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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gsk Plc | LSE:GSK | London | Ordinary Share | GB00BN7SWP63 | ORD 31 1/4P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 19.00 | 1.07% | 1,799.50 | 1,796.00 | 1,796.50 | 1,799.50 | 1,780.00 | 1,784.00 | 9,804,173 | 16:35:21 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Pharmaceutical Preparations | 30.33B | 4.93B | 1.1970 | 15.00 | 73.94B |
TIDMGSK
RNS Number : 1023N
GlaxoSmithKline PLC
23 July 2014
Hot Features
Premium
Issued: Wednesday, 23 July 2014, London U.K.
Results Announcement for the second quarter and Interim Management Report for the half-year
2014
GSK delivers Q2 2014 turnover GBP5.6 billion (-4%) and core EPS 19.1p (-12%) on ex-divestment
basis (both CER). Q2 dividend 19p (+6%)
Core results*
Q2 2014 H1 2014
GBPm CER% GBP% GBPm CER% GBP%
-------- ----- ----- -------- ----- -----
Turnover 5,561 (4) (13) 11,174 (3) (12)
Core operating profit 1,407 (14) (25) 2,937 (7) (22)
Core earnings per
share 19.1p (12) (25) 40.1p (5) (22)
----------------------- -------- ----- ----- -------- ----- -----
Total results
Q2 2014 H1 2014
GBPm CER% GBP% GBPm CER% GBP%
-------- ----- ----- -------- ----- -----
Turnover 5,561 (8) (16) 11,174 (7) (15)
Operating profit 1,137 (8) (21) 2,203 (10) (27)
Earnings per share 13.6p (23) (37) 27.5p (14) (34)
-------------------- -------- ----- ----- -------- ----- -----
Summary
-- Significant strategic progress made in H1 2014 with 3-part
Novartis transaction on track for completion during H1 2015
and continued momentum in new product launches in respiratory
and HIV.
-- Pharmaceutical and Vaccines sales -4% primarily due to continued
increased competition in US respiratory market and generic
competition to Lovaza. Strong performance from Emerging Markets
(+11%) partially offset declines in Japan (-7%) and the US
(-10%). Europe sales flat.
-- Transition of respiratory portfolio underway. With declining
Advair sales, new sales growth expected from Breo, Anoro and
Incruse, together with anticipated pipeline products. Expect
to maintain respiratory leadership position well into next
decade.
-- HIV sales +13% driven by very strong uptake of recently launched
integrase inhibitor, Tivicay.
-- Vaccines +5% with strong growth in Emerging Markets (+26%)
driven by phasing of tenders.
-- Consumer Healthcare down 4%, impacted by previously highlighted
supply interruptions in US and Europe. Supply position now
beginning to improve; Consumer Healthcare sales for full year
expected to be broadly flat.
-- Further significant pipeline launches, approvals and filings:
- Breo for asthma filed in the US. FDA decision on ICS asthma
monotherapy and filing of mepolizumab for severe asthma due
in H2 2014. Phase III development for the first triple combination
product (FF/VI/UMEC) for COPD underway
- Positive CHMP opinion for combination HIV treatment Triumeq
received in quarter; FDA decision due in H2
- Tanzeum, once weekly treatment for type II diabetes, now
being launched in the US
-- Pipeline opportunity remains substantial with over 40 NMEs
in late stage development. Around 30 assets in R&D have potential
to be first in class in areas such as respiratory, immuno-inflammation,
epigenetics and cardiovascular.
-- Process started to divest certain US and European brands in
Established Products Portfolio with expected total 2014 sales
of around GBP1 billion.
-- Given impact of recent sustained strength of Sterling on free
cash flow, share repurchases over balance of 2014 likely to
be immaterial.
-- Full year 2014 core EPS now expected to be broadly similar
to 2013 (at CER and on an ex-divestment basis).
The full results are presented under 'Income Statement' on page
27 and Core results reconciliations are presented on pages 45 to
48.
* For explanations of the measures 'Core results', and 'CER', see
page 25. 2014 core performance is measured against 2013 core results
excluding divestments completed during 2013.
GSK's strategic priorities
We have focused our business around the delivery of three strategic
priorities, which aim to increase growth, reduce risk and improve
our long term financial performance:
-- Grow a diversified global business
-- Deliver more products of value
-- Simplify the operating model
Chief Executive Officer's review
We have made significant strategic progress during the first half
of this year, announcing our innovative 3-part transaction with
Novartis and progressing the launches of multiple new products in
our core therapy areas of Respiratory and HIV.
As we have said previously, synchronisation of new product delivery
with managing the impact of competition elsewhere in the portfolio
is challenging.
However, this is a critical moment to make the right strategic choices,
particularly around investment, for the long-term health of the
Group and this is reflected in the decisions we have made in the
quarter.
Our good progress on newly launched products is being offset by
pricing and contracting pressure in the US. As we highlighted last
quarter, this has resulted in a "step change" reduction in Advair
market share and pricing and it is now clear that these pressures
are likely to continue.
Our strategy to transition and diversify our respiratory portfolio
is underway. While sales of Advair will continue to reduce, we expect
new products such as Breo, Anoro and Incruse, together with anticipated
pipeline products, to generate new sales growth. Already we are
seeing some recovery in our overall volume share as new product
launches progress, albeit at lower price points given the scale
of price competition in the market. We expect the transition of
this portfolio to continue over the next 2-3 years and remain confident
that GSK will maintain its leadership position in respiratory well
into the next decade.
Performance in the US this year has also been impacted by generic
competition to Lovaza, which has been more substantive and began
earlier than we expected.
Our performance in the US was the primary reason for Pharmaceutical
and Vaccines sales declining 4%. Outside of the US, our Emerging
Markets business grew 11% and in Europe sales were flat for the
quarter. Japan sales were down 7% in the quarter due to destocking
following the consumption tax increase, but up 5% year to date.
In Consumer Healthcare, we have experienced supply interruptions
for several brands, in particular smoking control products. As a
result sales fell 4% in the quarter. The supply position is beginning
to improve but will continue to impact the performance of this business
for the remainder of this year. Overall, we expect Consumer Healthcare
sales to be broadly flat for 2014.
Importantly, we are progressing the launches of our new products.
Tivicay, for the treatment of HIV is set to become one of GSK's
most successful launches with "new to brand" prescription trends
firmly above those seen for recent competitor launches at a similar
time post-launch. Tivicay now has 11% market share of the treatment-naive
patient population, helping ViiV Healthcare deliver 13% sales growth
in the quarter. Further development work around this product continues.
In the quarter, we received a positive CHMP opinion for our combination
HIV treatment, Triumeq and expect an FDA decision before the end
of the year. We also announced a new collaboration with Janssen
Pharmaceuticals to develop a combination of Tivicay with the NNRTI,
rilpivirine.
Market access for our new respiratory products is building. Breo
for COPD now has around 70% Medicare Part D coverage and we are
seeing positive prescription uptake amongst pulmonologists. Anoro
currently has 30% Medicare Part D coverage following launch in late
April. We have now launched Relvar in Europe and Japan. Anoro is
also launched in Europe.
Late stage respiratory development continues on several fronts.
During the quarter we filed Breo for asthma in the US and last week
we began phase III development for the first triple combination
product for COPD in the Ellipta device. Looking ahead to the second
half of the year, we expect an FDA regulatory decision on our ICS
monotherapy product for asthma. Our first biologic in respiratory,
the IL-5 antagonist mepolizumab, for severe asthma, will also be
filed with regulators by the end of the year.
This week we are launching Tanzeum, our new once weekly treatment
for type II diabetes, in the US. We also continue to see excellent
progress for our recent oncology launches, Tafinlar and Mekinist.
These new products represent new sales growth opportunities for
the Group and we are investing behind them.
To do so it is important that we continue to manage our costs and
deliver financial efficiencies. Our ongoing restructuring programmes
delivered further savings but these were more than offset by investments
made in supporting our multiple new launches and continued investments
in manufacturing capacity and new technologies. Most notably this
led to SG&A expenses increasing 3% in the quarter. Higher investments
combined with the 4% decline in sales led to EPS decreasing 12%
in CER terms.
Maintaining support for the substantial portfolio of new launches
is key to the long-term health of the company. Taking all factors
into account, it is now unlikely that we will deliver sales growth
this year and we now expect full year core EPS on a CER and ex-divestment
basis to be broadly similar to last year.
Our dividend for the quarter is 19 pence per share, up 6%.
Given the impact of the recent sustained strength of Sterling on
free cash flow in the year to date it is likely that share repurchases
over the balance of 2014 will be immaterial.
Looking ahead, we remain confident in GSK's medium and long-term
growth prospects and in our strategy to generate sustainable sales
growth.
The 3-part transaction with Novartis provides the opportunity to
reshape the Group fundamentally and strengthen our position in the
long-term growth businesses of Vaccines and Consumer Healthcare.
Subject to consultation and necessary approvals, these businesses
will represent around half of Group revenues over the coming years
and are expected to be capable of generating mid-single digit sales
growth on a more consistent basis.
Allied to Vaccines and Consumer Healthcare will be GSK's Pharmaceuticals
business, which will benefit from the recent new launches, increasing
demand from emerging markets and an R&D pipeline with over 40 NMEs
in late stage development. In total across the R&D pipeline we believe
around 30 assets have the potential to be first-in-class in areas
such as respiratory, immuno-inflammation, epigenetics and cardiovascular
disease. We are confident we can deliver a regular flow of new product
introductions over the next few years and this will provide a clear
basis for growth in Pharmaceuticals in the future as the performance
for this division becomes progressively less dependent on Seretide/Advair.
Elsewhere in pharmaceuticals, we continue to evaluate options to
maximise the value of our established products. To this end, we
have started a process to divest US and European products in our
Established Products Portfolio with total sales of around GBP1 billion.
Subject to achieving appropriate shareholder value, we anticipate
reaching agreement before the end of the year.
Sir Andrew Witty
Chief Executive Officer
A video interview with CEO Sir Andrew Witty and CFO Simon Dingemans
discussing today's results is available on www.gsk.com
All forward looking statements are based on 2013 core numbers adjusted
to exclude divestments, at CER and barring unforeseen circumstances.
See 'Cautionary statement regarding forward-looking statements'
on page 25.
Contents Page
Q2 2014 results summary 1
Chief Executive Officer's review 2
Group performance 5
Divisional performance 15
Research and development 22
Definitions 25
Contacts 26
Income statements 27
Statement of comprehensive income 28
Pharmaceuticals and Vaccines turnover - three months ended
30 June 2014 30
Pharmaceuticals and Vaccines turnover - six months ended
30 June 2014 31
Balance sheet 32
Statement of changes in equity 33
Cash flow statement - six months ended 30 June 2014 34
Segment information 35
Legal matters 38
Taxation 38
Additional information 39
Reconciliation of cash flow to movements in net debt 44
Core results reconciliations 45
Principal risks and uncertainties 49
Directors' responsibility statement 50
Independent review report 51
Group performance
Group turnover by division, geographic region and segment
Group turnover by division Q2 2014 H1 2014
----------------------------------- -----------------------------------
Growth Growth
GBPm CER% GBPm CER%*
------------ ------------ ------------ ------------
Pharmaceuticals 3,773 (6) 7,601 (5)
Vaccines 766 5 1,424 4
------------ ------------ ------------ ------------
Pharmaceuticals and Vaccines 4,539 (4) 9,025 (4)
Consumer Healthcare 1,022 (4) 2,149 (2)
------------ ------------ ------------ ------------
Group turnover 5,561 (4) 11,174 (3)
------------ ------------ ------------ ------------
Group turnover including divestments 5,561 (8) 11,174 (7)
------------ ------------ ------------ ------------
Group turnover by geographic region Q2 2014 H1 2014
----------------------------------- -----------------------------------
Growth Growth
GBPm CER% GBPm CER%*
------------ ------------ ------------ ------------
US 1,722 (12) 3,432 (11)
Europe 1,592 (3) 3,236 (2)
Emerging Markets 1,525 3 2,992 3
Japan 343 (10) 802 -
Other 379 8 712 3
------------ ------------ ------------ ------------
Group turnover 5,561 (4) 11,174 (3)
------------ ------------ ------------ ------------
Group turnover outside US and Europe 2,247 1 4,506 2
------------ ------------ ------------ ------------
Group turnover by segment Q2 2014 H1 2014
----------------------------------- -----------------------------------
Growth Growth
GBPm CER% GBPm CER%*
------------ ------------ ------------ ------------
Pharmaceuticals and Vaccines
- US 1,193 (10) 2,323 (10)
- Europe 1,019 - 2,043 1
- Emerging Markets 822 11 1,513 7
- Japan 187 (7) 472 5
- ViiV Healthcare 352 13 663 9
- Established Products 696 (24) 1,510 (18)
Other trading and unallocated
- pharmaceuticals 270 17 501 10
------------ ------------ ------------ ------------
Pharmaceuticals and Vaccines 4,539 (4) 9,025 (4)
Consumer Healthcare 1,022 (4) 2,149 (2)
------------ ------------ ------------ ------------
Group turnover 5,561 (4) 11,174 (3)
------------ ------------ ------------ ------------
* Unless otherwise stated, Q2 2014 and H1 2014 turnover growth is
in comparison with Q2 2013 and H1 2013 turnover, respectively, excluding
divestments in 2013. See page 25.
Turnover - Q2 2014
Total Group turnover for Q2 2014 declined 4% to GBP5,561 million.
Pharmaceuticals and Vaccines turnover fell by 4%. Pharmaceuticals
turnover declined 6% as growth in Emerging Markets, Europe and ViiV
Healthcare was more than offset by lower sales in the US and Japan,
and a decline in Established Products sales. Worldwide Vaccines
turnover grew 5%, as a strong performance in Emerging Markets was
partly offset by lower reported sales in the US, Europe and Japan.
Consumer Healthcare turnover was GBP1,022 million in the quarter,
down 4%.
In the US, Pharmaceuticals and Vaccines turnover declined 10% to
GBP1,193 million, with Pharmaceuticals down 11% and Vaccines down
2%. Pharmaceutical sales in the quarter were impacted by continued
price and contracting pressures across the US market which particularly
affected respiratory sales, down 14% in the quarter. Excluding wholesaler
and retailer stocking patterns, estimated underlying respiratory
sales were down 17%, with price down 6% and volume down 11%. Sales
of Advair were down 19%, with an estimated underlying reduction
of 21% (14% volume decline and a 7% negative impact of price and
mix).
Oncology products in the US contributed strongly to the quarter,
with sales up 42% to GBP119 million, benefiting from strong performances
from Votrient and Promacta, and the recent launches of Tafinlar
and Mekinist. Benlysta sales grew 17% to GBP37 million. Generic
competition in the US continued to impact sales of Dermatology products,
which declined 63% to GBP11 million, and generic competition to
Mepron, which began in March 2014, resulted in a 86% decline in
sales to GBP3 million. The 2% decrease in Vaccines sales primarily
resulted from sales of hepatitis vaccines, down 16% to GBP56 million,
largely as a result of stocking patterns in the quarter, partly
offset by sales of Boostrix, up 12% to GBP43 million.
