Interim Results

GlaxoSmithKline PLC 27 July 2004 Issued: 27th July 2004, London Results Announcement for the Second Quarter 2004 GSK delivers EPS of 20.1 pence and re-affirms 2004 EPS guidance GlaxoSmithKline plc (GSK) today announces its results for the second quarter ended 30th June 2004. The full UK GAAP results are presented under 'Profit and loss account' on pages 6 and 7 and are summarised below. FINANCIAL RESULTS* Q2 2004 Q2 2003 H1 2004 H1 2003 (restated) Growth (restated) Growth £m £m CER% £% £m £m CER% £% Turnover 5,064 5,375 2 (6) 10,007 10,597 2 (6) Business performance Trading profit 1,712 1,885 (1) (9) 3,274 3,681 (1) (11) Profit before tax 1,631 1,963 (10) (17) 3,207 3,726 (5) (14) Earnings per share 20.1p 23.9p (9) (16) 39.5p 45.5p (4) (13) Statutory results Trading profit 1,712 1,795 4 (5) 3,274 3,486 4 (6) Profit before tax 1,631 1,876 (6) (13) 3,207 3,534 - (9) Earnings per share 20.1p 22.8p (4) (12) 39.5p 43.1p 1 (8) Q2 2004 SUMMARY* • Total pharmaceutical turnover increased 1%, despite the significant impact of generic competition to Paxil and Wellbutrin in the USA. Excluding sales of these products, turnover grew 6% globally and 10% in the USA. • Key pharmaceutical growth drivers continue to perform strongly, including Seretide/Advair for asthma and COPD with sales up 22% to £603 million and sales of Avandia/Avandamet for diabetes up 59% to £307 million. • Four new product launches are expected in the next 6 months: Vesicare for over-active bladder, Rotarix, a new vaccine for rotavirus (in Latin America), Avandaryl for type 2 diabetes and Epivir/ Ziagen for HIV. • R&D Pipeline is progressing well: - FDA filings for Boniva for osteoporosis and Entereg for post-operative ileus made in Q2 2004 - Positive phase II data on '016 for cancer and '698 for rhinitis received in Q2 2004. '698 expected to join '016 in phase III development in Q3 2004 - New data expected on '381 for pain and '162 for depression - to be presented at CNS R&D Seminar on 23rd November 2004. • Weak US dollar adversely impacted performance in the quarter in sterling terms. • GSK remains on track to deliver 2004 EPS (at constant exchange rates) at least in line with business performance EPS in 2003. * The Group's practice is to discuss its results in terms of constant exchange rate (CER) growth. For 2004, the Group is reporting results on a statutory basis only. Growth rates are presented comparing 2004 results both with 2003 business performance results (see page 20) and 2003 statutory results. All commentaries compare 2004 results with 2003 business performance results in CER terms unless otherwise stated. Results in 2003 have been restated following the implementation of UITF 17 (revised) and UITF 38. See 'Accounting for own shares' on page 5 and 'Accounting Presentation and Policies' on page 20 for fuller explanations of these matters. Commenting on the performance for the quarter and GSK's outlook, JP Garnier, Chief Executive Officer, said: "Outstanding sales growth for several of our key products is enabling us to overcome the impact of generic competition to Paxil and Wellbutrin. In particular, Advair and Avandia continue to be significant engines of growth for the company. Looking ahead, while the third quarter will be challenging, we continue to expect a return to earnings growth in the fourth quarter and in 2005. I am very pleased with the progress of our R&D pipeline, which will fuel growth over the longer term. We have seen positive phase II data for our novel anti-cancer agent, '016, and the allergic rhinitis treatment, '698, this quarter, and we now expect '698 to join '016 in phase III development. We also expect to have new data on '381 for pain and '162 for depression over the next few months and plan to present this at a pipeline update seminar on our Central Nervous System compounds in November." KEY PHARMACEUTICAL GROWTH DRIVERS • For the second quarter, sales of Seretide/Advair were up 22% to £603 million, maintaining the same level of strong growth as seen in the previous quarter. In the USA, sales were up 18% to £304 million and Advair continues to outperform the asthma/COPD market significantly. In June, GSK launched its new paediatric indication for use of Advair in children aged 4 and over. Strong growth for Seretide was also reported in Europe with sales increasing 29% to £240 million. The product's excellent efficacy profile enabled Seretide to continue to gain market share during the quarter. International sales of Seretide were up 17% to £59 million. In April, the company filed Seretide in Japan for the treatment of asthma. • The Avandia family of diabetes treatments (Avandia and Avandamet) performed exceptionally well with sales growing 59% to £307 million. Reported US sales growth of 56% was boosted by a comparison to a weak quarter a year ago which was affected by wholesaler destocking. Underlying growth for Avandia/ Avandamet in the second quarter was estimated to be approximately 23%. Strong growth of the Avandia family in the USA is expected to continue with the introduction of Avandaryl later this year. Use of Avandia/Avandamet is also growing outside the USA with European sales up 47% to £25 million and International sales up 90% to £49 million. • Sales of Lamictal continued to benefit from the indication for treating bi-polar disorder, with sales up 38% to £171 million. In the USA, Lamictal sales rose 55% to £104 million. Unlike many other indicated therapies, which are used primarily to treat the manic phase of bi-polar disorder, Lamictal is effective in treating the depressive phase of the illness. • Coreg sales grew 50% to £113 million. Coreg continues to benefit from its latest indication for treating patients with post-myocardial infarction and the strength of data from the landmark COMET study, which showed that Coreg significantly reduced the risk of death from a cardiovascular event or stroke, compared to metoprolol. The strength of GSK's cardiovascular franchise will be further enhanced