3,915 Adjustment for merger items, integration and restructuring costs and disposal of businesses 24 192 712 ---- ---- ---- Adjusted earnings 1,194 977 4,627 ---- ---- ---- pence pence pence Earnings per share ---- ---- ---- Basic earnings per share 20.2 13.4 66.2 Adjustment for merger items, integration and restructuring costs and disposal of businesses 0.5 3.3 12.1 ---- ---- ---- Adjusted earnings per share 20.7 16.7 78.3 ---- ---- ---- In order to illustrate business performance, which is the primary performance measure used by management, adjusted earnings and adjusted earnings per share are presented after excluding merger items, integration and restructuring costs and disposal of businesses. Q3 2003 Q3 2002 2002 £m £m £m Appropriations ---- ---- ---- Net profit attributable to shareholders 1,170 785 3,915 Dividends (520) (527) (2,346) ---- ---- ---- Retained profit 650 258 1,569 ---- ---- ---- pence per 2003 pence per 2002 share share £m £m Dividends ---- ---- ---- ---- First interim - paid 3rd July 2003 9 524 9 535 Second interim - paid 2nd October 2003 9 522 9 530 Third interim - payable 6th January 2004 9 520 9 527 Fourth interim 13 754 ---- ---- 40 2,346 ---- ---- The number of shares in issue, excluding those held by the Employee Share Ownership Trusts (ESOTs), at 30th September 2003 was 5,780 million (30th September 2002: 5,859 million). STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 9 months 2003 9 months 2002 2002 £m £m £m ---- ---- ---- PROFIT ATTRIBUTABLE TO SHAREHOLDERS 3,694 2,980 3,915 Exchange movements on overseas net assets 166 (326) (154) Unrealised gains on equity investments 7 1 7 Tax on exchange movements and unrealised gains 7 - (67) ---- ---- ---- TOTAL RECOGNISED GAINS AND LOSSES 3,874 2,655 3,701 ---- ---- ---- SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT Three months ended 30th September 2003 Q3 2003 Q3 2002 2002 £m £m £m ---- ---- ---- BUSINESS PERFORMANCE OPERATING PROFIT 1,719 1,410 6,583 Depreciation and other non-cash items 288 230 909 Decrease/(increase) in working capital 106 195 (98) Increase in net liabilities 331 452 530 ---- ---- ---- 2,444 2,287 7,924 Restructuring/integration costs paid (103) (144) (669) ---- ---- ---- NET CASH INFLOW FROM OPERATING ACTIVITIES 2,341 2,143 7,255 Dividends received from joint ventures and associates 1 - 2 Returns on investment and servicing of finance (44) (49) (237) Taxation paid (449) (494) (1,633) ---- ---- ---- FREE CASH FLOW 1,849 1,600 5,387 ---- ---- ---- Purchase of tangible fixed assets (194) (227) (1,044) Sale of tangible fixed assets 1 5 59 Purchase of intangible fixed assets (61) (36) (182) ---- ---- ---- (254) (258) (1,167) Product divestments - - (1) Proceeds from own shares for employee share options 6 17 58 Purchase of equity investments (7) (6) (75) Sale of equity investments 31 - 65 ---- ---- ---- Capital expenditure and financial investment (224) (247) (1,120) ---- ---- ---- Purchase of businesses (3) (10) (21) Business disposals - 6 6 Investment in joint ventures and associates (2) (5) (5) ---- ---- ---- Acquisitions and disposals (5) (9) (20) ---- ---- ---- Equity dividends paid (523) (536) (2,327) ---- ---- ---- NET CASH INFLOW 1,097 808 1,920 Issue of ordinary share capital 8 12 56 Purchase of shares for cancellation (280) (353) (2,220) Net non-cash funds of subsidiary acquired - - (4) Other financing cash flows (51) 35 135 Exchange movements (54) (75) (121) ---- ---- ---- DECREASE/(INCREASE) IN NET DEBT IN PERIOD 720 427 (234) NET DEBT AT BEGINNING OF PERIOD (2,162) (2,527) (2,101) ---- ---- ---- NET DEBT AT END OF PERIOD (1,442) (2,100) (2,335) ---- ---- ---- SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT Nine months ended 30th September 2003 9 months 9 months 2003 2002 £m £m ---- ---- BUSINESS PERFORMANCE OPERATING PROFIT 5,484 4,855 Depreciation and other non-cash items 632 638 Increase in working capital (245) (50) Increase in net liabilities 106 727 ---- ---- 5,977 6,170 Restructuring/integration costs