1st Quarter Results
GlaxoSmithKline PLC
23 April 2008
Issued: Wednesday, 23rd April 2008, London, U.K.
Results Announcement for the first quarter 2008
GSK reports Q1 Business Performance* EPS of 25.6p
GlaxoSmithKline plc (GSK) today announces its unaudited results for the first
quarter ended 31st March 2008. The full results are presented under 'Income
Statement' on page 7 and are summarised below.
BUSINESS PERFORMANCE RESULTS*
Q1 2008 Q1 2007 Growth
£m £m CER% £%
Turnover 5,686 5,592 (3) 2
Operating profit 2,048 2,166 (9) (5)
Earnings per share 25.6p 27.0p (9) (5)
STATUTORY RESULTS*
Q1 2008 Q1 2007 Growth
£m £m CER% £%
Turnover 5,686 5,592 (3) 2
Restructuring charges 85 - - -
Operating profit 1,963 2,166 (13) (9)
Earnings per share 24.4p 27.0p (14) (10)
BUSINESS PERFORMANCE SUMMARY*
• GSK on track to meet financial guidance for 2008
• Pharmaceutical turnover down 4% to £4.8 billion, with growth from key
products offset by generic competition to products in the USA and declines
in Avandia sales
• Seretide/Advair sales up 10% to £954 million; Vaccine sales up 10% to £436
million
• Sustained product flow with US regulatory approvals for Rotarix and
Treximet, and positive EU opinions for Volibris and Prepandrix
• GSK has 157 projects in clinical development of which 75% involve new
molecules or new vaccines
• Continued strong performance of Consumer Healthcare with sales up 8% to
£893 million
• Q1 dividend of 13p, up 8%; approximately £1 billion of shares repurchased
in the quarter; total cash return of £1.7 billion
• Sterling EPS benefited by 4 percentage points due to currency movements
* Business performance, which is a supplemental non-IFRS measure, is the
primary performance measure used by management and is presented after
excluding restructuring charges relating to the new Operational Excellence
programme, which commenced in October 2007, and significant acquisitions.
Management believes that exclusion of these items provides a better
reflection of the way in which the business is managed and gives a more
useful indication of the underlying performance of the Group.
In order to illustrate underlying performance, it is the Group's practice
to discuss its results in terms of constant exchange rate (CER) growth. All
commentaries are presented in terms of CER growth and compare 2008 business
performance results with 2007 statutory results, unless otherwise stated.
See 'Accounting Presentation and Policies' on page 17.
Commenting on GSK's performance for the quarter, JP Garnier, Chief Executive
Officer, said:
"Our performance this quarter was in line with our expectations. We continue to
see sustained growth from key areas of our business such as Seretide/Advair,
vaccines and consumer. However, sales were impacted by generic competition and
declines in Avandia sales.
We are also making good progress in strengthening our product portfolio, with
approvals and regulatory progress on 4 key products already this year. These
products are at the forefront of a substantive pipeline of projects in clinical
development - with 96 NCEs and 24 new vaccines this pipeline is testament to
GSK's innovation and gives the company a very strong foundation for the future."
PHARMACEUTICAL UPDATE
Total pharmaceutical turnover for the first quarter declined 4% to £4.8
billion, with growth from key products offset by significant generic
competition to products in the USA and declines in Avandia sales in all
regions. In the United States, turnover was £2,138 million, down 10%, in
Europe turnover was £1,526 million, down 1%, and in International markets
sales were £1,129 million, up 6%.
Seretide/Advair sales up 10% with strong performance in all regions
Sales of Seretide/Advair, for asthma and COPD, rose 10% to £954 million,
with sales in the USA also growing 10% to £499 million. In Europe, sales
grew 9% to £351 million and in International sales grew by 16% to £104
million.
GSK continues to see increased use of Seretide/Advair in the treatment of
COPD and is in ongoing discussions with the FDA to further expand the
indication for use in this patient group. GSK expects a decision from the
FDA during the second quarter.
Vaccine sales of £436 million up 10% driven by strong US performance
US vaccine sales grew 34% for the quarter to £109 million, driven by
continued strong performances of hepatitis vaccines, up 66% to £53 million,
and Infanrix/Pediarix, up 21% to £51 million. In Europe, sales of vaccines
were up 5% to £202 million. In International markets sales rose 2% to £125
million, adversely impacted in part by the timing of shipments. GSK expects
stronger growth in this region in the rest of this year.
GSK expects to submit a response to the FDA's Complete Response letter
regarding Cervarix in the second quarter and will continue discussions with
the agency regarding the application. Cervarix has now been approved in
more than 60 countries with discussions regarding reimbursement and tender
orders on-going. Sales for Cervarix in the quarter were £12 million.
In April, GSK received FDA approval for Rotarix, a new two-dose vaccine to
prevent rotavirus gastroenteritis, with launch expected in the second half
of the year. Sales of Rotarix in markets outside of the USA grew 79% to £27
million.
In February, GSK received a positive opinion from the EMEA regarding
Prepandrix, its pre-pandemic flu vaccine. Prepandrix will be the first
vaccine approved for pre-pandemic use in Europe. In March a supply contract
was signed by the Finnish Government for 5.2 million doses of Prepandrix
for use in advance of a pandemic flu outbreak. Shipments will commence in
the second half of 2008.