later this year when the acquisition of Sanofi-Synthelabo's injectable anti-thrombotic agents Fraxiparine and Arixtra is expected to be completed. • In the USA, Valtrex has been consistently increasing its market share and the product remains the market leader among treatments for genital herpes. Total Valtrex sales rose 19% to £145 million driven by a 28% increase in US sales to £95 million. • GSK continues to maintain its market leading position in HIV. Sales were £368 million in the quarter, up 2%. The HIV franchise will be further strengthened in the third quarter with the expected launch of a once-daily combination of Epivir/Ziagen. LINE EXTENSIONS MITIGATE CNS GENERIC COMPETITION • This was the first quarter of significant generic competition to Wellbutrin SR. Sales of Wellbutrin IR/ SR declined 76% to £51 million. However this impact was partly offset by GSK's supply agreement with Watson Pharmaceuticals (which contributed £25 million) and by the very strong performance of Wellbutrin XL, our new once-daily product, which continues to gain market share and achieved sales of £117 million. In total, sales of all Wellbutrin products were £193 million, a decline of only 7%. • Generic competition in the USA, Europe and Canada continues to impact sales of Paxil IR, which declined 64% in the quarter to £151 million. This was partly offset by GSK's supply agreement with Par Pharmaceuticals which contributed £38 million and the strong performance of Paxil CR which generated sales of £95 million (+21%). In the USA, Paxil CR has continued to maintain its market share since the launch in September 2003 of generic immediate-release paroxetine products. Overall, sales of the total Paxil franchise were down 41% to £284 million. PIPELINE UPDATE New product launches • Vesicare for overactive bladder, which GSK will co-promote with Yamanouchi Pharma America, is expected to launch later this year. In clinical trials, Vesicare once-daily was effective in improving all the symptoms of over-active bladder and was associated with a low incidence of dry mouth. • Rotarix, a new vaccine for the prevention of rotavirus gastroenteritis in infants, has been filed in several Latin American markets and received its first approval in Mexico in July. • The Avandia franchise is set to benefit from the addition of a new, fixed-dose combination treatment called Avandaryl, which is also expected to be launched in the second half of the year. This convenient once-daily medication combines Avandia with Aventis' Amaryl, a market leading sulphonylurea. • Epivir/Ziagen, expected to be launched in the third quarter, will be the first once-daily combination HIV treatment available in a single tablet. This new combination will offer a significant improvement in patient convenience over other treatment options. New product filings • A filing for Boniva administered as a convenient monthly oral dose was made with the FDA in May. Boniva is a potent oral bisphosphonate treatment for osteoporosis. Later this year, a quarterly i.v. dosing regimen will be filed. Boniva is being co-developed by GSK and Roche. • In June, Entereg (alvimopan) was filed with the FDA for the management of post-operative ileus, the gastrointestinal side effect which can affect millions of patients following many types of surgery. GSK and Adolor Corporation are collaborating on the worldwide development and commercialisation of Entereg. • In the USA, Boostrix was filed in July as a booster vaccine to prevent diptheria, tetanus and pertussis for adolescents. Key late-stage New Chemical Entities • '016 is currently under investigation in a variety of solid tumours and phase III trials have been initiated for metastatic breast cancer. In June, interim phase II trial results were presented at the American Society of Clinical Oncology meeting. Objective response or stable disease (lasting 8 to 16 weeks) were reported in 46 percent of women with heavily pre-treated, advanced metastatic breast cancer whose disease had previously progressed on Herceptin-containing regimens. • Based on positive phase II data received in the second quarter, '698, a glucocorticoid agonist for allergic rhinitis, is expected to progress to phase III clinical development in the third quarter. The compound is also in phase II clinical development for the treatment of asthma. • New data on compounds '162, a noradrenaline/dopamine re-uptake inhibitor for depression, and '381, a dual acting COX-2 inhibitor for pain including neuropathic pain, are expected over the next few months and will be presented at a pipeline update seminar on GSK's Central Nervous System compounds on 23rd November. CONSUMER HEALTHCARE Consumer Healthcare sales grew 4% to £798 million, led by growth in International (+9%) and European markets (+4%). Sales in the USA were flat compared with the same period last year. Oral care sales were up 4% to £267 million. Several key brands reported strong performances. In Europe Aquafresh grew 8%. In International markets both Polident (+23%) and Poligrip (+33%) grew strongly. Nutritional healthcare products grew 10% to £174 million. Excellent growth of the Lucozade franchise (+16%) in the UK continued. Over-the-counter medicine sales grew 2% to £357 million. The smoking control business grew 14% with all regions contributing to growth. Panadol grew 17%, led by growth in International markets. Sales of dermatological products were down 13% primarily due to generic competition to Cutivate in the USA. In July, GSK obtained the over-the-counter marketing rights in the US for orlistat, an FDA-approved prescription product for obesity management marketed by Roche as Xenical. FINANCIAL REVIEW Trading profit and earnings per share Trading profit for Q2 2004 was £1,712 million, a 1% decline in CER terms (9% in sterling terms) compared with Q2 2003 business performance. The trading margin declined 1.3 percentage points compared with Q2 2003, partly attributable to a decline in sales of 6% in sterling terms. Net of