paid (279) (477) ---- ---- NET CASH INFLOW FROM OPERATING ACTIVITIES 5,698 5,693 Dividends received from joint ventures and associates 1 - Returns on investment and servicing of finance (193) (195) Taxation paid (1,566) (1,130) ---- ---- FREE CASH FLOW 3,940 4,368 ---- ---- Purchase of tangible fixed assets (533) (635) Sale of tangible fixed assets 32 33 Purchase of intangible fixed assets (117) (127) ---- ---- (618) (729) Proceeds from own shares for employee share options 18 54 Purchase of equity investments (22) (19) Sale of equity investments 117 62 ---- ---- Capital expenditure and financial investment (505) (632) ---- ---- Purchase of businesses (12) (17) Business disposals 3 6 Investment in joint ventures and associates (3) (5) ---- ---- Acquisitions and disposals (12) (16) ---- ---- Equity dividends paid (1,810) (1,800) ---- ---- NET CASH INFLOW 1,613 1,920 Issue of ordinary share capital 26 48 Purchase of shares for cancellation (807) (1,941) Other financing cash flows 93 87 Exchange movements (32) (113) ---- ---- DECREASE IN NET DEBT IN PERIOD 893 1 NET DEBT AT BEGINNING OF PERIOD (2,335) (2,101) ---- ---- NET DEBT AT END OF PERIOD (1,442) (2,100) ---- ---- BALANCE SHEET 30th September 30th September 31st December 2003 2002 2002 £m £m £m ---- ---- ---- Goodwill 151 164 171 Intangible fixed assets 1,710 1,611 1,637 Tangible fixed assets 6,526 6,603 6,649 Investments 3,092 3,128 3,121 ---- ---- ---- FIXED ASSETS 11,479 11,506 11,578 ---- ---- ---- Equity investments 159 137 161 Stocks 2,251 2,165 2,080 Debtors 6,738 5,604 6,200 Liquid investments 2,189 1,498 1,256 Cash at bank 1,670 839 1,052 ---- ---- ---- CURRENT ASSETS 13,007 10,243 10,749 ---- ---- ---- Loans and overdrafts (1,596) (1,751) (1,551) Other creditors (6,884) (7,207) (7,257) ---- ---- ---- CREDITORS: amounts due within one year (8,480) (8,958) (8,808) ---- ---- ---- NET CURRENT ASSETS 4,527 1,285 1,941 ---- ---- ---- TOTAL ASSETS LESS CURRENT LIABILITIES 16,006 12,791 13,519 ---- ---- ---- Loans (3,705) (2,686) (3,092) Other creditors (227) (263) (206) ---- ---- ---- CREDITORS: amounts due after one year (3,932) (2,949) (3,298) ---- ---- ---- PROVISIONS FOR LIABILITIES AND CHARGES (3,226) (2,542) (2,833) ---- ---- ---- NET ASSETS 8,848 7,300 7,388 ---- ---- ---- Called up share capital 1,490 1,510 1,506 Share premium account 249 216 224 Other reserves 1,922 1,901 1,905 Profit and loss account 4,402 2,874 2,946 ---- ---- ---- EQUITY SHAREHOLDERS' FUNDS 8,063 6,501 6,581 Non-equity minority interest 542 573 559 Equity minority interests 243 226 248 ---- ---- ---- CAPITAL EMPLOYED 8,848 7,300 7,388 ---- ---- ---- RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS 9 months 9 months 2003 2002 2002 £m £m £m ---- ---- ---- Equity shareholders' funds at beginning of period 6,581 7,390 7,390 Total recognised gains and losses for the period 3,874 2,655 3,701 Dividends (1,566) (1,592) (2,346) Ordinary shares issued 26 48 56 Ordinary shares purchased and cancelled (836) (2,001) (2,220) Exchange movements on goodwill written off to reserves (16) 1 - ---- ---- ---- Equity shareholders' funds 8,063 6,501 6,581 ---- ---- ---- FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET Cash flow Operating cash flow, after restructuring and integration payments of £103 million, was £2,341 million in Q3 2003. This represents an increase of £198 million over Q3 2002 arising from higher profits in the quarter. The operating cash flow is in excess of the funds needed for the routine cash flows of tax, capital expenditure on tangible assets and dividend payments, together amounting to £1,166 million. In addition, a further £280 million was spent in the quarter on purchasing the company's own shares for cancellation. Net assets The book value of net assets increased by £1,460 million from £7,388 million at 31st December 2002 to £8,848 million at 30th September 2003. This reflects a reduction in net debt together with increased working capital and a reduction in the dividend creditor