New growth drivers
Arixtra, for deep vein thrombosis and pulmonary embolism, delivered strong
growth with sales up 70% to £35 million. Sales grew in Europe (up 33% to
£14 million) following approval last year for the treatment of specific
acute coronary syndromes (ACS). In the USA, GSK is in on-going discussions
with the FDA regarding a potential ACS indication.
Avodart, for benign prostatic hyperplasia (enlarged prostate), continued to
perform strongly with sales up 30% to £85 million for the quarter. GSK has
filed for a co-prescription indication in the USA, Europe and International
markets for use of Avodart in combination with the alpha-blocker,
tamsulosin. In April, GSK received its first regulatory approval for this
indication in Europe under the mutual recognition procedure. GSK expects a
response from the FDA in June for this application.
GSK's co-promotion income for Boniva/Bonviva, the only once-monthly oral
medicine for post-menopausal osteoporosis, was up 50% to £49 million.
Sales of GSK's newly acquired Lovaza, an omega-3-acid product for adult
patients with very high levels of triglycerides, contributed £50 million
(+72% on a proforma basis).
Tykerb/Tyverb, for breast cancer, achieved sales of £19 million for the
quarter. An extensive development programme involving 10 phase III clinical
trials is ongoing, including metastatic, first line and adjuvant breast
cancer. Last week new data were presented at the European Breast Cancer
Conference in Berlin which demonstrated the efficacy of Tykerb in shrinking
tumours prior to surgery and reducing the number of chemotherapy-resistant
cancer stem cells responsible for tumour regeneration. Enrolment was
completed for TEACH in the quarter - a phase III study investigating
whether adjuvant treatment with Tykerb will improve survival in early
breast cancer by preventing the disease from recurring.
Veramyst/Avamys, for allergic rhinitis, generated sales of £13 million
across the USA and Europe for the quarter.
Other key pharmaceutical products
Sales of Avandia products, for the treatment of type 2 diabetes, fell 56%
to £191 million. Sales in the USA for the quarter were £99 million, down
66%, with Avandia's share of total prescriptions in the US oral
anti-diabetic market currently stable at around 4%. In Europe sales were
£54 million, down 14%, and in International markets £38 million, down 44%.
Sales of Coreg products, for heart disease, fell 77% to £48 million,
following the introduction of generic competition to Coreg IR in September
2007. Sales of Coreg CR were £35 million with increasing share gains made
in the US hypertension market.
Total sales of HIV products were £358 million, down 5%. Competition to
older products, Combivir (-13% to £105 million) and Epivir (-22% to £34
million), was partially offset by strong sales growth of Epzicom/Kivexa
(+25% to £99 million).
Sales of Lamictal, for the treatment of epilepsy and bipolar disorder, were
£290 million driven by strong performance in the USA with sales up 22% to
£240 million.
Sales of Relenza, an antiviral treatment for flu, were £29 million (£92
million in Q1 2007), reflecting the variable timing of tender orders from
governments stockpiling against a possible flu pandemic.
Sales of Requip, for Parkinson's Disease/Restless Legs Syndrome, grew 15%
to £94 million for the quarter. Requip XL, a new once-daily formulation for
Parkinson's Disease, has now been launched in 12 European markets. In the
USA, GSK expects a response from the FDA on its application for Requip XL
during the second quarter of 2008.
Sales of Valtrex, for herpes, rose 9% to £249 million, with US sales up 7%
to £173 million, driven by increased use of the product for prevention of
herpes transmission. Sales in Europe grew 18% to £37 million and in
International sales grew 9% to £39 million.
Product sales affected by generic competition were Wellbutrin (-3% to £126
million), Flixonase/Flonase (-33% to £46 million) and Zofran (-69% to £29
million).
CONSUMER HEALTHCARE UPDATE
Consumer Healthcare sales grew 8% to £893 million, driven by innovation and
geographic expansion
In Europe, sales grew 7% to £413 million with strong performances in
Central and Eastern Europe. In International, sales grew 18% to £285
million with strong performances from key markets, Latin America, India and
the Middle East.
Sales in North America declined 2% to £195 million due to strong
competition to smoking cessation products from prescription medicines and
retailers' own-label nicotine replacement products. Excluding the smoking
cessation brands, North American consumer healthcare sales grew 6% to £157
million.
Over-the-counter medicine sales grew 4% to £411 million. Following its
successful launch in June 2007, alli contributed sales of £9 million which
were impacted by normalisation of inventory levels after a year-end
promotion. Demand for alli continues to be strong and, based on retail
market data, underlying demand is estimated to have been £35 million during
the quarter. Panadol sales grew 19% to £80 million. Sales of Breathe Right,
recently acquired from CNS, grew 14% to £17 million. The product will be
launched in European, Asian and Latin American markets this year.
Oral healthcare sales were up 8% to £289 million for the quarter. Sales of
Sensodyne grew 19% to £86 million, aided by the successful launch of
Sensodyne Pronamel. Sales of Aquafresh grew 7% to £83 million, and sales of
the denture care brands, Poligrip, Corega and Polident, grew 4% to £60
million.
Nutritional healthcare sales for the quarter increased by 14% to £193
million. Lucozade continued its excellent performance, up 18% to £86
million. Horlicks sales grew 18% to £56 million, whilst sales of Ribena
declined 5% to £37 million.
PHARMACEUTICAL PIPELINE UPDATE
In February, the company published an update of its R&D pipeline. GSK
currently has 157 projects in clinical development comprising 96 NCEs, 37
PLEs and 24 Vaccines. GSK has 34 key assets currently in phase III
development or registration.