Europe Pharmaceuticals and Vaccines turnover was flat at GBP1,019
million. Pharmaceutical sales grew 2% to GBP780 million, primarily
reflecting strong growth in Oncology, up 39% to GBP106 million,
led by Votrient and Promacta, together with the initial stages of
the Tafinlar launch. Sales of the Avodart franchise increased 9%
to GBP70 million. Seretide declined 4% to GBP348 million, primarily
due to price. Sales of Prolia declined 88% as a result of the termination
in Europe of the commercialisation agreement with Amgen, which was
announced in early April 2014. Vaccines sales fell 5%, reflecting
the phasing of shipments of Infanrix, Priorix and Rotarix, now expected
in H2 2014, partly offset by higher sales of Boostrix during the
quarter, which benefitted in part from a strong performance in Germany.
Emerging Markets Pharmaceuticals and Vaccines turnover increased
11% to GBP822 million, with Pharmaceuticals up 5% and Vaccines up
26%, reflecting the phasing of tender sales of Synflorix and Rotarix.
The ongoing investigation in China adversely impacted Emerging Markets
Pharmaceuticals and Vaccines sales growth by an estimated four percentage
points. In China, sales excluding Established Products were down
20% to GBP62 million (including Established Products, down 25% to
GBP129 million). Elsewhere there were strong contributions from
Brazil, up 49% to GBP116 million, and Middle East/North Africa/CIS,
up 8% to GBP211 million. In Emerging Markets Pharmaceuticals, there
was continued growth from Oncology products, up 47% and Augmentin,
up 11%. Seretide sales were down 4%, in part due to the phasing
of shipments, but also the impact of generic copies in some markets.
Japan Pharmaceuticals and Vaccines turnover fell 7% to GBP187 million,
with Pharmaceuticals sales declining 7% and Vaccines sales declining
by 9%. The performance in Pharmaceuticals reflected lower sales
of Adoair, down 26%, and Avodart, down 14%, primarily due to destocking
following local tax changes but also increasing competitive pressures.
Sales of Flolan declined 40% to GBP8 million, but there was a strong
performance from Xyzal, which grew 58% to GBP26 million in the quarter.
The decline in Vaccines sales reflected the impact on Cervarix of
the continued suspension of the recommendation for use of HPV vaccines,
partly offset by higher sales of Rotarix.
ViiV Healthcare turnover grew 13% to GBP352 million as the growth
generated by Epzicom, Selzentry and the recent launch of Tivicay
more than offset the impact of generic competition to older ViiV
Healthcare products, including Combivir and Trizivir.
Established Products turnover fell 24% to GBP696 million, principally
reflecting generic competition to Lovaza in the US, down 81%, which
commenced in April, and continuing generic competition to a number
of products across the portfolio, including Seroxat/Paxil, down
29%, Valtrex, down 24%, and Zeffix, down 20%.
Consumer Healthcare turnover was GBP1,022 million in the quarter,
down 4% compared with Q2 2013. Growth in Rest of World markets of
3% was offset by lower sales in Europe, down 10%, and US, down 11%.
All three regions were impacted by a number of supply issues.
Total Group turnover for Q2 2014 compared with Q2 2013 including
divestments completed in 2013 was down 8%, with Pharmaceuticals
and Vaccines down 6% and Consumer Healthcare down 14%.
Turnover - H1 2014
Total Group turnover for H1 2014 declined 3% to GBP11,174 million.
Pharmaceuticals and Vaccines turnover fell by 4%. Pharmaceuticals
turnover declined 5% as growth in Emerging Markets, Europe, Japan
and ViiV Healthcare was more than offset by lower sales in the US
and in Established Products. Worldwide Vaccines turnover grew 4%,
as performances in the US and Emerging Markets were partly offset
by lower reported sales in Europe and Japan. Consumer Healthcare
turnover was GBP2,149 million in the six months, down 2% compared
with H1 2013.
In the US, Pharmaceuticals and Vaccines turnover declined 10% to
GBP2,323 million, with Pharmaceuticals down 13% and Vaccines up
9%. Pharmaceutical sales were impacted by continued price and contracting
pressures across the US market which particularly affected respiratory
sales, down 17%. Excluding wholesaler and retailer stocking patterns,
estimated underlying respiratory sales were down 14% with price,
after net favourable adjustments to accruals for returns and rebates,
down 2% and volume down 12%. Sales of Advair were down 24%, with
an estimated underlying decline of 21% (14% decline in volume and
a 7% decline from price and mix).
Oncology products in the US contributed strongly to the first six
months, with sales up 36% to GBP227 million, benefiting from strong
performances from Votrient and Promacta, and the recent launches
of Tafinlar and Mekinist. Benlysta sales grew 24% to GBP71 million.
Generic competition in the US continued to impact sales of Dermatology
products, which declined 60% to GBP24 million and Mepron, which
declined 48% to GBP20 million. The 9% increase in Vaccines sales
primarily resulted from sales of Infanrix/Pediarix, up 35% to GBP137
million, which benefited from a favourable comparison with H1 2013
which was impacted by CDC stockpile movements. Sales of hepatitis
vaccines were down 15% to GBP100 million, while Boostrix sales were
up 26% to GBP73 million.
Europe Pharmaceuticals and Vaccines turnover grew 1% to GBP2,043
million. Pharmaceutical sales grew 2% to GBP1,564 million, primarily
reflecting strong growth in Oncology, up 31% to GBP201 million,
led by Votrient and Promacta, together with the initial stages of
the Tafinlar launch. Sales of the Avodart franchise increased 9%
to GBP141 million. Seretide declined 4% to GBP700 million, primarily
due to price. Vaccines sales fell 1%, reflecting the phasing of
shipments of Infanrix, Priorix and Rotarix, now expected in H2 2014,
partly offset by higher sales of Boostrix and Rotarix.
Emerging Markets Pharmaceuticals and Vaccines turnover increased
7% to GBP1,513 million, with Pharmaceuticals up 6% and Vaccines
up 10%, primarily reflecting the phasing of tender sales of Boostrix
and Rotarix. The ongoing investigation in China adversely impacted
Emerging Markets Pharmaceuticals and Vaccines sales growth by an
estimated three percentage points. In China, sales excluding Established
Products were down 17% to GBP125 million (including Established
Products, down 22% to GBP267 million). Elsewhere there were strong
contributions from Brazil, up 34% to GBP174 million, the remainder
of Latin America, up 11% to GBP280 million, and Africa/Developing
Countries, up 20% to GBP131 million. Excluding China, there was
continued growth from Respiratory products, up 3%, Oncology, up
40%, Augmentin, up 4%, and the Avodart franchise, up 24%.
Japan Pharmaceuticals and Vaccines turnover grew 5% to GBP472 million,
with Pharmaceuticals sales increasing 6% and Vaccines sales declining
by 27%. Pharmaceuticals sales benefited from the government stockpiling
of Relenza at the start of the year, with sales more than doubling,
and also strong growth in Avodart, up 17%. This growth was partially
offset by lower sales in the Respiratory portfolio, which were affected
by a weaker allergy season and increased competitive pressures.
The decline in Vaccines sales reflected the impact on Cervarix of
the continued suspension of the recommendation for use of HPV vaccines,
partly offset by higher sales of Rotarix.
ViiV Healthcare turnover grew 9% to GBP663 million as the growth
generated by Epzicom and the recent launch of Tivicay more than
offset the impact of generic competition to older ViiV Healthcare
products, including Combivir and Trizivir.
Established Products turnover fell 18% to GBP1,510 million, reflecting
generic competition to Lovaza in the US, down 54%, which commenced
in April, and continuing generic competition to a number of products
across the portfolio, including Seroxat/Paxil, down 22%, Valtrex,
down 24%, and Zeffix, down 18%.
Consumer Healthcare turnover was GBP2,149 million in H1 2014, down
2% compared with H1 2013. Growth in Rest of World markets of 4%
was offset by lower sales in Europe, down 7%, and the US, down 10%,
as all three regions were impacted by a number of supply issues.
Total Group turnover for H1 2014 compared with H1 2013 including
divestments completed in 2013 was down 7%, with Pharmaceuticals
and Vaccines down 5% and Consumer Healthcare down 11%.
Core operating profit and margin
Core operating
profit Q2 2014 H1 2014
------------------------------------------------------- -------------------------------------------------------
% of Growth % of Growth
GBPm turnover CER% GBPm turnover CER%*
------------ ------------ ------------ ------------ ------------ ------------
Turnover 5,561 100 (4) 11,174 100 (3)
Cost of sales (1,538) (27.7) (3) (3,096) (27.7) (4)
Selling,
general and
administration (1,922) (34.6) 3 (3,733) (33.4) -
Research and
development (766) (13.8) (3) (1,550) (13.9) (4)
Royalty income 72 1.4 (10) 142 1.3 (25)
------------ ------------ ------------ ------------ ------------ ------------
Core operating
profit 1,407 25.3 (14) 2,937 26.3 (7)
------------ ------------ ------------ ------------ ------------ ------------
Core profit
before tax 1,259 (14) 2,629 (7)
Core profit
after tax 982 (12) 2,051 (6)
Core profit
attributable
to
shareholders 921 (13) 1,928 (6)
------------ ------------ ------------ ------------
Core earnings
per share 19.1p (12) 40.1p (5)
------------ ------------ ------------ ------------
Core operating
profit by
division Q2 2014 H1 2014
------------------------------------------------------- -------------------------------------------------------
Margin Growth Margin Growth
GBPm % CER% GBPm % CER%*
------------ ------------ ------------ ------------ ------------ ------------
Pharmaceuticals 1,196 31.7 (18) 2,518 33.1 (12)
Vaccines 289 37.7 32 530 37.2 38
------------ ------------ ------------ ------------ ------------ ------------
Pharmaceuticals
and Vaccines 1,485 32.7 (12) 3,048 33.8 (6)
Consumer
Healthcare 142 13.9 (20) 306 14.2 (12)
------------ ------------ ------------ ------------ ------------ ------------
1,627 29.3 (12) 3,354 30.0 (7)
Corporate &
other
unallocated
costs (220) 6 (417) (5)
------------ ------------ ------------ ------------ ------------ ------------
Core operating
profit 1,407 25.3 (14) 2,937 26.3 (7)
------------ ------------ ------------ ------------ ------------ ------------
Core operating profit by
segment Q2 2014 H1 2014
------------------------------------------------------- -------------------------------------------------------
Margin Growth Margin Growth
GBPm % CER% GBPm % CER%*
------------ ------------ ------------ ------------ ------------ ------------
Pharmaceuticals and Vaccines
- USA 751 63.0 (19) 1,469 63.2 (17)
- Europe 553 54.3 (1) 1,127 55.2 3
- Emerging Markets 234 28.5 22 425 28.1 22
- Japan 78 41.7 (16) 228 48.3 5
- ViiV Healthcare 225 63.9 9 429 64.7 9
- Established Products 402 57.8 (26) 887 58.7 (19)
- Pharmaceutical R&D (664) - (1,311) -
Other trading and
unallocated
- pharmaceuticals (94) (34.8) (45) (206) (41.1) (62)
------------ ------------ ------------ ------------ ------------ ------------
Pharmaceuticals and Vaccines 1,485 32.7 (12) 3,048 33.8 (6)
Consumer Healthcare 142 13.9 (20) 306 14.2 (12)
------------ ------------ ------------ ------------ ------------ ------------
1,627 29.3 (12) 3,354 30.0 (7)
Corporate & other unallocated
costs (220) 6 (417) (5)
------------ ------------ ------------ ------------ ------------ ------------
Core operating profit 1,407 25.3 (14) 2,937 26.3 (7)
------------ ------------ ------------ ------------ ------------ ------------
* Unless otherwise stated, Q2 2014 growth is in comparison with Q2
2013 core results excluding divestments in 2013. See page 25.
Core operating profit - Q2 2014
Core operating profit was GBP1,407 million, 14% lower than Q2 2013
in CER terms on a turnover decline of 4%. The core operating margin
of 25.3% was 4.2 percentage points lower than in Q2 2013. Excluding
currency effects, the margin decreased 3.2 percentage points. This
primarily reflected an increase in the SG&A margin as SG&A costs
increased 3% on a turnover decline of 4%.
Cost of sales as a percentage of turnover was 27.7%, compared with
26.5% in Q2 2013. Net of adverse currency translation effects the
cost of sales percentage increased 0.5 percentage points. This reflected
adverse mix movements, particularly the decline in Pharmaceuticals
sales in the US, but also continuing investments in new launch capacity
and in future manufacturing technology that exceeded the benefit
of the Group's ongoing cost reduction programmes in the quarter.
SG&A costs as a percentage of sales were 34.6%, 2.6 percentage points
higher than Q2 2013. Excluding currency effects, the SG&A percentage
increased 2.5 percentage points reflecting continued investments
in the Group's multiple new product launches only partially offset
by the benefits in the quarter of the Group's restructuring programmes
and ongoing cost management efforts.
R&D expenditure declined 3% to GBP766 million (13.8% of turnover)
compared with GBP846 million (13.3% of turnover) in Q2 2013. This
reflected the completion of a number of large trials and the phasing
of ongoing project spending as well as continuing cost management
benefits.
Royalty income was GBP72 million (Q2 2013: GBP82 million) following
the conclusion of a number of royalty agreements.
Core operating profit - H1 2014
Core operating profit was GBP2,937 million, 7% lower than in H1
2013 in CER terms on a turnover decline of 3%. The core operating
margin of 26.3% was 3.4 percentage points lower than in Q2 2013.
Excluding currency effects, the margin decreased 1.2 percentage
points. This primarily reflected an increase in the SG&A margin
as SG&A costs were flat on a turnover decline of 3%.
Cost of sales as a percentage of turnover was 27.7% compared with
27.1% in H1 2013. Net of adverse currency translation effects the
cost of sales percentage decreased 0.2 percentage points. This reflected
the benefit of the Group's ongoing cost reduction programmes in
H1, partially offset by adverse mix movements, particularly the
decline in Pharmaceuticals sales in the US, but also continuing
investments in new launch capacity and in future manufacturing technology.
SG&A costs as a percentage of sales were 33.4%, 2.1 percentage points
higher than H1 2013. Excluding currency effects the SG&A percentage
increased 1.0 percentage points reflecting continued investments
in the Group's multiple new product launches only partially offset
by the benefits in H1 of the Group's restructuring programmes and
ongoing cost management efforts.
R&D expenditure declined 4% to GBP1,550 million (13.9% of turnover)
compared with GBP1,701 million (13.5% of turnover) in H1 2013. This
reflected the phasing of ongoing project spending as well as the
completion of a number of large trials and continuing cost management
benefits.
Royalty income was GBP142 million (H1 2013: GBP195 million) following
the conclusion of a number of royalty agreements. H1 2013 also included
a prior year catch-up adjustment.
Core profit after tax and core earnings per share - Q2 2014
Net finance expense was GBP156 million compared with GBP183 million
in Q2 2013, reflecting GSK's strategy to improve the funding profile
of the Group.
The share of profits of associates and joint ventures was GBP8 million
(Q2 2013: GBP7million).
Tax on core profit amounted to GBP277 million and reflected an effective
core tax rate of 22.0% (Q2 2013: 24.0%).
Core EPS of 19.1p decreased 12% in CER terms but declined 25% at
actual exchange rates due to the impact of currencies on the translation
of overseas results.
Core profit after tax and core earnings per share - H1 2014
Net finance expense was GBP317 million compared with GBP359 million
in H1 2013, reflecting GSK's strategy to improve the funding profile
of the Group despite net debt at 30 June 2014 being GBP1.8 billion
higher than at December 2013.