following the payment of the Q4 2002 dividend. Fixed asset investments comprise investments in associates, long-term equity investments and an investment in own shares held by the ESOTs. At 30th September 2003 the ESOTs held 179 million GSK ordinary shares, at a carrying value of £2,782 million and market value of £2,229 million, against the future exercise of share options and share awards. This valuation shortfall is not considered to represent a permanent diminution in value in the context of the length of the future period over which the related share options may be exercised. Accordingly no provision has been made. The carrying value of associates and equity investments was £469 million and the market value was £1,196 million. Equity shareholders' funds Equity shareholders' funds increased from £6,581 million at 31st December 2002 to £8,063 million at 30th September 2003. The increase arises from retained earnings and positive exchange movements on overseas net assets partly offset by own shares purchased and cancelled. Legal proceedings Legal proceedings in which GlaxoSmithKline is involved are described in the 'Legal proceedings' note to the Financial Statements and the 'Risk factors' in the operating and financial review and prospects included in the Annual Report 2002, as updated in the 'Legal proceedings' notes to the first and second quarter results announcements. Developments since the dates of the Annual Report and the first and second quarter results are set out below. With respect to the Group's action against Synthon Pharmaceuticals for infringement of the Group's patents for paroxetine hydrochloride and paroxetine mesylate, the judge has scheduled a two week trial commencing 12th January 2004. With respect to Wellbutrin SR, in September 2003 the US Court of Appeals for the Federal Circuit (CAFC) reversed the summary judgement of non-infringement granted to Andrx by the US District Court for the Southern District of Florida in February 2002 and remanded the case to the district court for trial. As of the date of this Results Announcement the CAFC has yet to rule on the Group's appeals from the summary judgements of non-infringement granted to Impax Laboratories and Excel Pharmaceuticals. In August 2003 the Group filed an action against Teva Pharmaceuticals USA Inc. in the US District Court for the District of New Jersey for infringement of the Group's patent for the specific salt form used in Avandia. Teva has not challenged the basic compound patent for Avandia. In September 2003 the Group filed an action against Dr. Reddy's Laboratories in the US District Court for the District of New Jersey for infringement of the same patent. The cases are in their early stages. In September 2003 the Group filed an action against Teva Pharmaceuticals USA Inc. in the US District Court for the District of Delaware for infringement of the Group's patents related to the injectable presentation of ondansetron (Zofran). The case is in its early stages. Patent litigation relating to oral forms of Zofran continues. With respect to the patent infringement action filed by Pfizer against Bayer AG and GlaxoSmithKline relating to vardenafil (Levitra), the US Patent and Trademark Office has initiated a re-examination of the newly issued Pfizer US patent based on questions of patentability in light of prior art. The Pfizer action, including an additional suit filed in the same US District Court following the launch of Levitra in the USA, is predicated on the validity of that patent. With respect to product liability litigation related to Paxil, in September 2003 a federal district judge in California denied class certification for a purported class of plaintiffs alleging that paroxetine (the active ingredient in Paxil) is addictive and causes dependency and withdrawal reactions. The same federal judge had denied class action certification in January 2003 but had permitted counsel for the plaintiffs to file one more motion for class certification. In