First major market approvals and filings
In April, GSK received FDA approval for Treximet, a new acute treatment of
migraine. Treximet is the first and only migraine product designed to
target multiple mechanisms of migraine by combining a triptan, a class of
migraine-specific medicines pioneered by GSK, and an anti-inflammatory pain
reliever in a single tablet. Treximet will be launched in the USA in May.
In March, the FDA granted priority review for Promacta, an oral
thrombopoeitin receptor agonist, for the short-term treatment of patients
with chronic idiopathic thrombocytopenic purpura. The FDA's decision on
Promacta is expected in the second quarter and, if approved, would be the
first treatment of its type to be approved for this indication.
In February, the EMEA granted a positive opinion for approval of Volibris
(ambrisentan) to treat functional class II and III pulmonary arterial
hypertension.
Late-stage pipeline progress
Following analysis of the full data set for darapladib, which includes the
dose ranging study presented at the American College of Cardiology in March
and the IBIS-2 imaging study, GSK intends to progress darapladib into Phase
III development and will shortly start discussions with regulators
regarding the structure of the Phase III programme. GSK expects data from
IBIS-2 to be presented and published in the second half of the year.
In March, positive phase III data were published demonstrating that
Bosatria (mepolizumab) showed disease control with reduced corticosteroid
use in treatment of hypereosinophilic syndrome. This is a group of rare
disorders leading to significant respiratory, cardiac, skin and
gastrointestinal problems and can be life-threatening in some people with
advanced disease.
Positive results from the third pivotal phase III study for GSK1838262
(XP13512) were also received in the quarter demonstrating its efficacy as a
treatment of moderate-to-severe symptoms of primary restless legs syndrome.
GSK expects to file '262 with the FDA for approval in the third quarter of
2008.
Acquisitions
On 22nd April GSK announced an agreement to acquire Sirtris
Pharmaceuticals, a world leader in 'sirtuin' research and development.
Sirtuins are a class of enzymes that could be used to develop new medicines
to address diseases associated with metabolism and ageing such as diabetes,
muscle wasting and neurodegeneration.
Collaborations
On 17th April, GSK announced a worldwide strategic alliance with Regulus
Therapeutics to discover, develop and market novel microRNA-targeted
therapeutics, a new approach for the treatment of a wide range of diseases,
including inflammatory diseases such as rheumatoid arthritis and
inflammatory bowel disease.
FINANCIAL REVIEW
Dividend
The Board has declared a first interim dividend of 13 pence per share.
This compares with a dividend of 12 pence per share for Q1 2007. The
equivalent interim dividend receivable by ADR holders is 51.8570 cents
per ADS based on an exchange rate of £1/$1.9945. The ex-dividend date
will be 30th April 2008, with a record date of 2nd May 2008 and a
payment date of 10th July 2008.
Share buy-back programme
GSK repurchased £986 million of shares in Q1 2008 which have been
cancelled. Repurchases of £6 billion are expected in 2008.
Operational Excellence
In October 2007, GSK announced a significant new £1.5 billion
Operational Excellence programme to improve the effectiveness and
productivity of its operations. This new programme is expected to
deliver annual pre-tax savings of £700 million by 2010. GSK expects to
realise the majority of annual savings within the first two years of
the programme, with approximately £350 million expected in 2008 and
£550 million in 2009.
One-off charges of £87 million before tax relating to the new
Operational Excellence programme were recorded in Q1 2008.
Operating profit and earnings per share
Business performance operating profit of £2,048 million decreased by
9% in CER terms compared with Q1 2007. This was more than the fall in
turnover of 3%, reflecting higher R&D costs and lower other operating
income, partly offset by lower SG&A expenditure. Costs of sales
increased to 22.8% of turnover (Q1 2007: 22.1%) reflecting the impact
of generic competition to higher margin products and lower Avandia
sales, partly offset by improvements in manufacturing efficiencies.
In the quarter, gains from asset disposals and legal settlements were
£54 million (Q1 2007: £102 million), costs for legal matters were £39
million (Q1 2007: £26 million), fair value movements on financial
instruments resulted in income of £66 million (Q1 2007: £33 million)
and charges related to previous restructuring programmes were £6
million (Q1 2007: £9 million). The business performance operating
profit impact of these items was a £75 million credit in Q1 2008 (Q1
2007: £100 million credit).
GSK's share of the results of associates was a £1 million loss (Q1
2007: £15 million profit) as a result of the recognition of a legal
provision made by Quest Diagnostics Inc.
Business performance profit after taxation decreased by 13% in CER
terms, more than the decline in operating profit, reflecting higher
net interest costs (primarily driven by increased borrowing to fund
the share repurchase programme) and a higher tax rate. Business
performance EPS of 25.6 pence decreased 9% in CER terms (5% in
sterling terms) compared with Q1 2007.
Statutory operating profit for the quarter, including restructuring
costs of £85 million for the new Operational Excellence programme and
significant acquisitions, was £1,963 million and statutory EPS was
24.4 pence.
Currencies
The Q1 2008 results are based on average exchange rates, principally
£1/$1.99, £1/Euro 1.32 and £1/Yen 210. The period-end exchange rates
were £1/$1.99, £1/Euro 1.26 and £1/Yen 198. If exchange rates were to
hold at the average Q1 2008 levels for the rest of the year, the
positive currency impact on business performance EPS growth for the
full-year would be around 4 to 5 percentage points.
2008 earnings guidance
GSK continues to expect a mid-single digit percentage decline in
business performance EPS, at constant exchange rates.