The share of profits of associates and joint ventures was GBP9 million
(H1 2013 GBP18 million), reflecting the reduced shareholding in
the Aspen group, currency movements and a number of one-off adjustments.
Tax on core profit amounted to GBP578 million and reflected an effective
core tax rate of 22.0% (H1 2013: 23.1%).
Core EPS of 40.1p decreased 5% in CER terms but declined 22% at
actual exchange rates due to the impact of currencies on the translation
of overseas results and losses on intercompany transactions of GBP47
million (H1 2013: gain of GBP36 million).
Outlook for 2014
In 2014, GSK now expects to deliver full year core EPS on a CER
and ex-divestment basis broadly similar to last year (from 2013
base of 108.4p adjusted for divestments completed during 2013).
Currency impact
The Q2 2014 results are based on average exchange rates, principally
GBP1/$1.68, GBP1/EUR1.23 and GBP1/Yen 173. Comparative exchange
rates are given on page 39. The period-end exchange rates were GBP1/$1.71,
GBP1/EUR1.25 and GBP1/Yen 173.
In the quarter, turnover declined 4% CER and declined 13% at actual
exchange rates. Core EPS for the quarter of 19.1p was down 12% in
CER terms and down 25% at actual rates. The negative currency impact
reflected the strengthening of Sterling against the US Dollar, the
Euro, Japanese Yen and a range of Emerging Markets currencies. The
relatively lower proportion of the cost base in Emerging Markets
contributed to the greater adverse currency impact on EPS compared
with that on turnover.
In H1 2014, turnover declined 3% CER and declined 12% at actual
exchange rates. Core EPS for the quarter of 40.1p was down 5% in
CER terms and down 22% at actual rates. The negative currency impact
reflected the strengthening of Sterling against the US Dollar, the
Euro, Japanese Yen and a range of Emerging Markets currencies. The
relatively lower proportion of the cost base in Emerging Markets
contributed to the greater adverse currency impact on EPS compared
with that on turnover. In addition, losses on settled intercompany
transactions were GBP47 million in H1 2014 compared with a gain
of GBP36 million in H1 2013, the movement representing 2 percentage
points of the negative currency impact of 17% on core EPS.
If exchange rates were to hold at the Q2 2014 period-end rates for
the rest of 2014, the estimated adverse impact on 2014 sterling
turnover would be around 7%, and if there were no further exchange
gains or losses, the estimated adverse impact on 2014 sterling core
EPS would be around 12%.
Core adjustments
The adjustments that reconcile core operating profit, profit after
tax and earnings per share to total results are as follows:
Q2 2014 Q2 2013
------------------------------------------------------------ ------------------------------------------------------------
Profit Profit
Operating after Operating after
profit tax EPS profit tax EPS
GBPm GBPm p GBPm GBPm p
------------ ------------ ------------ ------------ ------------ ------------
Core results
before
divestments 1,407 982 19.1 1,878 1,294 25.3
Divestments 65 49 1.0
------------ ------------ ------------ ------------ ------------ ------------
Core results
including
divestments 1,407 982 19.1 1,943 1,343 26.3
Intangible
asset
amortisation (152) (115) (2.3) (133) (97) (2.0)
Intangible
asset
impairment (1) (1) - (135) (100) (2.1)
Major
restructuring
costs (101) (79) (1.6) (173) (39) (0.8)
Legal costs (47) (42) (0.9) (24) (24) (0.5)
Acquisition
accounting
and
other 31 (43) (0.7) (40) 1 0.6
------------ ------------ ------------ ------------ ------------ ------------
(270) (280) (5.5) (505) (259) (4.8)
------------ ------------ ------------ ------------ ------------ ------------
Total results 1,137 702 13.6 1,438 1,084 21.5
------------ ------------ ------------ ------------ ------------ ------------
H1 2014 H1 2013
------------------------------------------------------------ ------------------------------------------------------------
Profit Profit
Operating after Operating after
profit tax EPS profit tax EPS
GBPm GBPm p GBPm GBPm p
------------ ------------ ------------ ------------ ------------ ------------
Core results
before
divestments 2,937 2,051 40.1 3,754 2,623 51.4
Divestments 114 86 1.8
------------ ------------ ------------ ------------ ------------ ------------
Core results
including
divestments 2,937 2,051 40.1 3,868 2,709 53.2
Intangible
asset
amortisation (322) (241) (5.0) (267) (194) (4.0)
Intangible
asset
impairment (49) (40) (0.8) (134) (99) (2.0)
Major
restructuring
costs (180) (140) (2.9) (259) (184) (3.8)
Legal costs (155) (128) (2.7) (90) (78) (1.6)
Acquisition
accounting
and
other (28) (81) (1.2) (100) (41) (0.4)
------------ ------------ ------------ ------------ ------------ ------------
(734) (630) (12.6) (850) (596) (11.8)
------------ ------------ ------------ ------------ ------------ ------------
Total results 2,203 1,421 27.5 3,018 2,113 41.4
------------ ------------ ------------ ------------ ------------ ------------
Full reconciliations between core results and total results are
set out on pages 45 to 48 and the definition of core results is
set out on page 25.
Total operating profit and total earnings per share - Q2 2014
Total operating profit was GBP1,137 million compared with GBP1,438
million in Q2 2013. The non-core items resulted in total net charges
of GBP270 million in the quarter (Q2 2013: GBP505 million, excluding
divestments).
The intangible asset amortisation increased to GBP152 million (Q2
2013: GBP133 million) reflecting the acceleration of amortisation
of Lovaza.
Major restructuring charges of GBP101 million (Q2 2013: GBP173 million)
included GBP21 million under the Operational Excellence programme
and GBP76 million under the Major Change programme.
Legal charges of GBP47 million (Q2 2013: GBP24 million) principally
related to higher litigation costs.
Acquisition accounting and other adjustments resulted in net income
of GBP31 million (Q2 2013: charge of GBP40 million) and included
a gain of GBP106 million arising from the termination in Europe
of the commercialisation agreement for Prolia with Amgen. Other
adjustments included charges related to major acquisitions, equity
investment and asset disposals, one-off required regulatory charges
in R&D and certain other adjusting items.
The charge for taxation on total profits amounted to GBP284 million
and represented a total effective tax rate of 28.8% (Q2 2013: 15.8%),
reflecting the differing tax effects of the various non-core items.
See 'Taxation' on page 38.
Total EPS was 13.6p, compared with 21.5p in Q2 2013 a decrease of
7.9p, of which 2.9p was due to currency. Non-core net charges totalled
5.5p per share compared with 4.8p in Q2 2013, excluding divestments.
Total operating profit and total earnings per share - H1 2014
Total operating profit was GBP2,203 million compared with GBP3,018
million in H1 2013. The non-core items resulted in total net charges
of GBP734 million in the six months (H1 2013: GBP850 million, excluding
divestments).
The intangible asset amortisation increased to GBP322 million (H1
2013: GBP267 million) reflecting the acceleration of amortisation
of Lovaza.
Major restructuring charges of GBP180 million (H1 2013: GBP 259
million) included GBP53 million under the Operational Excellence
programme and GBP122 million under the Major Change programme. The
Major Change programme focuses on opportunities to simplify our
supply chain processes, build the Group's capabilities in manufacturing
and R&D, and restructure our European Pharmaceuticals business.
The programme is expected to cost GBP1.5 billion, of which the non-cash
charge will be GBP350 million. It has delivered approximately GBP0.3
billion of incremental savings and remains on track to deliver annual
pre-tax savings of at least GBP1.0 billion by 2016.
Legal charges of GBP155 million (H1 2013: GBP90 million) principally
related to settlement of existing anti-trust matters and higher
litigation costs.
Acquisition accounting and other adjustments resulted in a net charge
of GBP28 million (H1 2013: GBP100 million) and included a gain of
GBP106 million arising from the termination in Europe of the commercialisation
agreement for Prolia with Amgen. Other items also included charges
related to major acquisitions, business, equity investment and asset
disposals, one-off required regulatory charges in R&D and certain
other adjusting items.
The charge for taxation on total profits amounted to GBP468 million
and represented a total effective tax rate of 24.8% (H1 2013: 21.7%),
reflecting the differing tax effects of the various non-core items.
See 'Taxation' on page 38.
Total EPS was 27.5p, compared with 41.4p in H1 2013 a decrease of
13.9p, of which 8.1p was due to currency. Non-core net charges totalled
12.6p per share compared with 11.8p in H1 2013, excluding divestments.
Cash generation and conversion
Cash flow and net debt
Q2 2014 H1 2014 H1 2013
------------ ------------ ------------
Net cash inflow from operating activities
(GBPm) 766 1,693 2,958
Adjusted net cash inflow from operating
activities* (GBPm) 971 1,939 3,059
Free cash flow* (GBPm) 40 507 1,712
Adjusted free cash flow* (GBPm) 245 753 1,813
Free cash flow growth (%) (96)% (70)% 2%
Free cash flow conversion* (%) 35% 52% 87%
Net debt (GBPm) 14,423 14,423 15,720
------------ ------------ ------------
* Adjusted net cash inflow from operating activities, free cash
flow, adjusted free cash flow and free cash flow conversion are
defined on page 25.
The net cash inflow from operating activities for the quarter was
GBP766 million (Q2 2013: GBP1,711 million). Excluding legal (GBP205
million outflow; Q2 2013: GBP37 million inflow), the adjusted net
cash inflow from operating activities was GBP971 million (Q2 2013:
GBP1,674 million), a 42% decrease compared with 2013. This primarily
reflected the impact of the strength of Sterling on profits and
lower profits, including the impact of divestments.
The net cash inflow from operating activities for the six months
was GBP1,693 million (H1 2013: GBP2,958 million). Excluding legal
settlements of GBP246 million (H1 2013: GBP101 million), the adjusted
net cash inflow from operating activities was GBP1,939 million (H1
2013: GBP3,059 million), a 37% decrease compared with 2013. This
primarily reflected the impact of the strength of Sterling on profits
and lower profits, including the impact of divestments.
Free cash flow was GBP507 million for the six months. Excluding
legal payments, adjusted free cash flow was GBP753 million (H1 2013:
GBP1,813 million). The decrease primarily reflected the impact of
lower sterling profits and the impact of divestments. The Group
paid dividends to shareholders of GBP2,009 million and spent GBP237
million on repurchasing shares.
At 30 June 2014, net debt was GBP14.4 billion, compared with GBP12.6
billion at 31 December 2013, comprising gross debt of GBP17.6 billion
and cash and liquid investments of GBP3.2 billion. The increase
in net debt reflected the consideration of GBP0.7 billion paid to
increase the shareholding in the Group's Indian pharmaceutical subsidiary
from 50.7% to 75% and the acquisition of the remaining 30% of GSK's
Indonesian Consumer Healthcare business held by a third party. At
30 June 2014, GSK had short-term borrowings (including overdrafts)
repayable within 12 months of GBP3,143 million with loans of GBP2,007
million repayable in the subsequent year.
Working capital
30 June 31 March 31 December 30 September 30 June
2014 2014 2013 2013 2013
------------ ------------ ------------ ------------ ------------
Working capital conversion
cycle* (days) 208 205 176 201 198
Working capital percentage
of turnover (%) 22 22 19 22 22
------------ ------------ ------------ ------------ ------------
* Working capital conversion cycle is defined on page 25.
The reported working capital conversion cycle days are distorted
by divestments made in 2013 and the intangible asset impairments
included in the denominator used in the conversion cycle computation.
The 30 June 2014 and year-end 2013 conversion cycles adjusted for
these factors were around 218 days and 190 days respectively. The
increase of 28 days is predominantly due to the expected stock building
behind new launches and seasonal phasing of a number of products
particularly Vaccines and a reduction in the denominator arising
from the translation of overseas revenue and costs due to the strengthening
of Sterling.
On a similar adjusted basis, the 30 June 2014 cycle of 218 days
compares with 204 days at 30 June 2013, an increase of 14 days,
which was predominantly due to stock building.
Returns to shareholders
GSK's commitment is to use free cash flow to support increasing
dividends, undertake share repurchases or, where returns are more
attractive, reinvest in the business, including bolt-on acquisitions.
In determining specific share repurchase levels, the company also
considers the development of free cash flow during the year. Given
the impact of the recent sustained strength of Sterling on free
cash flow in the year-to-date it is likely that share repurchases
over the balance of 2014 will be immaterial.
Quarterly dividends
The Board has declared a second interim dividend of 19 pence per
share (Q2 2013: 18 pence per share).
Payment of dividends
The equivalent interim dividend receivable by ADR holders is 64.8204
cents per ADS based on an exchange rate of GBP1/$1.7058. One ADS
represents two ordinary shares. The ex-dividend date will be 6 August
2014, with a record date of 8 August 2014 and a payment date of
2 October 2014.
Paid/ Pence per
payable share GBPm
------------ ------------ ------------
2014
First interim 10 July 2014 19 913
Second interim 2 October 2014 19 913
------------ ------------
2013
First interim 11 July 2013 18 878
Second interim 3 October 2013 18 864
Third interim 9 January 2014 19 910
Fourth interim 10 April 2014 23 1,099
------------ ------------
78 3,751
------------ ------------
Share repurchases
During the quarter, GSK repurchased 13.0 million shares at a cost
of GBP210 million (Q2 2013: GBP367 million), bringing the total
for the six months to 14.7 million shares (GBP238 million), including
a quarter-end settlement accrual of GBP1 million. The company issued
2.6 million shares under employee share schemes amounting to GBP32
million (Q2 2013: GBP307 million).
The weighted average number of shares for Q2 2014 was 4,812 million,
compared with 4,855 million in Q2 2013, a reduction of 1%.
Divisional performance
Pharmaceuticals
Q2 2014 H1 2014
------------------------------------ ------------------------------------
GBPm CER% GBPm CER%
------------ ------------ ------------ ------------
Respiratory 1,559 (8) 3,113 (9)
Oncology 295 39 556 33
Cardiovascular, metabolic and
urology 233 (7) 474 (2)
Immuno-inflammation 42 21 88 42
Other pharmaceuticals 596 2 1,197 4
------------ ------------ ------------ ------------
Innovative Pharmaceuticals 2,725 (2) 5,428 (2)
ViiV Healthcare (HIV) 352 13 663 9
------------ ------------ ------------ ------------
3,077 - 6,091 (1)
Established Products 696 (24) 1,510 (18)
------------ ------------ ------------ ------------
3,773 (6) 7,601 (5)
------------ ------------ ------------ ------------
Respiratory
Q2 2014 (GBP1,559 million; down 8%)
Respiratory sales in the quarter declined 8% to GBP1,559 million.
Seretide/Advair sales were down 12% to GBP1,095 million, Flixotide/Flovent
sales decreased 6% to GBP172 million and Ventolin sales grew 8%
to GBP155 million. Xyzal sales, almost exclusively made in Japan,
grew 42% to GBP30 million.
In the US, Respiratory sales fell 14%, primarily reflecting the
continued price and contracting pressures, including for new products,
which affected the ICS/LABA combination market, where Advair and
Breo Ellipta compete, and also the LABA/LAMA combination market,
where Anoro Ellipta has recently been introduced. Underlying US
respiratory sales, excluding wholesaler and retailer stocking patterns,
were down an estimated 17%, with price down 6% and volume down 11%.