currency movements the margin declined 0.9 percentage points, reflecting higher R&D expenditure, and a higher cost of goods due to a less favourable product mix, partially offset by cost savings initiatives in general and administration. Other operating expense was £102 million compared with £87 million of other operating income in Q2 2003. The charge in 2004 reflects higher provisions to settle US anti-trust cases involving the antibiotic product Augmentin and other legal matters, partly offset by the sale of equity investments and other income. The legal charge was further offset by the disposal of an interest in Quest Diagnostics, Inc. shares, which resulted in a profit of £41 million. EPS of 20.1 pence declined 9% in CER terms (16% in sterling terms) compared with Q2 2003 business performance EPS. The adverse currency impact on EPS of 7 percentage points reflected the significant weakening of the US dollar relative to last year. Compared with Q2 2003 statutory results, which included merger and manufacturing restructuring costs and disposals of businesses, EPS declined 4% in CER terms (12% in sterling terms). Currencies The second quarter 2004 results are based on average exchange rates, principally £1/$1.81, £1/Euro 1.49 and £1/Yen 197. The period-end exchange rates were £1/$1.81, £1/Euro 1.49 and £1/Yen 198. Since the period end the dollar has weakened further and at 22nd July 2004 the exchange rates were £1/$1.85, £1/Euro 1.51 and £1/Yen 202. If exchange rates were to hold at these levels for the remainder of 2004 the negative currency impact on earnings per share growth would be approximately 9% to 10% for the full year. Dividend The Board has declared a second interim dividend of 10 pence per share. This compares with a dividend of 9 pence per share for Q2 2003. The equivalent dividend receivable by ADR holders is 36.590 cents per ADS based on an exchange rate of £1/$1.82950. The dividend will have an ex-dividend date of 4th August 2004 and will be paid on 30th September 2004 to shareholders and ADR holders of record on 6th August 2004. The total dividend for the full year 2004 is expected to increase in line with the 2003 increase of 1 penny per share. Earnings guidance In 2004, despite an expected substantial loss of sales due to generic competition to Paxil and Wellbutrin, GSK expects to deliver EPS (at constant exchange rates) at least in line with business performance EPS in 2003. As the impact of generics becomes less significant, GSK looks forward to a return to EPS growth in CER terms in 2005. 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, £980 million in 2003, £279 million in Q1 2004 and £221 million in Q2 2004. The exact amount and timing of future purchases, and the extent to which repurchased shares will be held as Treasury shares rather than being cancelled, will be determined by the company and is dependent on market conditions and other factors. Accounting for own shares In 2004, the Group has adopted UITF 17 (revised) and UITF 38 - see 'Accounting Presentation and Policies' on page 20. As a result of the reclassification of own shares to equity shareholders' funds net assets at 31st December 2003 decreased by £2,661 million. Additionally, trading profit and profit before taxation in Q2 2003 have been reduced by £6 million and earnings have been reduced by £3 million. The full year 2003 effect is that trading profit and profit before taxation have been reduced by £16 million and earnings have been reduced by £6 million. US dollar global bond issue GlaxoSmithKline issued its inaugural $2.5 billion US dollar global bond in the US market at the beginning of April. The bond was issued in three tranches - 3, 10 and 30 years - in order to complement existing debt maturities and to establish a liquid benchmark US yield curve for GSK's US dollar bonds. These funds will be used to repay preference shares issued by a subsidiary, refinance 2004 debt maturities and for general corporate purposes. International Financial Reporting Standards (IFRS) The Group's programme to convert its financial reporting from UK GAAP to IFRS is well advanced. Restatements of full year 2003, Q1 2004 and Q2 2004 results will be published on 29th October 2004. The remaining restatements (Q3 2004, Q4 2004 and full year 2004) will be issued with the 2004 UK GAAP Preliminary Results Announcement on 10th February 2005. 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 and Vesicare, a trade mark of Yamanouchi Pharmaceutical, which are used under licence by the Group. 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 2003. PROFIT AND LOSS ACCOUNT Three months ended 30th June 2004 Q2 2003 Merger, Business restructuring Q2 2004 Performance and disposal of Statutory Statutory Growth* (restated) businesses (restated) £m CER% £m £m £m --- --- --- --- --- Turnover: Pharmaceuticals 4,266 1 4,566 - 4,566 Consumer Healthcare 798 4 809 - 809 --- --- --- --- TURNOVER 5,064 2 5,375 - 5,375 Cost of sales (1,031) 9 (990) (75) (1,065) --- --- --- --- Gross profit 4,033 - 4,385 (75) 4,310 Selling, general and administration (1,641) (3) (1,856) (5) (1,861) Research and development (680) 11 (644) (10) (654) --- --- --- --- Trading profit: Pharmaceuticals 1,557 (2) 1,734 (83) 1,651 Consumer Healthcare 155 10 151 (7) 144 --- --- --- --- TRADING PROFIT 1,712 (1) 1,885 (90) 1,795 Other operating income/(expense) (102) 87 - 87 --- --- --- --- Operating profit 1,610 (12) 1,972 (90) 1,882 Profit on disposal of interests in associates 41 - - - Business disposals - - 3 3 Profits of associates 28 28 - 28 --- --- --- --- Profit before interest 1,679 2,000 (87) 1,913 Net interest payable (48) (37) - (37) --- --- --- --- PROFIT BEFORE TAXATION 1,631 (10) 1,963 (87) 1,876 Taxation (449) (547) 23 (524) --- --- --- --- Profit after taxation 1,182 1,416 (64) 1,352 Minority interests (25) (21) - (21) Preference share dividends - (4) - (4) --- --- --- --- EARNINGS 1,157 (10) 1,391 (64) 1,327 --- --- --- --- EARNINGS PER SHARE 20.1p (9) 23.9p 22.8p --- --- --- Diluted