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 Philip Thomson (020) 8047 5502
Alice Hunt (020) 8047 5502
Gwenan White (020) 8047 5502
US Media Nancy Pekarek (215) 751 7709
Mary Anne Rhyne (919) 483 2839
European Analyst / Investor David Mawdsley (020) 8047 5564
Sally Ferguson (020) 8047 5543
Gary Davies (020) 8047 5503
US Analyst / Investor Frank Murdolo (215) 751 7002
Tom Curry (215) 751 5419
Brand names appearing in italics throughout this document are trademarks of GSK
or associated companies with the exception of Levitra, a trademark of Bayer,
Bonviva/Boniva, a trademark of Roche, and Vesicare, a trademark of Astellas
Pharmaceuticals in many countries and of Yamanouchi Pharmaceuticals in certain
countries, all of 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 'Business Review' in the company's
Annual Report 2007.
INCOME STATEMENT
Three months ended 31st March 2008
Business
performance Restructuring Statutory
Q1 2008 Growth Q1 2008 Q1 2008 Q1 2007
£m CER% £m £m £m
---------- ---------- ---------- ---------- ----------
Turnover:
Pharmaceuticals 4,793 (4) 4,793 4,806
Consumer Healthcare 893 8 893 786
---------- ---------- ---------- ---------- ----------
TURNOVER 5,686 (3) 5,686 5,592
Cost of sales (1,299) 1 (60) (1,359) (1,234)
---------- ---------- ---------- ---------- ----------
Gross profit 4,387 (4) (60) 4,327 4,358
Selling, general and administration (1,720) (2) (25) (1,745) (1,673)
Research and development (780) 5 (780) (726)
Other operating income 161 161 207
---------- ---------- ---------- ---------- ----------
Operating profit:
Pharmaceuticals 1,889 (10) (84) 1,805 2,028
Consumer Healthcare 159 4 (1) 158 138
---------- ---------- ---------- ---------- ----------
OPERATING PROFIT 2,048 (9) (85) 1,963 2,166
Finance income 82 82 58
Finance expense (168) (2) (170) (96)
Share of after tax (losses)/profits of (1) (1) 15
associates and joint ventures
---------- ---------- ---------- ---------- ----------
PROFIT BEFORE TAXATION 1,961 (13) (87) 1,874 2,143
Taxation (563) (12) 21 (542) (610)
Tax rate % 28.7% 28.9% 28.5%
---------- ---------- ---------- ---------- ----------
PROFIT AFTER TAXATION FOR THE PERIOD 1,398 (13) (66) 1,332 1,533
---------- ---------- ---------- ---------- ----------
Profit attributable to minority interests 25 - 25 19
Profit attributable to shareholders 1,373 (66) 1,307 1,514
---------- ---------- ---------- ---------- ----------
1,398 (66) 1,332 1,533
---------- ---------- ---------- ---------- ----------
EARNINGS PER SHARE 25.6p (9) 24.4p 27.0p
---------- ---------- ---------- ---------- ----------
Diluted earnings per share 25.5p 24.2p 26.7p
---------- ---------- ---------- ---------- ----------
PHARMACEUTICAL TURNOVER
Three months ended 31st March 2008
Total USA Europe International
--------------- --------------- --------------- -------------
£m CER% £m CER% £m CER% £m CER%
------ ----- ------ ----- ----- ----- ---- -----
RESPIRATORY 1,355 6 616 8 495 4 244 5
Seretide/Advair 954 10 499 10 351 9 104 16
Flixotide/Flovent 162 (1) 75 7 45 (7) 42 (7)
Serevent 67 (5) 17 (11) 37 6 13 (21)
Flixonase/Flonase 46 (33) 4 (84) 14 - 28 -
Veramyst 13 - 12 - 1 - - -
CENTRAL NERVOUS SYSTEM 829 3 594 7 131 (7) 104 (8)
Seroxat/Paxil 121 (15) 31 (16) 29 (21) 61 (11)
Paxil IR 88 (13) 2 - 29 (21) 57 (12)
Paxil CR 33 (20) 29 (22) - - 4 -
Wellbutrin 126 (3) 121 (4) 3 >100 2 (33)
Wellbutrin IR, SR 13 (43) 11 (45) 1 - 1 (50)
Wellbutrin XL 113 6 110 4 2 - 1 -
Imigran/Imitrex 165 (1) 134 - 23 (5) 8 (11)
Lamictal 290 16 240 22 34 (11) 16 -
Requip 94 15 60 9 29 24 5 67
ANTI-VIRALS 739 (8) 347 (9) 213 (15) 179 6
HIV 358 (5) 152 (6) 159 (6) 47 2
Combivir 105 (13) 45 (8) 43 (20) 17 (6)
Trizivir 54 (16) 27 (16) 24 (19) 3 -
Epivir 34 (22) 11 (21) 15 (22) 8 (22)
Ziagen 25 (8) 10 (9) 9 (11) 6 -
Agenerase, Lexiva 35 (3) 18 (10) 15 8 2 -
Epzicom/Kivexa 99 25 40 17 48 33 11 29
Herpes 274 6 174 7 45 11 55 2
Valtrex 249 9 173 7 37 18 39 9
Zovirax 25 (15) 1 (50) 8 (13) 16 (13)
Zeffix 46 8 3 - 7 - 36 10
Relenza 29 (71) 8 (82) - - 21 19
VACCINES 436 10 109 34 202 5 125 2
Hepatitis 139 16 53 66 57 (5) 29 -
Influenza 5 - - - 4 - 1 -
Infanrix/Pediarix 153 6 51 21 82 (1) 20 -
Boostrix 13 (8) 5 (29) 5 - 3 50
Rotarix 27 79 - - 9 100 18 70
Cervarix 12 - - - 10 - 2 -
CARDIOVASCULAR AND UROGENITAL 398 (12) 232 (22) 119 6 47 19
Coreg 48 (77) 48 (78) - - - (50)
Coreg CR 35 >100 35 >100 - - - -
Coreg IR 13 (94) 13 (94) - - - -