Advair sales were down 19% to GBP528 million, with an estimated
underlying reduction of 21% for the quarter (14% volume decline
and a 7% negative impact of price and mix). Flovent sales were down
6% to GBP106 million, compared with an estimated underlying reduction
of 5% for the quarter (4% volume decrease and a 1% negative impact
of price and mix) and Ventolin grew 14% to GBP73 million. The estimated
underlying growth of Ventolin was 3%, with the reported sales benefiting
from net favourable adjustments to accruals for returns and rebates.
The two new products for COPD, Breo Ellipta launched in Q4 2013,
and Anoro Ellipta launched in Q2 2014, sold GBP5 million each.
European Respiratory sales were down 3%, primarily reflecting increasing
competition. Seretide sales declined 4% to GBP348 million, primarily
due to price. Relvar Ellipta, approved in Europe for both COPD and
asthma, was launched in Q1 2014, and recorded sales of GBP3 million
in the quarter.
Respiratory sales in Emerging Markets fell 3%, but sales excluding
China were flat. Seretide fell 4% to GBP98 million, in part due
to the phasing of shipments and the impact of generic copies in
some markets. Sales growth of Ventolin, up 7% to GBP40 million,
and Veramyst, up 18% to GBP18 million, was offset by declines in
the rest of the Respiratory portfolio.
In Japan, Respiratory sales overall fell 4% to GBP95 million despite
strong growth in Xyzal, up 58% to GBP26 million. This growth was
more than offset by lower sales for Adoair, down 26% to GBP45 million,
in part due to destocking following local tax changes but also increasing
competitive pressures. Relvar Ellipta recorded sales of GBP2 million
in the quarter, but were limited by the "Ryotan" restrictions, which
limit prescriptions to two weeks' supply in the first year after
launch of a new product.
H1 2014 (GBP3,113 million; down 9%)
Respiratory sales in H1 2014 declined 9% to GBP3,113 million. Seretide/Advair
sales were down 14% to GBP2,134 million, Flixotide/Flovent sales
decreased 4% to GBP365 million and Ventolin sales grew 11% to GBP328
million. Xyzal sales, almost exclusively made in Japan, grew 4%
to GBP68 million.
In the US, Respiratory sales fell 17%, primarily reflecting the
continued price and contracting pressures in the market. Underlying
US respiratory sales, excluding wholesaler and retailer stocking
patterns, were down an estimated 14%, with price, after net favourable
adjustments to accruals for returns and rebates, down 2% and volume
down 12%.
US Advair sales were down 24% to GBP983 million, with an estimated
underlying reduction of 21% for the six months (14% volume decline
and a 7% negative impact of price and mix). Flovent sales were down
2% to GBP229 million, with an estimated underlying reduction of
6% (7% volume decrease and a 1% positive impact of price and mix).
Ventolin sales grew 22% to GBP165 million, but the estimated underlying
decline was 3%. Breo Ellipta recorded sales of GBP6 million and
Anoro Ellipta sold GBP5 million in H1 2014.
European Respiratory sales were down 3%, primarily reflecting increasing
competition. Seretide sales declined 4% to GBP700 million, primarily
due to price reductions. Relvar Ellipta recorded sales of GBP5 million
in the six months.
Respiratory sales in Emerging Markets were flat, but grew 3% excluding
China. Seretide was flat at GBP195 million (down 1% excluding China).
Sales growth of Ventolin, up 7% to GBP78 million, and Veramyst,
up 21% to GBP35 million, was offset by declines in the rest of the
Respiratory portfolio.
In Japan, Respiratory sales overall fell 4% to GBP243 million, as
sales growth of Xyzal, up 4% to GBP60 million, and the launch of
Relvar Ellipta, which sold GBP3 million in the six months, were
more than offset by lower sales for the rest of the Respiratory
portfolio. Sales of Adoair were flat.
Oncology
Q2 2014 (GBP295 million; up 39%)
Oncology sales in the quarter grew 39% to GBP295 million. Votrient
sales grew 41% to GBP101 million and Promacta sales grew 36% to
GBP55 million. Arzerra sales fell 18% to GBP12 million and Tykerb/Tyverb
sales fell 6% to GBP45 million. Generic competition to both Hycamtin
and Argatroban was more than offset by new launches as Tafinlar
and Mekinist recorded sales of GBP33 million and GBP16 million,
respectively.
In the US, Oncology grew 42% to GBP119 million. Votrient sales grew
28% to GBP42 million and sales of Promacta grew 21% to GBP21 million.
Mekinist and Tafinlar sales were GBP15 million and GBP14 million,
respectively. Both were launched in late Q2 2013.
In Europe, Oncology grew 39% to GBP106 million, led by sales of
Votrient, which increased by 37% to GBP39 million in the period.
Promacta grew 46% to GBP18 million and sales of Tafinlar, which
was launched in Q3 2013, were GBP16 million. In Emerging Markets
and Japan, Oncology sales in the quarter grew 47% to GBP44 million
and 6% to GBP15 million, respectively.
H1 2014 (GBP556 million; up 33%)
Oncology sales in the six months grew 33% to GBP556 million. Votrient
sales grew 36% to GBP188 million and Promacta sales grew 33% to
GBP103 million. Arzerra sales fell 21% to GBP28 million and Tykerb/Tyverb
sales fell 10% to GBP87 million. Generic competition to both Hycamtin
and Argatroban was more than offset by new launches as Tafinlar
and Mekinist recorded sales of GBP55 million and GBP29 million,
respectively.
In the US, Oncology grew 36% to GBP227 million. Votrient sales grew
23% to GBP79 million and sales of Promacta grew 20% to GBP39 million.
Mekinist and Tafinlar sales were GBP28 million and GBP25 million,
respectively.
In Europe, Oncology grew 31% to GBP201 million, led by sales of
Votrient, which increased by 39% to GBP76 million in the period.
Promacta grew 46% to GBP34 million and sales of Tafinlar, were GBP26
million. In Emerging Market and Japan, Oncology sales in H1 2014
grew 42% to GBP80 million and 10% to GBP29 million, respectively.
Cardiovascular, metabolic and urology
Q2 2014 (GBP233 million; down 7%)
Sales in the category fell 7% to GBP233 million. The Avodart franchise
fell 2% to GBP199 million, with 9% growth in sales of Duodart/Jalyn
and a 5% decline in sales of Avodart, and Levitra fell 33% to GBP24
million in the quarter. Sales of Prolia decreased 25% to GBP7 million,
in part due to the agreement with Amgen to terminate the joint commercialisation
in a number of European markets, Mexico and Russia, which was announced
in April.
On a regional basis, sales in the US were down 20% to GBP90 million,
Europe down 5% to GBP71 million and Japan, down 14% to GBP22 million,
but sales in Emerging Markets were up 11% to GBP35 million.
H1 2014 (GBP474 million; down 2%)
Sales in the category fell 2% to GBP474 million. The Avodart franchise
grew 2% to GBP398 million, with 15% growth in sales of Duodart/Jalyn
and a 2% decline in sales of Avodart. Levitra fell 30% to GBP48
million in the period. Sales of Prolia grew 18% to GBP23 million,
prior to the termination in Europe of the joint commercialisation
agreement with Amgen.
On a regional basis, sales in the US, down 19% to GBP173 million,
were partly offset by Europe, up 4% to GBP152 million, Emerging
Markets, up 20% to GBP68 million, and Japan, up 17% to GBP53 million.
Immuno-inflammation
Q2 2014 (GBP42 million; up 21%)
Immuno-inflammation sales grew 21% to GBP42 million. Benlysta turnover
in the quarter was GBP41 million, up 21%. In the US, Benlysta sales
were GBP37 million, up 17%.
H1 2014 (GBP88 million; up 42%)
Immuno-inflammation sales grew 42% to GBP88 million. Benlysta turnover
in the six months was GBP79 million, up 28%. In the US, Benlysta
sales were GBP71 million, up 24%.
Other pharmaceuticals
Q2 2014 (GBP596 million; up 2%)
Other therapy areas grew 2% to GBP596 million, and included GBP36
million of Theravance milestone income received in the quarter (Q2
2013: GBP19 million). This growth was partially offset by generic
competition to Dermatology products, which primarily affected sales
of Soriatane in the US, and by a decline in sales of Mepron, down
68% to GBP7 million, following the start of generic competition
in March 2014.
H1 2014 (GBP1,197 million; up 4%)
Other therapy areas grew 4% to GBP1,197 million, principally reflecting
government stockpiling of Relenza in Japan, which more than doubled
to GBP45 million and included Theravance milestone income of GBP45
million (H1 2013: GBP19 million). This growth was partially offset
by generic competition to Dermatology products, which primarily
affected sales of Soriatane in the US, and by a decline in sales
of Mepron.
ViiV Healthcare (HIV)
Q2 2014 (GBP352 million; up 13%)
ViiV Healthcare sales increased 13%, with the US up 38%, Emerging
Markets down 22%, Japan up 8%, and Europe flat. Epzicom/Kivexa sales
increased 6% to GBP188 million, Selzentry sales increased 14% to
GBP38 million and Tivicay, which was launched in the US in Q3 2013
and in Europe in Q1 2014, recorded sales of GBP64 million. This
growth was partially offset by declines in the mature portfolio,
mainly driven by generic competition to both Combivir, down 33%
to GBP16 million, and Trizivir, down 65% to GBP7 million.
H1 2014 (GBP663 million; up 9%)
ViiV Healthcare sales increased 9%, with the US up 20%, Emerging
Markets down 6%, Japan up 17%, and Europe down 1%. Epzicom/Kivexa
sales increased 9% to GBP365 million, Selzentry sales increased
4% to GBP71 million and Tivicay recorded sales of GBP95 million.
This growth was partially offset by declines in the mature portfolio,
mainly driven by generic competition to both Combivir, down 42%
to GBP32 million, and Trizivir, down 60% to GBP18 million.
Established Products
Q2 2014 (GBP696 million; down 24%)
Established Products turnover fell 24% to GBP696 million with declines
in all regions. Sales in the US were down 40% to GBP183 million,
Europe was down 10% to GBP151 million, Emerging Markets was down
14% to GBP243 million and Japan was down 21% to GBP106 million.
Generic competition to Lovaza in the US, down 81% to GBP27 million,
Seroxat/Paxil, down 29% to GBP49 million, Valtrex, down 24% to GBP37
million, and Zeffix, down 20% to GBP40 million, all contributed
to the decline in the category.
H1 2014 (GBP1,510 million; down 18%)
Established Products turnover fell 18% to GBP1,510 million with
declines in all regions. Sales in the US were down 29% to GBP439
million, Europe was down 12% to GBP318 million, Emerging Markets
was down 11% to GBP507 million and Japan was down 12% to GBP222
million.
Generic competition to Lovaza down 54% to GBP132 million, Seroxat/Paxil,
down 22% to GBP104 million, Valtrex, down 24% to GBP74 million,
and Zeffix, down 18% to GBP85 million, all contributed to the decline
in the category.
Vaccines
Q2 2014 H1 2014
------------------------------------ ------------------------------------
GBPm CER% GBPm CER%
------------ ------------ ------------ ------------
Boostrix 94 47 154 45
Cervarix 22 (48) 56 (28)
Fluarix, FluLaval 6 (14) 15 (23)
Hepatitis 142 (10) 262 (9)
Infanrix, Pediarix 202 - 404 9
Rotarix 103 31 189 24
Synflorix 105 51 167 7
Other 92 (13) 177 (9)
------------ ------------ ------------ ------------
766 5 1,424 4
------------ ------------ ------------ ------------
Q2 2014 (GBP766 million; up 5%)
Vaccines sales grew 5% to GBP766 million with the US down 2%, Europe
down 5% and Japan down 9%, more than offset by a strong performance
in Emerging Markets, up 26%, which benefited from a favourable comparison
with Q2 2013 as a result of phasing effects of tenders, principally
of Synflorix and Rotarix.
Boostrix sales increased 47% to GBP94 million, reflecting growth
in all regions, benefiting from phasing of tenders in Emerging Markets
and a strong performance in Germany.
Cervarix sales declined 48% to GBP22 million in the quarter, largely
reflecting declines in Emerging Markets.
Sales of hepatitis vaccines fell 10% to GBP142 million, in part
reflecting the phasing of shipments in the US and Europe.
Infanrix/Pediarix was flat at GBP202 million as growth from Emerging
Markets was offset by a decline in Europe.
Rotarix sales were up 31% to GBP103 million, with growth driven
by tender shipments in Emerging Markets.
Synflorix sales grew 51% to GBP105 million, also reflecting the
phasing of tenders in Emerging Markets.
H1 2014 (GBP1,424 million; up 4%)
Vaccines sales grew 4% to GBP1,424 million with the US up 9% and
Emerging Markets up 10%, partly offset by declines in Europe, down
1%, and Japan, down 27%. The US performance benefited from a favourable
comparison with H1 2013, as a result of CDC stockpile movements
whilst the Emerging Markets performance primarily reflected the
phasing of sales of Boostrix and Rotarix.
Boostrix sales increased 45% to GBP154 million, reflecting growth
in all regions. Sales in the US benefited in part from competitor
supply issues, and in Emerging Markets as a result of the phasing
of tenders.
Cervarix sales declined 28% to GBP56 million in H1, largely reflecting
declines in Japan.
Sales of hepatitis vaccines fell 9% to GBP262 million, in part reflecting
the phasing of shipments in the US and Emerging Markets.
Infanrix/Pediarix grew 9% to GBP404 million. Most of the growth
came from the US, which benefited from a favourable comparison with
the same period last year as a result of product withdrawal from
the CDC stockpile.
Rotarix sales were up 24% to GBP189 million, with growth driven
by tender shipments in Europe and Emerging Markets.
Synflorix sales grew 7% to GBP167 million, reflecting the phasing
of tenders in Emerging Markets.
Consumer Healthcare
Q2 2014 H1 2014
---------------------------------------- ----------------------------------------
Turnover GBPm CER% GBPm CER%
------------ ------------ ------------ ------------
Wellness 366 (9) 782 (8)
Oral health 434 - 891 2
Nutrition 151 7 321 10
Skin health 71 (19) 155 (11)
------------ ------------ ------------ ------------
Total 1,022 (4) 2,149 (2)
------------ ------------ ------------ ------------
Total including
divestments 1,022 (14) 2,149 (11)
------------ ------------ ------------ ------------
Q2 2014 H1 2014
---------------------------------------- ----------------------------------------
Turnover GBPm CER% GBPm CER%
------------ ------------ ------------ ------------
USA 195 (11) 397 (10)
Europe 291 (10) 619 (7)
Rest of World 536 3 1,133 4
------------ ------------ ------------ ------------
Total 1,022 (4) 2,149 (2)
------------ ------------ ------------ ------------
Q2 2014 (GBP1,022 million; down 4%)
Consumer Healthcare turnover was down 4% in the quarter, adversely
impacted by a number of supply issues and slowing in some Rest of
World markets. Excluding the impact of supply interruptions, sales
grew 4% in the quarter, compared with estimated market growth for
the relevant categories of approximately 3%. Actions to restore
supply are underway but supply will be affected for the remainder
of 2014.