October 2003 the US Food and Drug Administration (FDA) began an investigation of the Group's manufacturing facility in Cidra, Puerto Rico. The Cidra site is engaged in tableting and packaging for a range of GlaxoSmithKline products - primarily for the US market - including Paxil, Paxil CR, Coreg, Avandia and Avandamet. Although the FDA has not informed the Group of the specific nature of its investigation, records provided to the FDA focus on manufacturing at the site in 2001 and 2002. The Group has received no indication that ongoing supply from the site will be affected. The Group is fully co-operating with the investigation and is working to clarify the specific nature of the FDA's concerns. Legal expenses incurred, relating to the defence of the Group's intellectual property, and litigation costs and provisions relating to product liability claims on existing products, are charged to selling, general and administration costs. Litigation costs and provisions relating to legal claims on withdrawn products and anti-trust matters are charged to other operating income/expense. Provisions are made, after taking appropriate legal advice, when a reasonable estimate can be made of the likely outcome of the dispute. 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. Developments with respect to tax matters are described in 'Taxation' on page 12. EXCHANGE RATES The results and net assets of the Group, as reported in sterling, are affected by movements in exchange rates between sterling and overseas currencies. GSK uses the average of exchange rates prevailing during the period to translate the results and cash flows of overseas Group subsidiary and associated undertakings into sterling and period-end rates to translate the net assets of those undertakings. The currencies which most influence these translations, and the relevant exchange rates, are: 9 months 9 months 2003 2002 2002 Average rates: ---- ---- ---- £/US$ 1.61 1.48 1.50 £/Euro 1.45 1.60 1.59 £/Yen 191.00 187.00 188.00 Period-end rates: £/US$ 1.66 1.57 1.61 £/Euro 1.43 1.59 1.54 £/Yen 185.00 192.00 192.00 During 2003 average sterling exchange rates were stronger against the US dollar and the yen and weaker against the euro compared with the same period in 2002. Comparing Q3 2003 period-end rates with Q3 2002 period-end rates, sterling was stronger against the US dollar and weaker against the euro and the yen. ACCOUNTING PRESENTATION AND POLICIES This unaudited Results Announcement for the period ended 30th September 2003 is prepared in accordance with the accounting policies expected to apply in 2003. These are unchanged from those set out in the Annual Report 2002. Data for market share and market growth rates relate to the 12 months ended 30th June 2003 (or later where available). These are GSK estimates based on the most recent data from independent external sources, valued in sterling at relevant exchange rates. Figures quoted for product market share reflect sales by GSK and licensees. The profit and loss account, statement of total recognised gains and losses and cash flow statement for the year ended, and the balance sheet at 31st December 2002 have been derived from the full Group accounts for that period, which have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985. INVESTOR INFORMATION Announcement of Q3 Results 2003 This Announcement was approved by the Board of Directors on Wednesday 22nd October 2003. Financial calendar The company will announce preliminary results for 2003 and fourth quarter 2003 results on 12th February 2004. The fourth interim dividend for 2003 will have an ex-dividend date of 18th February 2004 and a record date of 20th February 2004 and will be paid on 15th April 2004. Internet This Announcement, and other information about GSK, is available on the company's website at: http://www.gsk.com. This information is provided by RNS The company news service from the London Stock Exchange

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