Levitra 14 - 13 - 1 - - -
Avodart 85 30 49 22 28 39 8 75
Arixtra 35 70 19 73 14 33 2 -
Fraxiparine 51 (4) - - 44 (7) 7 20
Vesicare 14 36 14 36 - - - -
Lovaza 50 - 50 - - - - -
ANTI-BACTERIALS 365 (2) 45 (13) 181 (7) 139 10
Augmentin 156 (1) 17 (29) 82 - 57 10
Altabax 2 - 2 - - - - -
METABOLIC 274 (45) 133 (57) 74 (6) 67 (30)
Avandia products 191 (56) 99 (66) 54 (14) 38 (44)
Avandia 122 (62) 71 (69) 22 (35) 29 (48)
Avandamet 62 (29) 24 (49) 31 8 7 (30)
Avandaryl 7 (63) 4 (73) 1 - 2 -
Bonviva/Boniva 49 50 33 48 15 44 1 -
ONCOLOGY AND EMESIS 113 (27) 58 (41) 38 6 17 -
Zofran 29 (69) 3 (95) 16 (30) 10 (9)
Hycamtin 30 (3) 17 (5) 11 11 2 (50)
Tykerb 19 >100 10 >100 7 >100 2 -
OTHER 284 13 4 (91) 73 20 207 32
-------------- -------------- -------------- --------------
4,793 (4) 2,138 (10) 1,526 (1) 1,129 6
-------------- -------------- -------------- --------------
Pharmaceutical turnover includes co-promotion income.
CONSUMER HEALTHCARE TURNOVER
Three months ended 31st March 2008
Q1 2008 Growth
£m CER%
--------- ---------
Over-the-counter medicines 411 4
Analgesics 116 13
Dermatological 46 8
Gastrointestinal 68 -
Respiratory tract 71 18
Smoking control 58 (27)
Natural wellness support 32 -
Weight management 9 -
Oral care 289 8
Nutritional healthcare 193 14
--------- ---------
Total 893 8
--------- ---------
FINANCIAL REVIEW - INCOME STATEMENT
Operating profit - business performance
Q1 2008 Q1 2007 Growth
--------------------- -------------------- ----------------
% of % of
£m turnover £m turnover CER% £%
-------- -------- -------- -------- ------- -------
Turnover 5,686 100.0 5,592 100.0 (3) 2
Cost of sales (1,299) (22.8) (1,234) (22.1) 1 5
Selling, general and administration (1,720) (30.3) (1,673) (29.9) (2) 3
Research and development (780) (13.7) (726) (13.0) 5 7
Other operating income 161 2.8 207 3.7
-------- -------- -------- -------- ------- -------
Operating profit 2,048 36.0 2,166 38.7 (9) (5)
-------- -------- -------- -------- ------- -------
Business performance operating margin decreased 2.7 percentage points, as
sterling operating profit decreased 5% while sterling turnover increased 2%.
Cost of sales as a percentage of turnover increased by 0.7 percentage points. At
constant exchange rates, cost of sales as a percentage of turnover increased by
0.8 percentage points, reflecting the impact of generic competition to higher
margin products and lower Avandia sales, partially offset by improvements in
manufacturing efficiencies.
SG&A costs as a percentage of turnover increased 0.4 percentage points compared
with Q1 2007. Pharmaceuticals SG&A fell by 4% and Consumer Healthcare SG&A grew
by 9% as a result of higher advertising and promotion expenses. The combined 2%
reduction in SG&A costs was less than the 3% fall in turnover.
R&D expenditure increased 0.7 percentage points, and included significant
increased investment in vaccines R&D. Pharmaceuticals R&D expenditure in the
quarter represented 15.8% (Q1 2007: 14.6%) of pharmaceutical turnover.
Other operating income includes royalty income, equity investment disposals and
impairments, product disposals and fair value adjustments to financial
instruments. Other operating income was £161 million in Q1 2008 (Q1 2007: £207
million). This reduction in other operating income added some 2 percentage
points to the EPS decline in the quarter. Other operating income in Q1 2008
included higher royalty and asset disposal income and favourable fair value
movements on financial instruments compared with Q1 2007, partly offset by some
write-downs of equity investments. Other operating income in Q1 2007 also
included the Roche litigation settlement relating to carvedilol.
Operating profit - statutory results
Statutory operating profit for Q1 2008 was £1,963 million, down 13% CER and 9%
in sterling terms compared with Q1 2007. This included £85 million of
restructuring charges; £60 million was charged to cost of sales and £25 million
to SG&A. There were no such charges in Q1 2007.
Taxation
The charge for taxation on business performance profit, amounting to £563
million, represents an effective tax rate of 28.7%. The charge for taxation on
statutory profit was £542 million.
Transfer pricing and other issues are as previously described in the 'Taxation'
note to the Financial Statements included in the Annual Report 2007. The Group
has open issues with the revenue authorities in the UK, USA, Canada and Japan.