Sales in Europe and the US were down 10% and 11%, respectively,
both reflecting supply issues. Growth in Rest of World markets of
3% reflected growth across most categories and markets, although
supply issues contributed to a 7% reduction of sales in China and
a 44% decline in sales of Smokers Health products.
Wellness sales were GBP366 million, down 9%, primarily due to supply
issues that significantly impacted sales of products for Smokers
Health, down 28%, and alli, down 92%.
Oral health sales were flat at GBP434 million. The continued growth
of Sensodyne, up 6%, was offset by a 19% decline in sales of Aquafresh
due in part to supply issues related to the transition to a new
manufacturing site in the US.
Nutrition sales grew 7% to GBP151 million. Horlicks, led by growth
in India, was up 5%, and Boost was up 11%.
Sales of products for Skin health were down 19% to GBP71 million,
primarily due to supply interruptions to Bactroban in China.
H1 2014 (GBP2,149 million; down 2%)
Consumer Healthcare turnover was down 2% in H1 2014, reflecting
the impact of supply issues, comparison to a strong cold and flu
season in Q1 2013 and slowing in some Rest of World markets in part
due to economic pressures. Estimated market growth was approximately
2%.
Sales in Europe and the US were down 7% and 10%, respectively, both
reflecting supply issues and product recalls, primarily on products
for Smokers Health and alli. Growth in Rest of World markets of
4% reflected growth across most categories and markets, partly offset
by a 6% reduction of sales in China and a 43% decline in sales of
Smokers Health products primarily due to supply issues.
Wellness sales were GBP782 million, down 8%, primarily due to the
supply issues and product recalls that significantly impacted sales
of products for Smokers Health, down 31%, and alli.
Oral health sales were up 2% to GBP891 million. The continued growth
of Sensodyne, up 10%, was offset by a 17% decline in sales of Aquafresh
which was impacted by supply issues in both Europe and the US together
with competitive pressures to the brand.
Nutrition sales grew 10% to GBP321 million. Horlicks was up 9%,
reflecting strong growth in India, and Boost was up 12%.
Sales of products for Skin health were down 11% to GBP155 million,
primarily due to lower sales of Bactroban in China.
Sales from new pharmaceutical and vaccine launches
Q2 2014 H1 2014
------------------------------------ ------------------------------------
GBPm CER% GBPm CER%
------------ ------------ ------------ ------------
Pharmaceuticals
Relvar/Breo
Respiratory: Ellipta 11 - 14 -
Anoro Ellipta 5 - 5 -
Oncology: Tafinlar 33 >100 55 >100
Mekinist 16 - 29 -
CVMU: Duodart/Jalyn 56 9 110 15
Immuno-inflammation: Benlysta 41 21 79 28
Other pharmaceuticals 2 (50) 4 (53)
ViiV Healthcare: Tivicay 64 - 95 -
Vaccines
Nimenrix 4 58 7 >100
Synflorix 105 51 167 7
------------ ------------ ------------ ------------
337 >100 565 73
------------ ------------ ------------ ------------
New products are those launched in the last five years (2010 to
2014 inclusive). Sales of new products were GBP337 million, which
more than doubled in the quarter and represented 7% of Pharmaceuticals
and Vaccines turnover. In the six months, sales of new products
were GBP565 million, grew 73% and represented 6% of Pharmaceuticals
and Vaccines turnover.
In Q4 2013, Breo Ellipta was launched in the US for COPD, and Relvar
Ellipta was launched in Europe for COPD and asthma in Q1 2014. In
addition, Anoro Ellipta was launched in the US in April 2014 for
the treatment of COPD.
Research and development
GSK remains focused on delivering an improved return on its investment
in R&D. Sales contribution, reduced attrition and cost reduction
are all important drivers of an improving internal rate of return.
R&D expenditure is not determined as a percentage of sales but instead
capital is allocated using strict returns based criteria depending
on the pipeline opportunities available.
The operations of Pharmaceuticals R&D are broadly split into Discovery
activities (up to the completion of phase IIa trials) and Development
work (from phase IIb onwards) each supported by specific and common
infrastructure and other shared services where appropriate. R&D
expenditure for Q2 2014 is analysed below.
Q2 2014 H1 2014 H1 2013
GBPm GBPm GBPm
------------ ------------ ------------
Discovery 185 355 368
Development 320 653 756
Facilities and central support functions 108 232 243
------------ ------------ ------------
613 1,240 1,367
Vaccines 115 234 247
Consumer Healthcare 38 76 87
------------ ------------ ------------
Core R&D before divestments 766 1,550 1,701
Divestments - - 3
------------ ------------ ------------
Core R&D including divestments 766 1,550 1,704
Amortisation and impairment of intangible
assets 19 75 183
Major restructuring costs 5 9 35
Acquisition accounting and other 19 34 31
------------ ------------ ------------
Total R&D 809 1,668 1,953
------------ ------------ ------------
GSK's Phase III/Registration Pharmaceuticals and Vaccines pipeline
The table below is provided as part of our quarterly update to show
events and changes to the late-stage pipeline during the quarter
and up to the date of this announcement. There were several news
events for late-stage pipeline assets in this quarter and these
are listed in the table below. Eperzan/Tanzeum was announced as
approved in the EU and US last quarter and has been removed from
the table, as have the Votrient ovarian cancer and MAGE-A3 NSCLC
programmes, which were stopped in Q1. Phase III programmes commenced
in Q2 for Promacta/Revolade in MDS and FF+UMEC+VI triple combination
for COPD and these have been added to the table.
Since Q1 2014 results, the following pipeline milestones have been
achieved:
-- FDA approval of Incruse (umeclidinium bromide) for COPD in US;
-- EMA approval of Anoro for COPD in Europe;
-- Announced darapladib SOLID study did not meet primary endpoint;
-- Announced Arzerra ORCHARRD study in DLCBL did not meet primary
endpoint;
-- Data from studies comparing Incruse+Advair to Advair alone in
COPD presented at ATS;
-- Filed Incruse for COPD in Japan;
-- Announced Tykerb/Tyverb ALTTO study did not meet primary endpoint;
-- Announced start of phase III programme for losmapimod in ACS;
-- Announced positive data from two studies comparing Incruse+Relvar/Breo
to Relvar/Breo alone;
-- Announced collaboration with Janssen over development of FDC once
daily pill of dolutegravir+rilpivirine;
-- Announced positive data from phase III PETIT-2 study of Promacta/Revolade
in paediatric patients with cITP;
-- Presented three year data from Eperzan/Tanzeum HARMONY studies
at ADA;
-- Announced start of phase III SUPPORT study for Promacta/Revolade
in myelodysplastic syndrome;
-- Announced Arzerra study in bulky fludarabine-refractory CLL did
not meet primary endpoint;
-- CHMP positive opinion for Triumeq (dolutegravir+abacavir+lamivudine);
-- Filed Breo for asthma in US;
-- EMA approval of Arzerra for first line treatment of CLL in Europe;
-- Japan approval of Anoro for COPD;
-- EMA approval of Mekinist for metastatic melanoma in Europe;
-- Start of phase III IMPACT study of FF+UMEC+VI triple combination
in COPD;
-- Announced that the COMBI-v head-to-head study of trametinib+dabrafenib
vs Zelboraf was stopped early by the IDMC as it met pre-specified
efficacy criteria.
Respiratory US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
Relvar/Breo Ellipta Asthma Filed Approved Filed in the US on 30
(FF/VI) June 2014 Nov 2013 June 2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
Anoro Ellipta COPD Approved Approved Approved in EU on 8
(umeclidinium Dec 2013 May 2014 May 2014. Approved in
bromide (UMEC) Japan on 4 July 2014.
+ vilanterol
(VI))
---------------------- ------------------------ ----------- ----------- -----------------------------
Incruse (umeclidinium COPD Approved Approved Approved in US on 30
bromide, UMEC) Apr 2014 Apr 2014 April 2014. Filed in
Japan on 23 May 2014.
Data from studies comparing
Incruse+Advair to Advair
alone in COPD presented
at ATS on 19 May 2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
vilanterol COPD Ph III Ph III
(VI)
---------------------- ------------------------ ----------- ----------- -----------------------------
fluticasone Asthma Filed n/a
furoate (FF) Oct 2013
---------------------- ------------------------ ----------- ----------- -----------------------------
mepolizumab Severe asthma Ph III Ph III
---------------------- ------------------------ ----------- ----------- -----------------------------
COPD Ph III Ph III
---------------------- ------------------------ ----------- ----------- -----------------------------
FF+UMEC+VI COPD Ph III Ph III Announced start of phase
III IMPACT study on
16 July 2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
Vaccines US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
Nimenrix MenACWY prophylaxis Ph II Approved
(MenACWY) Apr 2012
---------------------- ------------------------ ----------- ----------- -----------------------------
MAGE-A3 Melanoma Ph III Ph III
----------------------
Herpes zoster Shingles prophylaxis Ph III Ph III
---------------------- ------------------------ ----------- ----------- -----------------------------
Mosquirix (RTS,S) Malaria prophylaxis n/a n/a
---------------------- ------------------------ ----------- ----------- -----------------------------
HIV (ViiV Healthcare) US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
Triumeq HIV integrase Filed Filed Positive opinion from
(dolutegravir-Trii) inhibitor + abacavir Oct 2013 Oct 2013 CHMP on 27 June 2014.
+ lamivudine
fixed dose combination
---------------------- ------------------------ ----------- ----------- -----------------------------
Oncology US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
Tykerb/Tyverb Adjuvant breast n/a n/a Did not meet primary
cancer endpoint in ALTTO study.
----------------------
Arzerra CLL (first line Approved Approved Approved for first line
(ofatumumab) & relapsed) Apr 2014 July 2014 CLL in EU on 3 July
2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
NHL (FL) Ph III Ph III
---------------------- ------------------------ ----------- ----------- -----------------------------
NHL (DLBCL) n/a n/a Did not meet primary
endpoint in ORCHARRD
study.
---------------------- ------------------------ ----------- ----------- -----------------------------
Mekinist (trametinib, Metastatic melanoma Approved Approved Approved in EU on 4
MEK inhibitor) May 2013 July 2014 July 2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
trametinib Metastatic melanoma Approved Ph III Combi-v study vs Zelboraf
+ dabrafenib Jan 2014 stopped early by IDMC
in combination as met pre-specified
use efficacy criteria on
17 July 2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
Adjuvant melanoma Ph III Ph III
---------------------- ------------------------ ----------- ----------- -----------------------------
Promacta/Revolade Severe aplastic Filed Ph III
anaemia Feb 2014
---------------------- ------------------------ ----------- ----------- -----------------------------
Myelodysplastic Ph III Ph III Announced start of phase
syndrome (MDS) III SUPPORT study on
25 June 2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
Cardiovascular & Metabolic US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
darapladib Atherosclerosis n/a n/a Did not meet primary
endpoint in SOLID study.
---------------------- ------------------------ ----------- ----------- -----------------------------
losmapimod Acute coronary Ph III Ph III Announced start of phase
syndrome (ACS) III LATITUDE study on
5 June 2014.
---------------------- ------------------------ ----------- ----------- -----------------------------
Immuno-inflammation US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
Benlysta (s.c.) Systemic lupus Ph III Ph III
erythematosus
---------------------- ------------------------ ----------- ----------- -----------------------------
Benlysta (i.v.) vasculitis Ph III Ph III
---------------------- ------------------------ ----------- ----------- -----------------------------
sirukumab Rheumatoid arthritis Ph III Ph III
---------------------- ------------------------ ----------- ----------- -----------------------------
Rare Diseases US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
2696273 Adenosine deaminase Ph II/III Ph II/III
severe combined
immune deficiency
(ADA-SCID)
(Ex-vivo stem
cell gene therapy)
---------------------- ------------------------ ----------- ----------- -----------------------------
mepolizumab Eosinophilic Ph III Ph III
granulomatosis
with polyangiitis
(EGPA)
---------------------- ------------------------ ----------- ----------- -----------------------------
Infectious Diseases US EU News update in the quarter
------------------------------------------------ ----------- ----------- -----------------------------
tafenoquine Treatment and Ph III n/a
relapse prevention
of Plasmodium
vivax malaria
---------------------- ------------------------ ----------- ----------- -----------------------------
Definitions
Core results
Core results exclude the following items from total results: amortisation
and impairment of intangible assets (excluding computer software)
and goodwill; major restructuring costs, including those costs following
material acquisitions; legal charges (net of insurance recoveries)
and expenses on the settlement of litigation and government investigations,
and acquisition accounting adjustments relating to the consolidation
of material acquisitions, disposals of associates, products and
businesses, other operating income other than royalty income and
other items, together with the tax effects of all of these items.
GSK believes this approach provides a clearer view of the underlying
performance of the core business and should make the Group's results
more comparable with the majority of its peers.
During 2014, GSK will report core results performance measured against
2013 core results excluding divestments completed during 2013.
CER growth
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 comparative period.
All commentaries are presented in terms of CER growth, unless otherwise
stated.
Free cash flow
Free cash flow is the net cash inflow from operating activities
less capital expenditure, interest and dividends paid to non-controlling
interests plus proceeds from the sale of property, plant and equipment
and dividends received from joint ventures and associated undertakings.
It is used by management for planning and reporting purposes and
in discussions with and presentations to investment analysts and
rating agencies. Free cash flow growth is calculated on a reported
basis.
Adjusted free cash flow
Adjusted free cash flow excludes payments made to settle legal disputes.
Free cash flow conversion
Free cash flow conversion is free cash flow as a percentage of earnings
excluding after-tax legal charges and legal settlements.
Adjusted net cash inflow from operating activities
Adjusted net cash inflow from operating activities excludes payments
made to settle legal disputes.
Working capital conversion cycle
The working capital conversion cycle is calculated as the number
of days sales outstanding plus days inventory outstanding, less
days purchases outstanding.
Brand names and partner acknowledgements
Brand names appearing in italics throughout this document are trademarks
of GSK or associated companies or used under licence by the Group.
Cautionary statement regarding forward-looking statements
GSK cautions investors that any forward-looking statements or projections
made by GSK, including those made in this Announcement, are subject
to risks and uncertainties that may cause actual results to differ
materially from those projected. Such factors include, but are not
limited to, those described under Item 3.D 'Risk factors' in the
company's Annual Report on Form 20-F for 2013.
Contacts
GSK - 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 further information please visit www.gsk.com.