earnings per share 20.1p 22.7p --- --- * Growth rates are calculated comparing Q2 2004 statutory results with Q2 2003 business performance results. Results in 2003 have been restated following the implementation of UITF 17 (revised) and UITF 38 - see 'Accounting Presentation and Policies' on page 20. Appropriations of profit attributable to shareholders are set out under 'Appropriations' on page 13. PROFIT AND LOSS ACCOUNT Six months ended 30th June 2004 H1 2003 Merger, Business restructuring H1 2004 Performance and disposal of Statutory 2003 Statutory Growth* (restated) businesses (restated) (restated) £m CER% £m £m £m £m --- --- --- --- --- --- Turnover: Pharmaceuticals 8,446 1 9,032 - 9,032 18,181 Consumer Healthcare 1,561 5 1,565 - 1,565 3,260 --- --- --- --- --- TURNOVER 10,007 2 10,597 - 10,597 21,441 Cost of sales (2,055) 6 (2,009) (166) (2,175) (4,544) --- --- --- --- --- Gross profit 7,952 1 8,588 (166) 8,422 16,897 Selling, general and (3,367) - (3,633) (15) (3,648) (7,597) administration Research and development (1,311) 8 (1,274) (14) (1,288) (2,791) --- --- --- --- --- Trading profit: Pharmaceuticals 3,008 (2) 3,424 (182) 3,242 5,933 Consumer Healthcare 266 11 257 (13) 244 576 --- --- --- --- --- TRADING PROFIT 3,274 (1) 3,681 (195) 3,486 6,509 Other operating income/(expense) (67) 67 - 67 (133) --- --- --- --- --- Operating profit 3,207 (6) 3,748 (195) 3,553 6,376 Profit on disposal of interests in associates 41 - - - - Business disposals - - 3 3 5 Profits of associates 50 50 - 50 93 --- --- --- --- --- Profit before interest 3,298 3,798 (192) 3,606 6,474 Net interest payable (91) (72) - (72) (161) --- --- --- --- --- PROFIT BEFORE TAXATION 3,207 (5) 3,726 (192) 3,534 6,313 Taxation (882) (1,023) 51 (972) (1,729) --- --- --- --- --- Profit after taxation 2,325 2,703 (141) 2,562 4,584 Minority interests (47) (41) - (41) (94) Preference share dividends (2) (8) - (8) (12) --- --- --- --- --- EARNINGS 2,276 (5) 2,654 (141) 2,513 4,478 --- --- --- --- --- EARNINGS PER SHARE 39.5p (4) 45.5p 43.1p 77.1p --- --- --- --- Diluted earnings per share 39.5p 43.0p 76.9p --- --- --- Weighted average number of 5,756 5,827 5,827 5,806 shares (millions) --- --- --- --- * Growth rates are calculated comparing H1 2004 statutory results with H1 2003 business performance results. Results in 2003 have been restated following the implementation of UITF 17 (revised) and UITF 38 - see 'Accounting Presentation and Policies' on page 20. Appropriations of profit attributable to shareholders are set out under 'Appropriations' on page 13. PHARMACEUTICAL TURNOVER Three months ended 30th June 2004 Total USA Europe International ------------- -------------- ------------ ------------ £m CER% £m CER% £m CER% £m CER% ----- ----- ----- ----- ----- ----- ---- ----- RESPIRATORY 1,086 6 511 3 403 11 172 9 Seretide/Advair, Flixotide/Flovent, Serevent 852 12 405 9 329 16 118 14 Seretide/Advair 603 22 304 18 240 29 59 17 Flixotide/Flovent 156 (3) 65 (6) 48 (6) 43 4 Serevent 93 (9) 36 (20) 41 (12) 16 45 Flixonase/Flonase 133 (11) 100 (15) 19 5 14 3 CENTRAL NERVOUS SYSTEM 877 (17) 579 (20) 191 (7) 107 (15) Seroxat/Paxil 284 (41) 146 (52) 67 (29) 71 (13) Paxil IR 189 (54) 53 (77) 67 (29) 69 (15) Paxil CR 95 21 93 20 - - 2 >100 Wellbutrin 193 (7) 191 (5) - - 2 (78) Wellbutrin IR, SR 76 (64) 75 (63) - - 1 (86) Wellbutrin XL 117 - 116 - - - 1 - Imigran/Imitrex 158 (9) 109 (11) 36 2 13 (16) Lamictal 171 38 104 55 56 17 11 10 Requip 29 29 13 25 14 32 2 39 ANTI-VIRALS 595 6 296 12 183 (3) 116 5 HIV 368 2 191 6 141 (1) 36 (4) Combivir 141 - 69 3 56 1 16 (13) Trizivir 87 (7) 49 (6) 34 (10) 4 5 Epivir 77 11 39 17 29 8 9 1 Ziagen 37 (2) 18 (4) 15 (4) 4 13 Agenerase, Lexiva 15 >100 12 >100 3 (9) - - Herpes 182 10 97 25 35 (12) 50 4 Valtrex 145 19 95 28 23 (4) 27 15 Zovirax 37 (15) 2 (45) 12 (23) 23 (7) Zeffix 33 14 2 4 5 38 26 10 ANTI-BACTERIALS 386 (1) 89 (13) 169 3 128 3 Augmentin 178 6 53 (2) 75 5 50 19 Augmentin IR 134 11 11 67 74 2 49 17 Augmentin ES, XR 44 (6) 42 (11) 1 - 1 >100 Zinnat/Ceftin 52 1 2 (44) 31 14 19 (8) METABOLIC 339 52 233 56 31 26 75 53 Avandia, Avandamet 307 59 233 56 25 47 49 90 VACCINES 278 4 67 2 116 (5) 95 19 Hepatitis 105 6 35 16 51 (3) 19 16 Infanrix, Pediarix 86 (9) 32 (9) 38 (4) 16 (16) ONCOLOGY AND EMESIS 237 (5) 172 (7) 44 7 21 (2) Zofran 192 2 141 1 34 7 17 2 Hycamtin 25 (5) 16 (10) 7 11 2 (15) CARDIOVASCULAR AND UROGENITAL 220 35 141 44 53 29 26 9 Coreg 113 50 112 55 - - 1 (47) Levitra 9 >100 1 - 5 >100 3 >100 Avodart 14 >100 7 >100 6 >100 1 >100 OTHER 248 (14) 24 (5) 73 (16) 151 (15) Zantac 70 (15) 20 - 18 (18) 32 (21) ------------- -------------- ------------- ------------- 4,266 1 2,112 - 1,263 2 891 3 ------------- -------------- ------------- ------------- Pharmaceutical turnover includes co-promotion income. PHARMACEUTICAL TURNOVER Six months ended 30th June 2004 Total USA Europe International ------------- -------------- ------------ ------------ £m CER% £m CER% £m CER% £m CER% ----- ----- ----- ----- ----- ----- ---- ----- RESPIRATORY 2,172 7 1,059 6 777 8 336 4 Seretide/Advair, Flixotide/Flovent, Serevent 1,676 10 821 8 630 13 225 14 Seretide/Advair 1,184 22 621 21 451 24 112 17 Flixotide/Flovent 310 (6) 128 (12) 96 (6) 86 5 Serevent 182 (15) 72 (29) 83 (10) 27 31 Flixonase/Flonase 290 (1) 226 2 33 7 31 (24) CENTRAL NERVOUS SYSTEM 1,791 (13) 1,191 (16) 384 (6) 216 (5) Seroxat/Paxil 575 (39) 294 (50) 138 (28) 143 (3) Paxil IR 379 (53) 101 (77) 138 (28) 140 (4) Paxil CR 196 29 193 28 - - 3 >100 Wellbutrin 414 5 408 6 - - 6 (56) Wellbutrin IR, SR 209 (47) 204 (47) - - 5 (64) Wellbutrin XL 205 - 204 - - - 1 - Imigran/Imitrex 330 (3) 235 (4) 71 4 24 (9) Lamictal 324 33 195 47 107 16 22 11 Requip 55 27 25 23 27 30 3 37 ANTI-VIRALS 1,157 6 567 9 366 2 224 5 HIV 716 1 363 (1) 281 3 72 4 Combivir 280 2 137 - 112 6 31 (4) Trizivir 168 (7) 92 (11) 68 (4) 8 24 Epivir 148 8 72 5 58 12 18 7 Ziagen 75 (5) 36 (9) 30 (3) 9 13 Agenerase, Lexiva 24 54 18 88 5 (4) 1 15 Herpes 356 16 186 33 72 (7) 98 8 Valtrex 278 25 181 33 45 3 