There have been no further developments on these issues since the publication of
the Annual Report 2007.
GSK uses the best advice in determining its transfer pricing methodology and in
seeking to manage transfer pricing and other 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 from the amounts
provided and is dependent upon the outcome of litigation proceedings and
negotiations with the relevant tax authorities.
Weighted average number of shares
Q1 2008 Q1 2007 2007
millions millions millions
-------- -------- --------
Weighted average number of shares - basic 5,355 5,599 5,524
Dilutive effect of share options and share awards 39 63 43
-------- -------- --------
Weighted average number of shares - diluted 5,394 5,662 5,567
-------- -------- --------
The number of shares in issue, excluding those held by the ESOP Trusts and those
held as Treasury shares at 31st March 2008, was 5,289 million (31st March 2007:
5,580 million).
Dividends
Paid/ Pence per
payable share £m
--------- --------- ---------
2008
First interim 10th July 2008 13 688
2007
First interim 12th July 2007 12 670
Second interim 11th October 2007 12 667
Third interim 10th January 2008 13 708
Fourth interim 10th April 2008 16 860
--------- ----
53 2,905
--------- ---------
The liability for an interim dividend is only recognised when it is paid, which
is usually after the accounting period to which it relates. The fourth interim
dividend for 2007 and first interim dividend for 2008 have not been recognised
in these results.
STATEMENT OF RECOGNISED INCOME AND EXPENSE
Q1 2008 Q1 2007
£m £m
------- -------
Exchange movements on overseas net assets 160 17
Tax on exchange movements (6) -
Fair value movements on available-for-sale investments (87) (19)
Deferred tax on fair value movements on available-for-sale investments 15 (4)
Exchange movements on goodwill in reserves (31) (1)
Actuarial gains on defined benefit plans 219 330
Deferred tax on actuarial movements in defined benefit plans (54) (94)
Fair value movements on cash flow hedges - (3)
Deferred tax on fair value movements on cash flow hedges - 1
------- -------
Net gains recognised directly in equity 216 227
Profit for the period 1,332 1,533
------- -------
Total recognised income and expense for the period 1,548 1,760
------- -------
Total recognised income and expense for the period attributable to:
Shareholders 1,527 1,739
Minority interests 21 21
------- -------
1,548 1,760
------- -------
BALANCE SHEET
31st March 31st March 31st December
2008 2007 2007
£m £m £m
ASSETS ---------- ---------- ----------
Non-current assets
Property, plant and equipment 8,026 7,051 7,821
Goodwill 1,372 946 1,370
Other intangible assets 4,492 3,702 4,456
Investments in associates and joint ventures 328 305 329
Other investments 424 581 517
Deferred tax assets 2,262 2,199 2,196
Derivative financial instruments 113 119 1
Other non-current assets 806 616 687
---------- ---------- ----------
Total non-current assets 17,823 15,519 17,377
---------- ---------- ----------
Current assets
Inventories 3,314 2,554 3,062
Current tax recoverable 45 90 58
Trade and other receivables 5,316 5,124 5,495
Derivative financial instruments 483 92 475
Liquid investments 1,225 1,009 1,153
Cash and cash equivalents 2,147 1,981 3,379
Assets held for sale 3 7 4
---------- ---------- ----------
Total current assets 12,533 10,857 13,626
---------- ---------- ----------
TOTAL ASSETS 30,356 26,376 31,003
---------- ---------- ----------
LIABILITIES
Current liabilities
Short-term borrowings (1,799) (1,205) (3,504)
Trade and other payables (5,329) (4,534) (4,861)
Derivative financial instruments (244) (49) (262)
Current tax payable (1,056) (914) (826)
Short-term provisions (851) (740) (892)
---------- ---------- ----------
Total current liabilities (9,279) (7,442) (10,345)
---------- ---------- ----------
Non-current liabilities
Long-term borrowings (8,114) (4,786) (7,067)
Deferred tax liabilities (989) (739) (887)
Pensions and other post-employment benefits (1,326) (2,033) (1,383)
Other provisions (1,084) (817) (1,035)
Derivative financial instruments - (37) (8)
Other non-current liabilities (354) (360) (368)
---------- ---------- ----------
Total non-current liabilities (11,867) (8,772) (10,748)
---------- ---------- ----------
TOTAL LIABILITIES (21,146) (16,214) (21,093)
---------- ---------- ----------
NET ASSETS 9,210 10,162 9,910
---------- ---------- ----------
EQUITY
Share capital 1,476 1,503 1,503
Share premium account 1,295 1,067 1,266
Retained earnings 5,717 7,202 6,475
Other reserves 428 163 359
---------- ---------- ----------
Shareholders' equity 8,916 9,935 9,603
Minority interests 294 227 307
---------- ---------- ----------
TOTAL EQUITY 9,210 10,162 9,910
---------- ---------- ----------
RECONCILIATION OF MOVEMENTS IN EQUITY
Q1 2008 Q1 2007 2007
£m £m £m
------- ------- -------
Total equity at beginning of period 9,910 9,648 9,648
Total recognised income and expense for the period 1,548 1,760 6,134
Dividends to shareholders (708) (671) (2,793)
Shares issued 30 214 417
Shares purchased and held as Treasury shares - (828) (3,537)
Shares purchased for cancellation (1,591) - (213)
Consideration received for shares transferred by ESOP Trusts 6 41 116
Shares acquired by ESOP Trusts (1) - (26)
Share-based incentive plans 52 54 237
Tax on share-based incentive plans (2) - 4
Distributions to minority shareholders (34) (56) (77)
------- ------- -------
Total equity at end of period 9,210 10,162 9,910
------- ------- -------
FINANCIAL REVIEW - BALANCE SHEET
Net assets
The book value of net assets decreased by £700 million from £9,910 million at
31st December 2007 to £9,210 million at 31st March 2008. This reflects an
increase in net debt arising from the funding of the share buy-back programme
and dividend payments, partly offset by the elimination of the pension deficit.