GSK enquiries:
UK Media enquiries: David Mawdsley +44 (0) 20 8047 (London)
5502
Simon Steel +44 (0) 20 8047 (London)
5502
David Daley +44 (0) 20 8047 (London)
5502
Catherine Hartley +44 (0) 20 8047 (London)
5502
Sarah Spencer +44 (0) 20 8047 (London)
5502
US Media enquiries: Stephen Rea +1 215 751 4394 (Philadelphia)
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Analyst/Investor enquiries: Ziba Shamsi +44 (0) 20 8047 (London)
5543
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(SRI & CG) 5534
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5503
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2248
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Financial information
Income statements
Q2 2014 Q2 2013 H1 2014 H1 2013
GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------
TURNOVER 5,561 6,618 11,174 13,089
Cost of sales (1,722) (1,972) (3,465) (3,948)
------------ ------------ ------------ ------------
Gross profit 3,839 4,646 7,709 9,141
Selling, general and administration (2,055) (2,216) (4,026) (4,296)
Research and development (809) (1,049) (1,668) (1,953)
Royalty income 72 82 142 195
Other operating income/(expense) 90 (25) 46 (69)
------------ ------------ ------------ ------------
OPERATING PROFIT 1,137 1,438 2,203 3,018
Finance income 18 11 36 34
Finance expense (177) (197) (359) (400)
Profit on disposal of interest in
associates and joint ventures - 29 - 29
Share of after tax profits of associates
and joint ventures 8 7 9 18
------------ ------------ ------------ ------------
PROFIT BEFORE TAXATION 986 1,288 1,889 2,699
Taxation (284) (204) (468) (586)
Tax rate % 28.8% 15.8% 24.8% 21.7%
------------ ------------ ------------ ------------
PROFIT AFTER TAXATION FOR THE PERIOD 702 1,084 1,421 2,113
------------ ------------ ------------ ------------
Profit attributable to non-controlling
interests 48 39 99 107
Profit attributable to shareholders 654 1,045 1,322 2,006
------------ ------------ ------------ ------------
702 1,084 1,421 2,113
------------ ------------ ------------ ------------
EARNINGS PER SHARE 13.6p 21.5p 27.5p 41.4p
------------ ------------ ------------ ------------
Diluted earnings per share 13.4p 21.2p 27.1p 40.9p
------------ ------------ ------------ ------------
Statement of comprehensive income
Q2 2014 Q2 2013
GBPm GBPm
------------ ------------
Profit for the period 702 1,084
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges (70) (140)
Fair value movements on available-for-sale investments 105 286
Reclassification of fair value movements on available-for-sale
investments (3) (16)
Deferred tax on fair value movements on available-for-sale
investments 5 2
Deferred tax reversed on reclassification of available-for-sale
investments 2 1
Fair value movements on cash flow hedges (2) (2)
Deferred tax on fair value movements on cash flow
hedges - 1
Reclassification of cash flow hedges to income statement - 1
Share of other comprehensive income of associates
and joint ventures - 11
------------ ------------
37 144
------------ ------------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests (10) (24)
Actuarial gains/(losses) on defined benefit plans 30 (162)
Deferred tax on actuarial movements in defined benefit
plans (2) 10
------------ ------------
18 (176)
------------ ------------
Other comprehensive income/(expense) for the period 55 (32)
------------ ------------
Total comprehensive income for the period 757 1,052
------------ ------------
Total comprehensive income for the period attributable
to:
Shareholders 719 1,037
Non-controlling interests 38 15
------------ ------------
757 1,052
------------ ------------
Statement of comprehensive income
H1 2014 H1 2013
GBPm GBPm
------------ ------------
Profit for the period 1,421 2,113
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges (87) (99)
Fair value movements on available-for-sale investments 75 379
Reclassification of fair value movements on available-for-sale
investments (4) (19)
Deferred tax on fair value movements on available-for-sale
investments (14) (1)
Deferred tax reversed on reclassification of available-for-sale
investments 2 1
Fair value movements on cash flow hedges (3) 2
Reclassification of cash flow hedges to income statement 2 (1)
Share of other comprehensive income of associates
and joint ventures 13 10
------------ ------------
(16) 272
------------ ------------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests (5) 10
Actuarial (losses)/gains on defined benefit plans (147) 559
Deferred tax on actuarial movements in defined benefit
plans 40 (171)
------------ ------------
(112) 398
------------ ------------
Other comprehensive (expense)/income for the period (128) 670
------------ ------------
Total comprehensive income for the period 1,293 2,783
------------ ------------
Total comprehensive income for the period attributable
to:
Shareholders 1,199 2,666
Non-controlling interests 94 117
------------ ------------
1,293 2,783
------------ ------------
Pharmaceuticals and Vaccines turnover
Three months ended 30 June 2014
Emerging
Total USA Europe Markets Japan
--------------------------- --------------------------- -------------------------- ----------------------------- ---------------------------
GBPm CER% GBPm CER% GBPm CER% GBPm CER% GBPm CER%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Respiratory 1,559 (8) 725 (14) 437 (3) 188 (3) 95 (4)
Avamys/Veramyst 58 7 7 (33) 23 - 18 18 7 >100
Flixotide/Flovent 172 (6) 106 (6) 24 (10) 13 14 7 (27)
Relvar/Breo Ellipta 11 - 5 - 3 - 1 - 2 -
Seretide/Advair 1,095 (12) 528 (19) 348 (4) 98 (4) 45 (26)
Ventolin 155 8 73 14 30 - 40 7 1 -
Other 68 12 6 >100 9 - 18 (31) 33 37
Oncology 295 39 119 42 106 39 44 47 15 6
Arzerra 12 (18) 7 (30) 5 (29) - - - -
Mekinist 16 - 15 - - - - - - -
Promacta 55 36 21 21 18 46 7 40 7 13
Tafinlar 33 >100 14 >100 16 - - - - -
Tyverb/Tykerb 45 (6) 11 (20) 18 (14) 13 45 1 (60)
Votrient 101 41 42 28 39 37 12 67 4 100
Other 33 (5) 9 (10) 10 22 12 36 3 50
Cardiovascular,
metabolic and
urology
(CVMU) 233 (7) 90 (20) 71 (5) 35 11 22 (14)
Avodart 199 (2) 67 (13) 70 9 27 15 22 (14)
Other 34 (30) 23 (34) 1 (100) 8 - - -
Immuno-inflammation 42 21 38 17 3 50 - - - -
Benlysta 41 21 37 17 3 50 - - - -
Other 1 - 1 - - - - - - -
Other
pharmaceuticals 596 2 29 (48) 163 3 272 5 46 (12)
Dermatology 122 (21) 11 (63) 42 (2) 59 (14) 6 (13)
Augmentin 147 8 (1) - 43 - 97 11 2 (33)
Other
anti-bacterials 53 (2) 2 - 13 - 39 - 1 -
Rare diseases 99 (13) 9 (66) 34 13 12 17 38 (8)
Other 175 36 8 >100 31 6 65 21 (1) <(100)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Innovative
Pharmaceuticals 2,725 (2) 1,001 (11) 780 2 539 5 178 (7)
Vaccines 766 5 192 (2) 239 (5) 283 26 9 (9)
Boostrix 94 47 43 12 26 47 18 >100 - -
Cervarix 22 (48) 1 (50) 10 (15) 10 (52) - -
Fluarix, FluLaval 6 (14) 2 (50) (1) - 4 - - -
Hepatitis 142 (10) 56 (16) 47 (8) 30 (6) - -
Infanrix, Pediarix 202 - 66 - 93 (5) 31 25 - -
Rotarix 103 31 24 8 15 - 51 57 9 67
Synflorix 105 51 - - 9 (25) 94 65 - -
Other 92 (13) - - 40 (18) 45 (6) - (100)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Innovative
Pharmaceuticals
and Vaccines 3,491 - 1,193 (10) 1,019 - 822 11 187 (7)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ViiV Healthcare
(HIV) 352 13 151 38 131 - 34 (22) 13 8
Combivir 16 (33) 3 (55) 5 (52) 9 (4) - -
Epzicom/Kivexa 188 6 67 16 85 7 15 (21) 8 (11)
Lexiva/Agenerase 21 (21) 11 (9) 5 (29) 3 (32) - -
Selzentry 38 14 14 (1) 16 (1) 2 71 - -
Tivicay 64 - 48 - 12 - - - 3 -
Trizivir 7 (65) 1 (94) 6 (28) 1 (37) - -
Other 18 (38) 7 14 2 (75) 4 (42) 2 -
Established Products 696 (24) 183 (40) 151 (10) 243 (14) 106 (21)
Coreg 30 (6) 29 (3) - - - - - -
Hepsera 21 (26) - - - - 16 (25) 4 (29)
Imigran/Imitrex 44 (2) 22 16 15 (6) 1 (50) 4 (17)
Lamictal 124 2 60 3 26 - 18 - 18 -
Lovaza 27 (81) 27 (81) - - - - - -
Requip 26 (3) 2 100 11 (15) 4 33 11 -
Serevent 26 (15) 9 (17) 13 - 1 - 2 (50)
Seroxat/Paxil 49 (29) - - 10 (27) 13 (33) 24 (27)
Valtrex 37 (24) 8 - 8 - 7 (20) 12 (50)
Zeffix 40 (20) 1 (75) 2 - 33 (16) 3 -
Other 272 (16) 25 (3) 66 (14) 150 (12) 28 (9)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
4,539 (4)
---------- ----------
The table above includes the sales by product reported in the Other
trading and unallocated pharmaceuticals segment (which includes
Canada, Puerto Rico, Australasia, central vaccine tender sales and
contract manufacturing sales) in the total column only.
Pharmaceuticals and Vaccines turnover
Six months ended 30 June 2014
Emerging
Total USA Europe Markets Japan
--------------------------- --------------------------- -------------------------- ----------------------------- ---------------------------
GBPm CER% GBPm CER% GBPm CER% GBPm CER% GBPm CER%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Respiratory 3,113 (9) 1,404 (17) 879 (3) 374 - 243 (4)
Avamys/Veramyst 128 2 15 (30) 41 5 35 21 30 -
Flixotide/Flovent 365 (4) 229 (2) 54 (10) 25 3 14 (19)
Relvar/Breo Ellipta 14 - 6 - 5 - 1 - 3 -
Seretide/Advair 2,134 (14) 983 (24) 700 (4) 195 - 112 -
Ventolin 328 11 165 22 62 (2) 78 7 3 -
Other 144 (10) 6 >100 17 - 40 (22) 81 (10)
Oncology 556 33 227 36 201 31 80 42 29 10
Arzerra 28 (21) 17 (10) 10 (44) - - 1 -
Mekinist 29 - 28 - - - - - - -
Promacta 103 33 39 20 34 46 12 40 15 29
Tafinlar 55 >100 25 >100 26 - - - - -
Tyverb/Tykerb 87 (10) 21 (23) 36 (12) 23 29 4 (44)
Votrient 188 36 79 23 76 39 21 63 6 75
Other 66 (4) 18 (25) 19 11 24 40 3 (25)
Cardiovascular,
metabolic and
urology
(CVMU) 474 (2) 173 (19) 152 4 68 20 53 17
Avodart 398 2 126 (14) 141 9 53 22 53 17
Other 76 (19) 47 (30) 11 (35) 15 13 - -
Immuno-inflammation 88 42 80 39 6 50 1 - - -
Benlysta 79 28 71 24 6 50 1 - - -
Other 9 - 9 - - - - - - -
Other
pharmaceuticals 1,197 4 75 (38) 326 2 517 4 133 22
Dermatology 249 (17) 24 (60) 84 - 120 (9) 12 (7)
Augmentin 299 1 - - 101 (3) 183 2 5 -
Other
anti-bacterials 111 - 3 - 34 - 73 1 2 100
Rare diseases 205 (5) 33 (38) 67 10 20 10 75 (2)
Other 333 49 15 >100 40 7 121 26 39 >100
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Innovative
Pharmaceuticals 5,428 (2) 1,959 (13) 1,564 2 1,040 6 458 6
Vaccines 1,424 4 364 9 479 (1) 473 10 14 (27)
Boostrix 154 45 73 26 41 34 28 >100 - -
Cervarix 56 (28) 2 (33) 25 (7) 29 (19) - -
Fluarix, FluLaval 15 (23) 2 (67) (1) 50 10 (14) - -
Hepatitis 262 (9) 100 (15) 93 (3) 49 (8) - -
Infanrix, Pediarix 404 9 137 35 185 (4) 54 9 - -
Rotarix 189 24 50 4 33 26 85 40 14 45
Synflorix 167 7 - - 21 (8) 143 9 - -
Other 177 (9) - - 82 (11) 75 (6) - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Innovative
Pharmaceuticals
and Vaccines 6,852 (1) 2,323 (10) 2,043 1 1,513 7 472 5
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ViiV Healthcare
(HIV) 663 9 273 20 256 (1) 64 (6) 26 17
Combivir 32 (42) 6 (63) 11 (55) 14 (5) 1 (11)
Epzicom/Kivexa 365 9 126 9 167 7 30 (1) 17 14
Lexiva/Agenerase 43 (16) 22 (18) 11 (24) 7 8 1 (13)
Selzentry 71 4 26 (3) 31 - 3 8 1 (12)
Tivicay 95 - 74 - 16 - - - 3 -
Trizivir 18 (60) 4 (84) 12 (27) 1 4 - -
Other 39 (30) 15 (10) 8 (61) 9 (29) 3 -
Established Products 1,510 (18) 439 (29) 318 (12) 507 (11) 222 (12)
Coreg 62 - 61 2 - - - - - -
Hepsera 44 (17) - - - - 33 (20) 10 (8)
Imigran/Imitrex 90 - 46 15 30 (6) 3 (25) 8 (17)
Lamictal 250 3 116 (4) 54 - 36 5 40 23
Lovaza 132 (54) 131 (54) - - - - - -
Requip 54 - 4 67 22 (21) 7 14 22 18
Serevent 53 (14) 18 (20) 26 (4) 2 - 5 (29)
Seroxat/Paxil 104 (22) - - 22 (21) 30 (25) 49 (16)
Valtrex 74 (24) 14 (20) 15 7 16 - 26 (43)
Zeffix 85 (18) 2 (71) 4 (17) 71 (15) 6 -
Other 562 (14) 47 (20) 145 (16) 309 (9) 56 (13)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
9,025 (4)
---------- ----------
The table above includes the sales by product reported in the Other
trading and unallocated pharmaceuticals segment (which includes
Canada, Puerto Rico, Australasia, central vaccine tender sales and
contract manufacturing sales) in the total column only.