52 20 Zovirax 78 (7) 5 64 27 (20) 46 (3) Zeffix 63 9 5 18 10 32 48 4 ANTI-BACTERIALS 812 (3) 200 (10) 363 (2) 249 4 Augmentin 382 3 131 4 157 (5) 94 15 Augmentin IR 273 4 26 47 155 (6) 92 12 Augmentin ES, XR 109 - 105 (3) 2 >100 2 >100 Zinnat/Ceftin 115 1 6 (48) 72 12 37 - METABOLIC 609 33 418 32 62 26 129 42 Avandia, Avandamet 545 38 418 32 47 61 80 69 VACCINES 518 (1) 122 (6) 217 (6) 179 10 Hepatitis 195 (3) 66 (7) 93 (4) 36 10 Infanrix, Pediarix 162 (2) 56 (5) 73 3 33 (9) ONCOLOGY AND EMESIS 459 (3) 332 (5) 86 8 41 (6) Zofran 372 6 273 6 66 7 33 - Hycamtin 49 (2) 32 (3) 14 12 3 (37) CARDIOVASCULAR AND UROGENITAL 420 31 270 39 102 22 48 12 Coreg 207 39 203 42 - - 4 (33) Levitra 26 >100 12 - 10 >100 4 >100 Avodart 24 >100 13 >100 10 >100 1 >100 OTHER 508 (10) 46 (10) 152 (15) 310 (8) Zantac 138 (15) 37 (9) 38 (20) 63 (15) ------------- -------------- ------------- ------------- 8,446 1 4,205 - 2,509 1 1,732 3 ------------- -------------- ------------- ------------- Pharmaceutical turnover includes co-promotion income. CONSUMER HEALTHCARE TURNOVER Three months ended 30th June 2004 Growth £m CER% --------- --------- Over-the-counter medicines 357 2 Analgesics 89 12 Dermatological 53 (13) Gastrointestinal 63 (1) Respiratory tract 26 (5) Smoking control 78 14 Natural wellness support 37 (3) Oral care 267 4 Nutritional healthcare 174 10 --------- --------- Total 798 4 --------- --------- CONSUMER HEALTHCARE TURNOVER Six months ended 30th June 2004 Growth £m CER% --------- --------- Over-the-counter medicines 710 2 Analgesics 174 12 Dermatological 98 (15) Gastrointestinal 126 (2) Respiratory tract 61 (3) Smoking control 155 15 Natural wellness support 75 (1) Oral care 527 5 Nutritional healthcare 324 12 --------- --------- Total 1,561 5 --------- --------- FINANCIAL REVIEW - PROFIT AND LOSS ACCOUNT Trading profit Q2 2003 ------------------ Business Q2 2004 performance Statutory % of (restated) % of Growth £m turnover £m turnover CER% £% ------ ------ ------ ------ ------ ---- Turnover 5,064 100.0 5,375 100.0 2 (6) Cost of sales (1,031) (20.4) (990) (18.4) 9 4 Selling, general and administration (1,641) (32.4) (1,856) (34.5) (3) (12) Research and development (680) (13.4) (644) (12.0) 11 6 ------ ------ ------ ------ ------ ---- Trading profit 1,712 33.8 1,885 35.1 (1) (9) ------ ------ ------ ------ ------ ---- Overall the trading margin declined 1.3 percentage points and sterling trading profit declined 9% on a sterling turnover decline of 6%. At constant exchange rates trading profit declined 1% and the margin declined 0.9 percentage points principally reflecting a 9% increase in cost of sales and an 11% increase in research and development (R&D) expenditure, while turnover grew 2%. Cost of sales increased as a percentage of turnover by 2 percentage points. At constant exchange rates the increase was 1.4 percentage points reflecting the loss of higher margin Paxil IR and Wellbutrin SR sales, partly offset by savings on manufacturing costs. Selling, general and administration (SG&A) as a percentage of turnover declined 2.1 percentage points. At constant exchange rates the decline was 1.6 percentage points. SG&A costs declined 3% (12% in sterling terms) reflecting cost savings initiatives to reduce general and administration expenses. R&D expenditure increased 11% (6% in sterling terms) reflecting increased clinical trial activity. Pharmaceuticals R&D expenditure represented 15.4% of pharmaceutical turnover in the year. Other operating income/(expense) 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. Other operating expense was £102 million compared with £87 million income in Q2 2003. The charge in 2004 reflects higher provisions to settle US anti-trust cases involving the antibiotic product Augmentin and other legal matters, partly offset by the sale of equity investments and other income. A sale of shares in Quest Diagnostics, Inc. resulted in a further £41 million of profit reported under profit on disposal of interests in associates, that partly offset the other operating expense of £102 million in the quarter. Taxation The charge for taxation on profit amounting to £449 million represents an effective tax rate of 27.5%, which is the expected rate for the year. Transfer pricing issues are described in the 'Taxation' note to the Financial Statements included in the Annual Report 2003. Developments since the date of that report are as follows. With respect to the claims of the Internal Revenue Service (IRS) for the years 1989-1996, which are described in the note, the company contested these claims for additional taxes of $2.7 billion (£1.5 billion) and related interest of $2.5 billion (£1.4 billion) net of federal tax relief by filing a petition in the US Tax Court on 2nd April 2004. A trial is not expected until 2005-2006. Similar tax issues remain open for 1997 to date. GSK continues to believe that the profits reported by its US subsidiaries for the period 1989 to date, on which it has paid taxes in the United States, are more than sufficient to reflect the activities of its US operations. As stated in previous updates, there continues to be a wide difference of views between the company and 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. The ultimate liability for such matters may vary significantly from the amounts provided and is dependent upon the outcome of litigation proceedings and negotiations with the relevant tax authorities. Earnings Q2 2003 2003 Q2 2004 (restated) (restated) £m £m £m Net profit attributable to shareholders ---- ---- ---- Earnings 1,157 1,327 4,478 Adjustment for merger items, integration and restructuring costs and disposal of businesses - 64 281 ---- ---- ---- Adjusted earnings 1,157 1,391 4,759 ---- ---- ---- pence pence pence Earnings per share ---- ---- ---- Basic earnings per share 20.1 22.8 77.1 Adjustment for merger items, integration and restructuring costs and disposal of businesses - 1.1 4.9 ---- ---- ---- Adjusted earnings per share 20.1 23.9 82.0 ---- ---- ---- Appropriations