The elimination of the pension deficit arose from an increase in the rate used
to discount UK pension liabilities from 5.75% to 6.75%, partially offset by a
reduction in asset values and by changes in the estimated long-term UK inflation
rate. At 31st March 2008, the net surplus on the Group's pension plans was £13
million.
The carrying value of investments in associates and joint ventures at 31st March
2008 was £328 million, with a market value of £864 million.
Equity
At 31st March 2008, total equity had decreased from £9,910 million at 31st
December 2007 to £9,210 million. The decrease arose principally from further
purchases of shares for cancellation and dividend payments, partially offset by
retained earnings and actuarial gains on defined benefit pension and
post-employment plans in the period.
At 31st March 2008, the ESOP Trusts held 131.4 million GSK shares against the
future exercise of share options and share awards. The carrying value of £1,507
million has been deducted from other reserves. The market value of these shares
was £1,401 million.
During the period, GSK purchased £986 million of shares for cancellation and in
addition an accrual of £605 million was provided to reflect the maximum
potential commitment under an irrevocable purchase agreement to acquire shares
for cancellation during the period from 1st April to 23rd April 2008. At 31st
March 2008, the company held 484.2 million Treasury shares at a cost of £6,418
million, which has been deducted from retained earnings.
CASH FLOW STATEMENT
Three months ended 31st March 2008
Q1 2008 Q1 2007 2007
£m £m £m
------- ------- -------
Profit after tax 1,332 1,533 5,310
Tax on profits 542 610 2,142
Share of after tax losses/(profits) of associates and joint ventures 1 (15) (50)
Net finance expense 88 38 191
Depreciation and other non-cash items 310 274 1,333
Decrease/(increase) in working capital 39 (31) (538)
Decrease in other net liabilities (204) (603) (308)
------- ------- -------
Cash generated from operations 2,108 1,806 8,080
Taxation paid (307) (256) (1,919)
------- ------- -------
Net cash inflow from operating activities 1,801 1,550 6,161
------- ------- -------
Cash flow from investing activities
Purchase of property, plant and equipment (254) (312) (1,516)
Proceeds from sale of property, plant and equipment 2 19 35
Purchase of intangible assets (61) (396) (627)
Proceeds from sale of intangible assets - - 9
Purchase of equity investments (12) (141) (186)
Proceeds from sale of equity investments 2 14 45
Purchase of businesses, net of cash acquired - (233) (1,027)
Investment in associates and joint ventures (2) - (1)
Interest received 87 59 247
Dividends from associates and joint ventures 2 4 12
------- ------- -------
Net cash outflow from investing activities (236) (986) (3,009)
------- ------- -------
Cash flow from financing activities
(Increase)/decrease in liquid investments (14) 34 (39)
Proceeds from own shares for employee share options 6 41 116
Shares acquired by ESOP Trusts (1) - (26)
Issue of share capital 30 214 417
Purchase of own shares for cancellation (986) - (213)
Purchase of Treasury shares - (575) (3,538)
Increase in long-term loans 693 - 3,483
Repayment of long-term loans - - (207)
Net (repayment of)/increase in short-term loans (1,811) 440 1,632
Net repayment of obligations under finance leases (12) (9) (39)
Interest paid (42) (24) (378)
Dividends paid to shareholders (708) (671) (2,793)
Dividends paid to minority interests (34) (56) (77)
Other financing cash flows 54 (38) (79)
------- ------- -------
Net cash outflow from financing activities (2,825) (644) (1,741)
------- ------- -------
(Decrease)/increase in cash and bank overdrafts in the period (1,260) (80) 1,411
Exchange adjustments (5) 7 48
Cash and bank overdrafts at beginning of period 3,221 1,762 1,762
------- ------- -------
Cash and bank overdrafts at end of period 1,956 1,689 3,221
------- ------- -------
Cash and bank overdrafts at end of period comprise:
Cash and cash equivalents 2,147 1,981 3,379
Overdrafts (191) (292) (158)
------- ------- -------
1,956 1,689 3,221
------- ------- -------
RECONCILIATION OF CASH FLOW TO MOVEMENTS IN NET DEBT
Q1 2008 Q1 2007 2007
£m £m £m
------- ------- -------
Net debt at beginning of the period (6,039) (2,450) (2,450)
(Decrease)/increase in cash and bank overdrafts (1,260) (80) 1,411
Cash outflow/(inflow) from liquid investments 14 (34) 39
Net increase in long-term loans (693) - (3,276)
Net repayment of/(increase in) short-term loans 1,811 (440) (1,632)
Net repayment of obligations under finance leases 12 9 39
Exchange adjustments (340) 9 (88)
Other non-cash movements (46) (15) (82)
------- ------- -------
Increase in net debt (502) (551) (3,589)
------- ------- -------
Net debt at end of the period (6,541) (3,001) (6,039)
------- ------- -------
FINANCIAL REVIEW - CASH FLOW
Cash generated from operations was £2,108 million in Q1 2008. This represents an
increase of £302 million compared with Q1 2007. The operating cash flow is in
excess of the funds needed for the routine cash flows of tax, capital
expenditure on property, plant and equipment and dividend payments to
shareholders, together amounting to £1,269 million. Receipts of £36 million
arose from the exercise of share options: £6 million from shares held by the
ESOP Trusts and £30 million from the issue of new shares. In addition, £986
million was spent in the period on purchasing the company's shares for
cancellation. The decreased cash position at 31st March 2008 also reflects the
net repayment of £1.8 billion of short-term loans in Q1 2008, partially offset
by a further issuance of £0.7 billion under the EMTN programme.