Balance sheet
30 June 2013 31 December
30 June 2014 GBPm 2013
GBPm GBPm
------------ ------------ ------------
ASSETS
Non-current assets
Property, plant and equipment 8,667 8,973 8,872
Goodwill 3,666 4,499 4,205
Other intangible assets 8,413 10,276 9,283
Investments in associates and
joint ventures 319 524 323
Other investments 1,283 1,238 1,202
Deferred tax assets 2,108 2,272 2,084
Derivative financial instruments - - 1
Other non-current assets 841 841 889
------------ ------------ ------------
Total non-current assets 25,297 28,623 26,859
------------ ------------ ------------
Current assets
Inventories 4,111 4,143 3,900
Current tax recoverable 120 90 129
Trade and other receivables 5,000 5,583 5,442
Derivative financial instruments 93 155 155
Liquid investments 64 72 66
Cash and cash equivalents 3,163 2,841 5,534
Assets held for sale 1,002 552 1
------------ ------------ ------------
Total current assets 13,553 13,436 15,227
------------ ------------ ------------
TOTAL ASSETS 38,850 42,059 42,086
------------ ------------ ------------
LIABILITIES
Current liabilities
Short-term borrowings (3,143) (2,334) (2,789)
Trade and other payables (6,949) (7,836) (8,317)
Derivative financial instruments (96) (37) (127)
Current tax payable (1,215) (1,308) (1,452)
Short-term provisions (849) (962) (992)
------------ ------------ ------------
Total current liabilities (12,252) (12,477) (13,677)
------------ ------------ ------------
Non-current liabilities
Long term borrowings (14,507) (16,299) (15,456)
Deferred tax liabilities (698) (1,025) (693)
Pensions and other post-employment
benefits (2,264) (2,899) (2,189)
Other provisions (515) (497) (552)
Derivative financial instruments (23) (2) (3)
Other non-current liabilities (1,755) (1,589) (1,704)
------------ ------------ ------------
Total non-current liabilities (19,762) (22,311) (20,597)
------------ ------------ ------------
TOTAL LIABILITIES (32,014) (34,788) (34,274)
------------ ------------ ------------
NET ASSETS 6,836 7,271 7,812
------------ ------------ ------------
EQUITY
Share capital 1,338 1,353 1,336
Share premium account 2,706 2,440 2,595
Retained earnings (158) 414 913
Other reserves 2,232 2,205 2,153
------------ ------------ ------------
Shareholders' equity 6,118 6,412 6,997
Non-controlling interests 718 859 815
------------ ------------ ------------
TOTAL EQUITY 6,836 7,271 7,812
------------ ------------ ------------
Statement of changes in equity
Share- Non-
Share Share Retained Other holder's controlling Total
capital premium earnings reserves equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2014 1,336 2,595 913 2,153 6,997 815 7,812
Profit for the
period 1,322 1,322 99 1,421
Other
comprehensive
(expense)/income
for the
period (182) 59 (123) (5) (128)
------------ ------------ ------------ ------------ ------------
Total comprehensive
income/(expense)
for the period 1,140 59 1,199 94 1,293
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (160) (160)
Dividends to
shareholders (2,009) (2,009) (2,009)
Changes in
non-controlling
interests (54) (54) (31) (85)
Shares issued 2 111 113 113
Forward contract
relating
to
non-controlling
interest 21 21 21
Ordinary shares
purchased
and held as
Treasury shares (238) (238) (238)
Shares acquired by
ESOP
Trusts (73) (73) (73)
Write-down on
shares held
by ESOP
Trusts (72) 72 -
Share-based
incentive plans 162 162 162
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 June 2014 1,338 2,706 (158) 2,232 6,118 718 6,836
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January
2013 1,349 2,022 642 1,787 5,800 937 6,737
Profit for the
period 2,006 2,006 107 2,113
Other
comprehensive
income for
the period 278 382 660 10 670
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income
for the period 2,284 382 2,666 117 2,783
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (198) (198)
Dividends to
shareholders (1,938) (1,938) (1,938)
Changes in
non-controlling
interests 47 47 3 50
Shares issued 9 418 427 427
Ordinary shares
purchased
and held as
Treasury shares (5) (671) 5 (671) (671)
Shares acquired
by ESOP
Trusts (41) (41) (41)
Write-down on
shares held
by ESOP
Trusts (72) 72 -
Share-based
incentive plans 122 122 122
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 June 2013 1,353 2,440 414 2,205 6,412 859 7,271
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash flow statement
Six months ended 30 June 2014
H1 2014 H1 2013
GBPm GBPm
------------ ------------
Profit after tax 1,421 2,113
Tax on profits 468 586
Share of after tax profits of associates
and joint ventures (9) (18)
Profit on disposal of interest in associates - (29)
Net finance expense 323 366
Depreciation and other adjusting items 948 1,105
Increase in working capital (318) (335)
Decrease in other net liabilities (491) (200)
------------ ------------
Cash generated from operations 2,342 3,588
Taxation paid (649) (630)
------------ ------------
Net cash inflow from operating activities 1,693 2,958
------------ ------------
Cash flow from investing activities
Purchase of property, plant and equipment (473) (503)
Proceeds from sale of property, plant and
equipment 15 22
Purchase of intangible assets (270) (239)
Proceeds from sale of intangible assets 58 104
Purchase of equity investments (41) (24)
Proceeds from sale of equity investments 22 25
Purchase of businesses, net of cash acquired (16) (205)
Disposal of businesses 194 -
Investment in associates and joint ventures (4) (6)
Decrease in liquid investments - 15
Interest received 28 31
Dividends from associates and joint ventures 4 2
------------ ------------
Net cash outflow from investing activities (483) (778)
------------ ------------
Cash flow from financing activities
Issue of share capital 113 426
Shares acquired by ESOP Trusts (73) (42)
Shares purchased and cancelled or held as
Treasury shares (237) (366)
Purchase of non-controlling interests (669) (588)
Increase in long-term loans - 1,913
Repayment of short-term loans (899) (2,371)
Increase in short-term loans 695 -
Net repayment of obligations under finance
leases (11) (15)
Interest paid (330) (361)
Dividends paid to shareholders (2,009) (1,938)
Distributions to non-controlling interests (160) (198)
Other financing items 38 (13)
------------ ------------
Net cash outflow from financing activities (3,542) (3,553)
------------ ------------
Decrease in cash and bank overdrafts in
the period (2,332) (1,373)
------------ ------------
Cash and bank overdrafts at beginning of
the period 5,231 3,906
Exchange adjustments (41) 61
Decrease in cash and bank overdrafts (2,332) (1,373)
------------ ------------
Cash and bank overdrafts at end of the period 2,858 2,594
------------ ------------
Cash and bank overdrafts at end of the period
comprise:
Cash and cash equivalents 3,163 2,841
Overdrafts (305) (247)
------------ ------------
2,858 2,594
------------ ------------
Segment information
Operating segments are reported based on the financial information
provided to the Chief Executive Officer and the responsibilities
of the Corporate Executive Team (CET). Individual members of the
CET are responsible for each geographic segment of the Pharmaceuticals
and Vaccines business, ViiV Healthcare, Established Products and
the Consumer Healthcare business as a whole, respectively. Certain
product reclassifications, principally the OTC dermatology brands
acquired with the Stiefel business, have been made between the Pharmaceuticals
and Consumer Healthcare segments in the majority of Emerging Markets
with effect from 1 January 2014. Comparative information has been
restated accordingly. In addition, 2014 core results growth rates
have been calculated by measuring against 2013 core results excluding
the divestments completed during 2013.
R&D investment is essential for the sustainability of the pharmaceutical
businesses. However, for segment reporting, the US, Europe, Emerging
Markets, Japan and Established Products Pharmaceuticals and Vaccines
operating profits exclude allocations of globally funded R&D as
well as central costs, principally corporate functions and unallocated
manufacturing costs. The Group's management reporting process allocates
intra-Group profit on a product sale to the market in which that
sale is recorded, and the profit analyses below have been presented
on that basis.
Other trading and unallocated pharmaceuticals and vaccines includes
Canada, Puerto Rico, Australasia, central vaccine tender sales and
contract manufacturing sales, together with costs such as vaccines
R&D, central dermatology costs and central manufacturing costs not
attributed to other segments.
The Pharmaceuticals R&D segment is the responsibility of the Chairman,
Research & Development and is reported as a separate segment.
Corporate and other unallocated costs and disposal profits include
the costs of corporate functions.
Turnover by segment
Q2 2013
Q2 2014 (restated) Growth
GBPm GBPm CER%
------------ ------------ ------------
USA 1,193 1,439 (10)
Europe 1,019 1,060 -
Emerging Markets 822 840 11
Japan 187 229 (7)
ViiV Healthcare 352 339 13
Established Products 696 1,018 (24)
Other trading and unallocated pharmaceuticals
and vaccines 270 260 17
------------ ------------ ------------
Pharmaceuticals and Vaccines 4,539 5,185 (4)
Consumer Healthcare 1,022 1,188 (4)
------------ ------------ ------------
Segment turnover excluding divestments 5,561 6,373 (4)
------------ ------------ ------------
Segment turnover including divestments 5,561 6,618 (8)
------------ ------------ ------------
Operating profit by segment
Q2 2013
Q2 2014 (restated) Growth
GBPm GBPm CER%
------------ ------------ ------------
USA 751 1,002 (19)
Europe 553 586 (1)
Emerging Markets 234 240 22
Japan 78 110 (16)
ViiV Healthcare 225 229 9
Established Products 402 612 (26)
Pharmaceuticals R&D (664) (705) -
Other trading and unallocated pharmaceuticals
and vaccines (94) (184) (45)
------------ ------------ ------------
Pharmaceuticals and Vaccines 1,485 1,890 (12)
Consumer Healthcare 142 201 (20)
------------ ------------ ------------
Segment profit 1,627 2,091 (12)
Corporate and other unallocated costs and
disposal profits (220) (213) 6
------------ ------------ ------------
Core operating profit 1,407 1,878 (14)
Non-core items (270) (440)
------------ ------------ ------------
Total operating profit 1,137 1,438 (8)
Finance income 18 11
Finance costs (177) (197)
Profit on disposal of interest in associates
and joint ventures - 29
Share of after tax profits of associates
and joint ventures 8 7
------------ ------------ ------------
Profit before taxation 986 1,288 (9)
------------ ------------ ------------
Turnover by segment
H1 2013
H1 2014 (restated) Growth
GBPm GBPm CER%
------------ ------------ ------------
USA 2,323 2,781 (10)
Europe 2,043 2,077 1
Emerging Markets 1,513 1,606 7
Japan 472 532 5
ViiV Healthcare 663 657 9
Established Products 1,510 2,021 (18)
Other trading and unallocated pharmaceuticals
and vaccines 501 515 10
------------ ------------ ------------
Pharmaceuticals and Vaccines 9,025 10,189 (4)
Consumer Healthcare 2,149 2,439 (2)
------------ ------------ ------------
Segment turnover excluding divestments 11,174 12,628 (3)
------------ ------------ ------------
Segment turnover including divestments 11,174 13,089 (7)
------------ ------------ ------------
Operating profit by segment
H1 2013
H1 2014 (restated) Growth
GBPm GBPm CER%
------------ ------------ ------------
USA 1,469 1,927 (17)
Europe 1,127 1,134 3
Emerging Markets 425 438 22
Japan 228 269 5
ViiV Healthcare 429 434 9
Established Products 887 1,221 (19)
Pharmaceuticals R&D (1,311) (1,391) -
Other trading and unallocated pharmaceuticals
and vaccines (206) (239) (62)
------------ ------------ ------------
Pharmaceuticals and Vaccines 3,048 3,793 (6)
Consumer Healthcare 306 420 (12)
------------ ------------ ------------
Segment profit 3,354 4,213 (7)
Corporate and other unallocated costs and
disposal profits (417) (459) (5)
------------ ------------ ------------
Core operating profit 2,937 3,754 (7)
Non-core items (734) (736)
------------ ------------ ------------
Total operating profit 2,203 3,018 (10)
Finance income 36 34
Finance costs (359) (400)
Profit on disposal of interest in associates
and joint ventures - 29
Share of after tax profits of associates
and joint ventures 9 18
------------ ------------ ------------
Profit before taxation 1,889 2,699 (11)
------------ ------------ ------------
Legal matters
The Group is involved in significant legal and administrative proceedings,
principally product liability, intellectual property, tax, anti-trust
and governmental investigations as well as related private litigation,
which are more fully described in the 'Legal Proceedings' note in
the Annual Report 2013.
At 30 June 2014, the Group's aggregate provision for legal and other
disputes (not including tax matters described under 'Taxation' below)
was GBP0.5 billion (31 December 2013: GBP0.6 billion). The Group
may become involved in significant legal proceedings in respect
of which it is not possible to make a reliable estimate of the expected
financial effect, if any, that could result from ultimate resolution
of the proceedings. In these cases, the Group would provide appropriate
disclosures about such cases, but no provision would be made.
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. The Group's
position could change over time, and, therefore, there can be no
assurance that any losses that result from the outcome of any legal
proceedings will not exceed by a material amount the amount of the
provisions reported in the Group's financial accounts.
Significant developments since the date of the Annual Report 2013
are as follows:
The People's Republic of China (PRC), acting through various government
agencies, continues its investigation into alleged crimes and violations
of law by GSK's China operations. The Group takes these allegations
seriously and is continuing to co-operate fully with the Chinese
authorities in this investigation. The Group has informed the US
Department of Justice, the US Securities and Exchange Commission
and the UK Serious Fraud Office (SFO) regarding the investigation
and is co-operating fully with these agencies.
On 27 May 2014, the SFO informed the Group that it had opened a
criminal investigation into the Group's commercial practices.
It is not possible at this time to make a reliable estimate of the
financial effect, if any, that could result from these matters.
Developments with respect to tax matters are described in 'Taxation'
below.
Taxation
Transfer pricing and other issues are as previously described in
the 'Taxation' note in the Annual Report 2013. There have been no
material changes to tax matters since the publication of the Annual
Report.
In the quarter, tax on core profits amounted to GBP277 million and
represented an effective core tax rate of 22.0% (Q2 2013: 24.0%).
The charge for taxation on total profits amounted to GBP284 million
and represented an effective tax rate of 28.8% (Q2 2013: 15.8%).
In H1 2014, tax on core profits amounted to GBP578 million and represented
an effective core tax rate of 22.0% (H1 2013: 23.1%). The charge
for taxation on total profits amounted to GBP468 million and represented
an effective tax rate of 24.8% (H1 2013: 21.7%).
The expected core tax rate for the full year continues to be around
22%. The Group's balance sheet at 30 June 2014 included a tax payable
liability of GBP1,215 million and a tax recoverable asset of GBP120
million.
GSK continues to believe that it has made adequate provision for
the liabilities likely to arise from periods which are open and
not yet agreed by tax authorities. The ultimate liability for such
matters may vary from the amounts provided and is dependent upon
the outcome of agreements with relevant tax authorities.
Additional information
Accounting policies and basis of preparation
This unaudited Results Announcement contains condensed financial
information for the three and six months ended 30 June 2014, is
prepared in accordance with the Disclosure and Transparency Rules
(DTR) of the Financial Conduct Authority and IAS 34 'Interim financial
reporting' and should be read in conjunction with the Annual Report
2013, which was prepared in accordance with International Financial
Reporting Standards as adopted by the European Union. This Results
Announcement has been prepared applying consistent accounting policies
to those applied by the Group in the Annual Report 2013, except
that an amendment to IAS 32 'Offsetting financial assets and financial
liabilities' has been implemented from 1 January 2014. This revision
has not had a material impact on the results or financial position
of the Group.
In addition, the segment information for 2013 has been restated
to reflect changes made to segments in 2014 as set out under 'Segment
information' above.
This Results Announcement does not constitute statutory accounts
of the Group within the meaning of sections 434(3) and 435(3) of
the Companies Act 2006. The full Group accounts for 2013 were published
in the Annual Report 2013, which has 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 section 498
of the Companies Act 2006.
Exchange rates
GSK operates in many countries, and earns revenues and incurs costs
in many currencies. The results of the Group, as reported in Sterling,
are affected by movements in exchange rates between Sterling and
other currencies. Average exchange rates, as modified by specific
transaction rates for large transactions, prevailing during the
period, are used to translate the results and cash flows of overseas
subsidiaries, associates and joint ventures into Sterling. Period-end
rates are used to translate the net assets of those entities. The
currencies which most influenced these translations and the relevant
exchange rates were:
Q2 2014 Q2 2013 H1 2014 H1 2013 2013
------------ ------------ ------------ ------------ ------------
Average rates:
US$/GBP 1.68 1.54 1.67 1.55 1.57
Euro/GBP 1.23 1.17 1.22 1.18 1.18
Yen/GBP 173 150 172 146 153
Period-end rates:
US$/GBP 1.71 1.52 1.71 1.52 1.66
Euro/GBP 1.25 1.17 1.25 1.17 1.20
Yen/GBP 173 151 173 151 174
During Q2 2014, average sterling exchange rates were stronger against
the US Dollar, the Euro and the Yen compared with the same period
in 2013. Similarly, during the six months ended 30 June 2014 average
sterling exchange rates were stronger against the US Dollar, the
Euro and the Yen compared with the same period in 2013.