Q2 2003 2003 Q2 2004 (restated) £m £m (restated) £m ---- ---- ---- Net profit attributable to shareholders 1,157 1,327 4,478 Dividends (573) (522) (2,374) ---- ---- ---- Retained profit 584 805 2,104 ---- ---- ---- Pence per 2004 Pence per 2003 share share £m £m Dividends ---- ---- ---- ---- First interim - paid 1st July 2004 10 575 9 524 Second interim - payable 30th September 2004 10 573 9 522 Third interim 9 520 Fourth interim 14 808 ---- ---- 41 2,374 ---- ---- The number of shares in issue, excluding those held by the ESOP Trusts and those held as Treasury shares, at 30th June 2004 was 5,732 million (30th June 2003: 5,802 million). STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES H1 2003 2003 H1 2004 (restated) (restated) £m £m £m ---- ---- ---- PROFIT ATTRIBUTABLE TO SHAREHOLDERS 2,276 2,513 4,478 Exchange movements on overseas net assets (218) 204 113 Tax on exchange movements and unrealised gains (46) (6) (92) Unrealised gains on equity investments - 3 7 ---- ---- ---- TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE PERIOD 2,012 2,714 4,506 ---- ---- Prior period adjustment - implementation of UITF 17 (revised) and UITF 38 368 ---- TOTAL RECOGNISED GAINS AND LOSSES SINCE 31st DECEMBER 2003 2,380 ---- SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT Three months ended 30th June 2004 Q2 2003 Q2 2004 (restated) £m £m ---- ---- OPERATING PROFIT 1,610 1,882 Depreciation and other non-cash items 234 200 Increase in working capital (37) (209) Decrease in net liabilities (24) (179) ---- ---- NET CASH INFLOW FROM OPERATING ACTIVITIES 1,783 1,694 Dividends received from associates 2 - Returns on investment and servicing of finance (50) (50) Taxation paid (454) (627) ---- ---- 1,281 1,017 ---- ---- Purchase of tangible fixed assets (197) (186) Sale of tangible fixed assets 12 17 Purchase of intangible fixed assets (40) (19) ---- ---- (225) (188) Purchase of equity investments (67) (6) Sale of equity investments 34 44 ---- ---- Capital expenditure and financial investment (258) (150) ---- ---- Purchase of businesses - (9) Disposal of interests in associates 56 - Business disposals - 3 Investment in joint ventures and associates (2) (1) ---- ---- Acquisitions and disposals 54 (7) ---- ---- Equity dividends paid (807) (760) ---- ---- NET CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 270 100 Issue of ordinary share capital 6 11 Proceeds from own shares for employee share options 8 11 Purchase of shares for cancellation (23) (286) Purchase of Treasury shares (195) - Redemption of preference shares issued by a subsidiary (49) - Other financing cash flows (58) 81 Exchange movements 23 (28) Other non-cash movements (2) - ---- ---- INCREASE IN NET DEBT IN PERIOD (20) (111) NET DEBT AT BEGINNING OF PERIOD (2,003) (2,051) ---- ---- NET DEBT AT END OF PERIOD (2,023) (2,162) ---- ---- SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT Six months ended 30th June 2004 H1 2003 2003 H1 2004 (restated) (restated) £m £m £m ---- ---- ---- OPERATING PROFIT 3,207 3,553 6,376 Depreciation and other non-cash items 448 405 1,066 Increase in working capital (84) (348) (387) Decrease in net liabilities (456) (253) (50) ---- ---- ---- NET CASH INFLOW FROM OPERATING ACTIVITIES 3,115 3,357 7,005 Dividends received from associates 4 - 1 Returns on investment and servicing of finance (139) (149) (231) Taxation paid (725) (1,117) (1,917) ---- ---- ---- 2,255 2,091 4,858 ---- ---- ---- Purchase of tangible fixed assets (327) (339) (869) Sale of tangible fixed assets 14 31 46 Purchase of intangible fixed assets (56) (56) (193) ---- ---- ---- (369) (364) (1,016) Purchase of equity investments (71) (15) (63) Sale of equity investments 37 86 125 ---- ---- ---- Capital expenditure and financial investment (403) (293) (954) ---- ---- ---- Purchase of businesses - (9) (12) Disposal of interests in associates 56 - - Business disposals - 3 3 Investment in joint ventures and associates (2) (1) (3) ---- ---- ---- Acquisitions and disposals 54 (7) (12) ---- ---- ---- Equity dividends paid (1,327) (1,287) (2,333) ---- ---- ---- NET CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 579 504 1,559 Issue of ordinary share capital 16 18 41 Proceeds from own shares for employee share options 12 12 26 Purchase of shares for cancellation (201) (527) (980) Purchase of Treasury shares (285) - - Redemption of preference shares issued by a subsidiary (489) - - Other financing cash flows (25) 144 82 Exchange movements 21 22 (37) Other non-cash movements (3) - (4) ---- ---- ---- (INCREASE)/DECREASE IN NET DEBT IN PERIOD (375) 173 687 NET DEBT AT BEGINNING OF PERIOD (1,648) (2,335) (2,335) ---- ---- ---- NET DEBT AT END OF PERIOD (2,023) (2,162) (1,648) ---- ---- ---- BALANCE SHEET 30th June 31st December 30th June 2003 2003 2004 (restated) (restated) £m £m £m ---- ---- ---- Goodwill 135 153 143 Intangible fixed assets 1,662 1,686 1,697 Tangible fixed assets 6,350 6,594 6,441 Investments 292 314 294 ---- ---- ---- FIXED ASSETS 8,439 8,747 8,575 ---- ---- ---- Equity investments 225 164 164 Stocks 2,133 2,222 2,109 Debtors 6,899 6,717 6,897 Liquid investments 2,946 1,434 2,493 Cash at bank 1,035 1,611 962 ---- ---- ---- CURRENT ASSETS 13,238 12,148 12,625 ---- ---- ---- Loans and overdrafts (1,096) (1,372) (1,452) Other creditors (6,900) (6,582) (7,019) ---- ---- ---- CREDITORS: amounts due within one year (7,996) (7,954) (8,471) ---- ---- ---- NET CURRENT ASSETS 5,242 4,194 4,154 ---- ---- ---- TOTAL ASSETS LESS CURRENT LIABILITIES 13,681 12,941 12,729 ---- ---- ---- Loans (4,908) (3,835) (3,651) Other creditors (265) (217) (232) ---- ---- ---- CREDITORS: amounts due after one year (5,173) (4,052) (3,883) ---- ---- ---- PROVISIONS FOR LIABILITIES AND CHARGES (2,808) (3,111) (3,042) ---- ---- ---- NET ASSETS 5,700 5,778 5,804 ---- ---- ---- Called up share capital 1,483 1,495 1,487 Share premium account 279 241 264 Other reserves (727) (866) (804) Profit and loss account 4,441 4,149 4,112 ---- ---- ---- EQUITY SHAREHOLDERS' FUNDS 