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 subsidiaries, associates and joint
ventures 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:
Q1 2008 Q1 2007 2007
Average rates: ------- ------- ------
£/US$ 1.99 1.96 2.00
£/Euro 1.32 1.49 1.46
£/Yen 210 234 235
Period-end rates:
£/US$ 1.99 1.96 1.99
£/Euro 1.26 1.47 1.36
£/Yen 198 232 222
During Q1 2008, average sterling exchange rates were stronger against the US
Dollar but weaker against the Euro and the Yen compared with Q1 2007. Comparing
Q1 2008 period-end rates with Q1 2007 period-end rates, Sterling was also
stronger against the US Dollar but weaker against the Euro and the Yen.
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 concerning sales,
marketing and pricing which are more fully described in the Legal proceedings
note in the Annual Report.
At 31st March 2008, the Group's aggregate provision for legal and other disputes
(not including tax matters described under 'Taxation' on page 10 was £1.2
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.
Significant developments since the date of the 2007 Annual Report are as
follows:
With respect to Paxil CR, under the terms of the Group's settlement agreement
with Mylan, Mylan may be permitted to enter the market for all strengths of
Paxil CR sometime during the second or third quarter of 2008. Other terms of the
settlement remain confidential.
In April 2008, an action was filed against Biovail and GSK by a purported class
of direct purchasers in the US District Court for the District of Massachusetts
alleging anti-trust violations related to the enforcement of Biovail's
Wellbutrin XL patents. The action is in its early stages.
Developments with respect to tax matters are described in 'Taxation' on page 10.
ACCOUNTING PRESENTATION AND POLICIES
This unaudited Results Announcement containing condensed financial information
for the three months ended 31st March 2008 is prepared in accordance with the
Listing Rules of the UK Listing Authority, IAS 34 'Interim Financial Reporting'
and the accounting policies set out in the Annual Report 2007.
GSK utilises a 3-column approach to the income statement. 'Business Performance'
shows GSK's underlying results excluding restructuring charges related to the
new Operational Excellence programme announced in October 2007 and significant
acquisitions. The middle column shows restructuring costs and the 'Statutory'
column shows the full IFRS statutory results.
Business performance, which is a supplemental non-IFRS measure, is the primary
performance measure used by management, and is presented after excluding
restructuring charges relating to the new Operational Excellence programme,
which commenced in October 2007, and significant acquisitions. Management
believes that exclusion of these items provides a better reflection of the way
in which the business is managed and gives a more useful indication of the
underlying performance of the Group for the periods presented. Statutory results
include these items. The Group reported only statutory results for Q1 2007.
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 growth and
compare 2008 business performance results with 2007 statutory results, unless
otherwise stated.
This Results Announcement does not constitute statutory accounts of the Group
within the meaning of section 240 of the Companies Act 1985.
The cash flow statement for the year ended, and the balance sheet at, 31st
December 2007 have been derived from the full Group accounts published in the
Annual Report 2007, which have been delivered to the Registrar of Companies and
on which the report of the independent auditors was unqualified and did not
contain a statement under either section 237(2) or section 237(3) of the
Companies Act 1985.
Data for market share and market growth rates are GSK estimates based on the
most recent data from independent external sources and, where appropriate, are
valued in Sterling at relevant exchange rates. Figures quoted for product market
share reflect sales by GSK and licensees.
INVESTOR INFORMATION
Announcement of Q1 2008 results
This Announcement was approved by the Board of Directors on Wednesday 23rd April
2008.
Financial calendar
The company will announce second quarter 2008 results on 23rd July 2008. The
second interim dividend for 2008 will have an ex-dividend date of 30th July 2008
and a record date of 1st August 2008. It will be paid on 9th October 2008.
Internet
This Announcement and other information about GSK are available on the company's
website at: http://www.gsk.com.
INDEPENDENT REVIEW REPORT TO GLAXOSMITHKLINE PLC
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the interim financial report for the three months ended 31st March
2008, which comprise the consolidated Income Statement, the consolidated Balance
Sheet, the consolidated Cash Flow Statement, the consolidated Statement of
Recognised Income and Expense and the related notes. We have read the other
information contained in the interim financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by,
the directors.
The annual financial statements of the group are prepared in accordance with
IFRSs as adopted by the European Union. The condensed set of financial
statements included in this financial report has been prepared in accordance
with International Accounting Standard 34, 'Interim Financial Reporting', as
adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the interim financial report based on our review.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of this Results Announcement and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the interim financial report
for the three months ended 31st March 2008 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union.
PricewaterhouseCoopers LLP
Chartered Accountants
London
23rd April 2008
Notes:
(a) The maintenance and integrity of the GlaxoSmithKline plc website is the
responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
interim report since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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The company news service from the London Stock Exchange
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