5,476 5,019 5,059 Non-equity minority interest - 545 503 Equity minority interests 224 214 242 ---- ---- ---- CAPITAL EMPLOYED 5,700 5,778 5,804 ---- ---- ---- RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS H1 2003 2003 H1 2004 (restated) (restated) £m £m £m ---- ---- ---- Equity shareholders' funds as previously reported 7,720 6,581 6,581 Prior period adjustment - implementation of UITF 17 (revised) and UITF 38 (2,661) (2,741) (2,741) ---- ---- ---- Equity shareholders' funds at beginning of period as restated 5,059 3,840 3,840 Total recognised gains and losses for the period 2,012 2,714 4,506 Dividends (1,148) (1,046) (2,374) Ordinary shares issued 16 18 41 Ordinary shares purchased and cancelled (201) (537) (980) Ordinary shares purchased and held as Treasury shares (299) - - Proceeds from own shares for employee share options 12 12 26 Credit in respect of employee share schemes 10 16 7 Goodwill written back 5 - - Exchange movements on goodwill written off to reserves 10 2 (7) ---- ---- ---- Equity shareholders' funds 5,476 5,019 5,059 ---- ---- ---- FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET Cash flow Operating cash flow was £1,783 million in Q2 2004. This represents an increase of £89 million over Q2 2003 as improvements in working capital offset lower operating profits. 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 £1,458 million. Receipts of £14 million arose from the exercise of share options: £8 million from shares held by the Employee Share Ownership Plan (ESOP) Trusts and £6 million from the issue of new shares. In addition, £23 million was spent on purchasing the company's own shares for cancellation and £195 million on purchasing Treasury shares. The final tranche of preference shares issued by a subsidiary were redeemed in the quarter at a cost of £49 million. Net assets The book value of net assets decreased by £104 million from £5,804 million at 31st December 2003 to £5,700 million at 30th June 2004, as part of the proceeds from the US dollar global bond issue have been used to redeem the preference shares issued by a subsidiary. Fixed asset investments comprise investments in associates, joint ventures and long-term equity investments. The carrying value of associates and equity investments was £517 million and the market value was £1,387 million. Following the implementation of UITF 38 investments in own shares held by the ESOP Trusts are now shown as a deduction from equity shareholders' funds. Equity shareholders' funds Equity shareholders' funds have been restated at 31st December 2003 to £5,059 million. At 30th June 2004 these had increased to £5,476 million. The increase arises from retained earnings partially offset by shares purchased and cancelled, Treasury shares purchased and exchange movements on overseas net assets. At 30th June 2004 the ESOP Trusts held 175.2 million GSK ordinary shares, at a book value of £2,657 million and a market value of £1,955 million, against the future exercise of share options and share awards, which have been deducted from other reserves. At 30th June 2004 GSK also held 26.4 million shares as Treasury shares, at a cost of £299 million, which has been deducted from profit and loss account reserves. Legal matters The Group is involved in various legal and administrative proceedings, principally product liability, intellectual property, tax, anti-trust, and governmental investigations and related private litigation. The Group makes provision for those proceedings on a regular basis as described below. The Group may make additional significant provisions for such legal proceedings, as required in the event of further developments in those matters, consistent with generally accepted accounting principles. Litigation, particularly in the USA, is inherently unpredictable and excessive awards that may not be justified by the evidence can occur. The Group could in the future incur judgments or enter into settlements of claims that could result in payments that exceed its current provisions by an amount that would have a material adverse effect on the Group's financial condition and results of operations. Intellectual property claims include challenges to the validity of the Group's patents on various products or processes, and/or infringement of those patents. A loss in any of these cases could result in loss of patent protection for the product at issue. The consequence of any such loss could be a significant decrease in sales of that product and could materially affect future results of operations for the Group. Legal expenses incurred, relating to the defence of the Group's intellectual property, and litigation costs and provisions related 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, antitrust matters and selling, marketing and pricing 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. At 30th June 2004 the Group's aggregate provision for legal and other disputes (not including tax matters described under 'Taxation' on page 12) was £1.0 billion. 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 since the date of the Annual Report as previously updated by the legal proceedings note to the results announcement for the first quarter of 2004 are set out below. The Group will apply to the US Patent and Trademark Office (USPTO) for re-issue of its combination patent for Advair, an inhaled combination of salmeterol and fluticasone propionate, which expires in September 2010. This follows an internal review which concluded that the language in the patent may not accurately describe all of the circumstances of the invention and may not claim the invention as precisely as it could. The objective of seeking re-issuance is to strengthen the protection afforded by the patent. It is expected that the application for re-issue will be filed within several weeks and that the administrative process with the USPTO will take one to two years. While the application for re-issue is pending, the patent remains effective and is listed in the Orange Book. The Group holds other patents relating to Advair which are not affected by the re-issue application, including the compound patent related to the active ingredient salmeterol which affords protection through August 2008 (after giving effect to an expected grant of paediatric exclusivity by the FDA), various patents relating to the Diskus device which expire over a period from 2011 to 2016 and patents relating to the HFA formulation and related technology which expire over a period from 2015 to 2021. With respect to anti-trust litigation regarding Augmentin, in July 2004 the Group reached settlements with classes of direct and indirect purchasers pursuant to which the Group has agreed to pay $92 million. Those settlements are subject to approval of the US District Court for the Eastern District of Virginia. The Group made provisions for the settlements in the second quarter of 2004. Litigation remains outstanding with Lek Pharmaceuticals and a trial date has provisionally been set for March 2005. With respect to the private litigation based on average wholesale price-based pricing by the Group and other drug companies, the Group is one of five companies designated for 'fast track' discovery in the multidistrict litigation proceeding in the US District Court for the District of Massachusetts. The Group continues to provide documents and data to the US Department of Justice and the US Attorney's Office in Boston in connection with their on-going investigation relating to Medicare/Medicaid payments. In June, 2004 the Attorney General of the State of New York filed a civil lawsuit against the Group alleging that conduct related to the Group's dissemination of data on clinical trials for use of Paxil/Seroxat in depression in children and adolescents constituted fraud and illegal business acts under New York statutory law. The action seeks injunctive relief to prevent promotion of Paxil without disclosure of all clinical trial data, disgorgement of all profits the Group has derived from the sale of Paxil in New York to children or adolescents with major depressive disorder, restitution to consumers and recovery of the state's cost of litigation. The Group has removed the case from state court to the US District Court for the Southern District of New York. As of the date of this report, no trial date has been set. Following announcement of the New York lawsuit, similar lawsuits were filed by private plaintiffs in state and federal courts in California. In the UK an investigation remains pending by the UK Medicines and Healthcare products Regulatory Agency ('MHRA') to determine whether the Group has complied with its pharmacovigilance obligations in reporting of data from clinical trials for Seroxat/Paxil in children and adolescents. 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: H1 2004 H1 2003 2003 Average rates: ---- ---- ---- £/US$ 1.82 1.61 1.64 £/Euro 1.48 1.46 1.45 £/Yen 196.00 192.00 191.00 Period end rates: £/US$ 1.81 1.65 1.79 £/Euro 1.49 1.44 1.42 £/Yen 198.00 198.00 192.00 During H1 2004 average sterling exchange rates were stronger against the US dollar, the Yen and the Euro compared with the same period in 2003. Comparing H1 2004 period end rates with H1 2003 period end rates, sterling was stronger against the US dollar and the Euro and unchanged against the Yen. ACCOUNTING PRESENTATION AND POLICIES This unaudited Results Announcement for the period ended 30th June 2004 is prepared in accordance with the accounting policies expected to apply in 2004. These are unchanged from those set out in the Annual Report 2003, except that during 2004 UITF Abstract 38 'Accounting for ESOP trusts' and related amendments to Abstract 17 'Employee share schemes' have been implemented. UITF 38 changes the presentation of an entity's own shares held in an ESOP trust from requiring them to be recognised as assets to requiring them to be deducted in arriving at shareholders' funds. UITF 17 (revised) requires that the minimum expense should be the difference between the fair value of the shares at the date of award and the amount that an employee may be required to pay for the shares (i.e. the intrinsic value of the award). Data for market share and market growth rates relate to the year ended 31st March 2004 (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. During the years 2000 to 2003, business performance was the primary performance measure used by management and was presented after excluding merger items, integration and restructuring costs and disposals of businesses, as management believed that exclusion of these items provided a better comparison of business performance for the periods presented. For 2004, with the completion of these programmes, the Group is reporting results on a statutory basis only. Growth rates are presented comparing 2004 results both with 2003 business performance results and 2003 statutory results. Management considers that the comparison of 2004 statutory results with 2003 business performance results gives the most appropriate indication of the Group's performance for the period under review and therefore commentaries are presented on this basis unless otherwise stated. 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 presented in terms of CER unless otherwise stated. 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 2003 have been derived from the full Group accounts for that period, after adjusting for the implementation of UITF 17 (revised) and UITF 38, 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 Q2 2004 Results This Announcement was approved by the Board of Directors on Tuesday 27th July 2004. Financial calendar The company will announce third quarter 2004 results on 28th October 2004. The third interim dividend for 2004 will have an ex-dividend date of 3rd November 2004 and a record date of 5th November 2004 and will be paid on 6th January 2005. 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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