Period-end Sterling exchange rates were also stronger against the
US Dollar, the Euro and the Yen.
Weighted average number of shares
Q2 2014 Q2 2013
millions millions
------------ ------------
Weighted average number of shares - basic 4,812 4,855
Dilutive effect of share options and share awards 62 63
------------ ------------
Weighted average number of shares - diluted 4,874 4,918
------------ ------------
H1 2014 H1 2013
millions millions
------------ ------------
Weighted average number of shares - basic 4,807 4,844
Dilutive effect of share options and share awards 63 64
------------ ------------
Weighted average number of shares - diluted 4,870 4,908
------------ ------------
At 30 June 2014, 4,804 million shares were in free issue (excluding
Treasury shares and shares held by the ESOP Trusts). This compares
with 4,845 million shares at 30 June 2013.
Net assets
The book value of net assets decreased by GBP976 million from GBP7,812
million at 31 December 2013 to GBP6,836 million at 30 June 2014.
This primarily reflects the impact of the shares repurchased and
dividends paid out in the period.
The carrying value of investments in associates and joint ventures
at 30 June 2014 was GBP319 million, with a market value of GBP1,070
million. Assets held for sale amounted to GBP1,002 million at 30
June 2014 (31 December 2013: GBP1 million), and included GBP906
million in relation to the previously reported Novartis transaction
as set out on page 41.
At 30 June 2014, the net deficit on the Group's pension plans was
GBP731 million compared with GBP613 million at 31 December 2013.
The increase in the net deficit primarily arose from decreases in
the rates used to discount UK pension liabilities from 4.5% to 4.3%,
and US pension liabilities from 4.6% to 4.1%, partly offset by a
decrease in the UK inflation rate and a small increase in UK asset
values.
At 30 June 2014, the post-retirement benefits provision was GBP1,259
million compared with GBP1,246 million at 31 December 2013. The
increase in the provision arose from the decrease in the rate used
to discount the US provision, partly offset by a weaker US Dollar
at the period-end.
At 30 June 2014, the ESOP Trusts held 45 million GSK shares against
the future exercise of share options and share awards. The carrying
value of GBP355 million has been deducted from other reserves. The
market value of these shares was GBP700 million.
During the six months, GSK purchased GBP238 million of shares to
be held as Treasury shares. At 30 June 2014, the company held 502.1
million Treasury shares at a cost of GBP7,067 million, which has
been deducted from retained earnings.
Contingent liabilities
There were contingent liabilities at 30 June 2014 in respect of
guarantees and indemnities entered into as part of the ordinary
course of the Group's business. No material losses are expected
to arise from such contingent liabilities. Provision is made for
the outcome of legal and tax disputes where it is both probable
that the Group will suffer an outflow of funds and it is possible
to make a reliable estimate of that outflow. Descriptions of the
significant legal and tax disputes to which the Group is a party
are set out on page 38.
Related party transactions
The Group's significant related parties are its joint ventures and
associates as disclosed in the Annual Report 2013.
There were no material transactions with any of the Group's joint
ventures and associates in H1 2014. There were also no material
transactions with Directors.
Novartis transaction
On 22 April 2014, GSK announced a three-part inter-conditional transaction
with Novartis AG involving its Consumer Healthcare, Vaccines and
Oncology businesses.
As part of this transaction, GSK and Novartis will create a new
Consumer Healthcare business over which GSK will have majority control,
with an equity interest of 63.5%. In addition, GSK will acquire
Novartis' global Vaccines business (excluding influenza vaccines)
for an initial cash consideration of $5.25 billion with subsequent
potential milestone payments of up to $1.8 billion and ongoing royalties.
GSK will also divest its marketed Oncology portfolio, related R&D
activities and rights to its AKT inhibitor and also grant commercialisation
partner rights for future oncology products to Novartis for an aggregate
cash consideration of $16 billion, of which $1.5 billion depends
on the results of an ongoing clinical trial.
The transaction is expected to be completed during H1 2015, subject
to approvals.
Financial instruments fair value disclosures
Certain of the Group's financial instruments are measured at fair
value. The following tables categorise these financial assets and
liabilities by the valuation methodology applied in determining
their fair value. Where possible, quoted prices in active markets
are used (Level 1). Where such prices are not available, the asset
or liability is classified as Level 2, provided all significant
inputs to the valuation model used are based on observable market
data. If one or more of the significant inputs to the valuation
model is not based on observable market data, the instrument is
classified as Level 3.
Level
1 Level 2 Level 3 Total
At 30 June 2014 GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------
Financial assets at fair value
Available-for-sale financial assets:
Liquid investments 63 1 - 64
Other investments 1,113 - 170 1,283
Financial assets at fair value through
profit or loss:
Other non-current assets - 238 4 242
Derivatives designated as at fair
value through
profit or loss - 24 - 24
Derivatives classified as held
for trading under
IAS 39 - 69 - 69
------------ ------------ ------------ ------------
1,176 332 174 1,682
------------ ------------ ------------ ------------
Financial liabilities at fair value
Financial liabilities at fair value
through profit or loss:
Trade and other payables - - (8) (8)
Other non-current liabilities - - (1,021) (1,021)
Derivatives designated as at fair
value through
profit or loss - (13) - (13)
Derivatives classified as held
for trading under
IAS 39 - (83) (23) (106)
------------ ------------ ------------ ------------
- (96) (1,052) (1,148)
------------ ------------ ------------ ------------
Level
1 Level 2 Level 3 Total
At 31 December 2013 GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------
Financial assets at fair value
Available-for-sale financial assets:
Liquid investments 65 1 - 66
Other investments 1,000 - 202 1,202
Financial assets at fair value through
profit or loss:
Other non-current assets - 232 2 234
Derivatives designated as at fair
value through
profit or loss - 76 - 76
Derivatives classified as held
for trading under
IAS 39 - 79 1 80
------------ ------------ ------------ ------------
1,065 388 205 1,658
------------ ------------ ------------ ------------
Financial liabilities at fair value
Financial liabilities at fair value
through profit or loss:
Trade and other payables - - (3) (3)
Other non-current liabilities - - (958) (958)
Derivatives designated as at fair
value through
profit or loss - (5) - (5)
Derivatives classified as held
for trading under
IAS 39 - (124) (1) (125)
------------ ------------ ------------ ------------
- (129) (962) (1,091)
------------ ------------ ------------ ------------
Movements in the six months to 30 June 2014 for financial instruments
measured using Level 3 valuation methods are presented below:
Financial Financial
assets liabilities
GBPm GBPm
------------ ------------
At 1 January 2014 205 (962)
Losses recognised in the income statement - (87)
Gains recognised in other comprehensive 3 -
income
Additions 24 (3)
Transfers from Level 3 (41) -
Equity investment disposals (12) -
Exchange (5) -
------------ ------------
At 30 June 2014 174 (1,052)
------------ ------------
Financial Financial
assets liabilities
GBPm GBPm
------------ ------------
At 1 January 2013 199 (711)
Losses recognised in the income statement (11) (121)
Gains recognised in other comprehensive 3 -
income
Equity investment additions 20 -
Equity investment disposals (2) -
Exchange 11 -
------------ ------------
At 30 June 2013 220 (832)
------------ ------------
Net losses of GBP87 million (2013: net losses of GBP133 million)
and net gains of GBPnil (2013: net gains of GBP2 million) attributable
to Level 3 financial instruments held at the end of the period were
reported in other operating income and other comprehensive income
respectively.
At 30 June 2014, financial liabilities measured using Level 3 valuation
methods included GBP990 million of contingent consideration for
the acquisition of the former Shionogi-ViiV Healthcare joint venture.
This consideration is expected to be paid over a number of years
and will vary in line with sales of dolutegravir and other compounds.
The financial liability is measured at the present value of expected
future cash flows, the most significant inputs to the valuation
model being future sales forecasts, market interest rates and probability
of success in launching the product.
The table below shows, on an indicative basis, the income statement
and balance sheet sensitivity to reasonably possible changes in
key inputs to the valuation of this liability.
Increase/(decrease) in financial liability and loss/(gain) in Income
statement from change in key inputs
GBPm
------------
10% increase in sales forecasts 111
10% decrease in sales forecasts (112)
1% increase in market interest rates (58)
1% decrease in market interest rates 62
The Group transfers financial instruments between different levels
in the fair value hierarchy when, as a result of an event or change
in circumstances, the valuation methodology applied in determining
their fair values alters in such a way that it meets the definition
of a different level. There were no transfers between the Level
1 and Level 2 fair value measurement categories in the period. Transfers
from Level 3 relate to equity investments in companies which were
listed on stock exchanges during the period.
The following methods and assumptions were used to measure the fair
value of the significant financial instruments carried at fair value
on the balance sheet:
-- Liquid investments - based on quoted market prices or calculated
based on observable inputs in the case of marketable securities;
based on principal amounts in the case of non-marketable securities
because of their short repricing periods
-- Other investments - equity investments traded in an active market
determined by reference to the relevant stock exchange quoted
bid price; other equity investments determined by reference to
the current market value of similar instruments or by reference
to the discounted cash flows of the underlying net assets
-- Contingent consideration for business acquisitions after 1 January
2010 - based on present value of expected future cash flows
-- Interest rate swaps and foreign exchange contracts - based on
the present value of contractual cash flows using market-sourced
data (exchange rates or interest rates) at the balance sheet date
-- Company-owned life insurance policies - based on cash surrender
value
There are no material differences between the carrying value of
the Group's other financial assets and liabilities and their estimated
fair values, with the exception of bonds, for which the carrying
values and fair values are set out in the table below:
31 December
30 June 2014 30 June 2013 2013
--------------------------------- --------------------------------- ---------------------------------
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------
Bonds in a
designated
hedging
relationship (2,275) (2,496) (3,450) (3,743) (3,288) (3,531)
Other bonds (12,770) (14,252) (13,815) (15,113) (13,034) (14,163)
------------ ------------ ------------ ------------ ------------ ------------
(15,045) (16,748) (17,265) (18,856) (16,322) (17,694)
------------ ------------ ------------ ------------ ------------ ------------
The following methods and assumptions are used to estimate the fair
values of financial assets and liabilities which are not measured
at fair value on the balance sheet:
-- Cash and cash equivalents - approximates to the carrying amount
-- Short-term loans, overdrafts and commercial paper - approximates
to the carrying amount because of the short maturity of these
instruments
-- Long-term loans - based on quoted market prices in the case of
the European and US Medium term notes and other fixed rate borrowings;
approximates to the carrying amount in the case of floating rate
bank loans and other loans
-- Receivables and payables - approximates to the carrying amount
-- Lease obligations - approximates to the carrying amount
Reconciliation of cash flow to movements in net debt
H1 2014 H1 2013
GBPm GBPm
------------ ------------
Net debt at beginning of the period (12,645) (14,037)
Decrease in cash and bank overdrafts (2,332) (1,373)
Cash inflow from liquid investments - (15)
Net increase in long-term loans - (1,913)
Net repayment of short-term loans 204 2,371
Net repayment of obligations under finance
leases 11 15
Exchange adjustments 333 (760)
Other non-cash movements 6 (8)
------------ ------------
Increase in net debt (1,778) (1,683)
------------ ------------
Net debt at end of the period (14,423) (15,720)
------------ ------------
Core results reconciliations
The reconciliations between core results and total results for Q2
2014 and Q2 2013 and also H1 2014 and H1 2013 are set out below.
Income statement - Core results reconciliation
Three months ended 30 June 2014
Acquisition
accounting
Core Intangible Intangible Major Legal and Total
results amortisation impairment restructuring costs other results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 5,561 5,561
Cost of sales (1,538) (135) 1 (48) (2) (1,722)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 4,023 (135) 1 (48) (2) 3,839
Selling, general
and
administration (1,922) (48) (47) (38) (2,055)
Research and
development (766) (17) (2) (5) (19) (809)
Royalty income 72 72
Other operating
income/(expense) - 90 90
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,407 (152) (1) (101) (47) 31 1,137
Net finance costs (156) (1) (2) (159)
Share of after
tax profits
of associates
and joint
ventures 8 8
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,259 (152) (1) (102) (47) 29 986
Taxation (277) 37 23 5 (72) (284)
Tax rate % 22.0% 28.8%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 982 (115) (1) (79) (42) (43) 702
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 61 (13) 48
Profit
attributable
to
shareholders 921 (115) (1) (79) (42) (30) 654
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 19.1p (2.3)p - (1.6)p (0.9)p (0.7)p 13.6p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of shares
(millions) 4,812 4,812
------------ ------------
Income statement - Core results reconciliation
Three months ended 30 June 2013
Core
Core results
results (incl. Acquisition
(before Divest- divest- Major accounting
divest- ments ments) Intangible Intangible restruct- Legal and Total
ments) GBPm GBPm amortisation impairment uring costs other results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 6,373 245 6,618 6,618
Cost of sales (1,692) (126) (1,818) (109) (45) (1,972)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 4,681 119 4,800 (109) (45) 4,646
Selling, general
and
administration (2,039) (53) (2,092) (99) (24) (1) (2,216)
Research and
development (846) (1) (847) (24) (135) (29) (14) (1,049)
Royalty income 82 82 82
Other operating
income/(expense) - (25) (25)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,878 65 1,943 (133) (135) (173) (24) (40) 1,438
Net finance
costs (183) (183) (1) (2) (186)
Profit on
disposal
of associates 29 29
Share of after
tax
profits of
associates
and
joint ventures 7 7 7
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,702 65 1,767 (133) (135) (174) (24) (13) 1,288
Taxation (408) (16) (424) 36 35 135 14 (204)
Tax rate % 24.0% 24.0% 15.8%
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 1,294 49 1,343 (97) (100) (39) (24) 1 1,084
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 64 64 (25) 39
Profit
attributable
to shareholders 1,230 49 1,279 (97) (100) (39) (24) 26 1,045
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 25.3p 1.0p 26.3p (2.0)p (2.1)p (0.8)p (0.5)p 0.6p 21.5p
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number of shares
(millions) 4,855 4,855
------------ ------------
Income statement - Core results reconciliation
Six months ended 30 June 2014
Acquisition
accounting
Core Intangible Intangible Major Legal and Total
results amortisation impairment restructuring costs other results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 11,174 11,174
Cost of sales (3,096) (282) (14) (71) (2) (3,465)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 8,078 (282) (14) (71) (2) 7,709
Selling, general
and
administration (3,733) (100) (155) (38) (4,026)
Research and
development (1,550) (40) (35) (9) (34) (1,668)
Royalty income 142 142
Other operating
income/(expense) - 46 46
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 2,937 (322) (49) (180) (155) (28) 2,203
Net finance costs (317) (2) (4) (323)
Share of after
tax profits
of associates
and joint
ventures 9 9
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 2,629 (322) (49) (182) (155) (32) 1,889
Taxation (578) 81 9 42 27 (49) (468)
Tax rate % 22.0% 24.8%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 2,051 (241) (40) (140) (128) (81) 1,421
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 123 (24) 99
Profit
attributable
to
shareholders 1,928 (241) (40) (140) (128) (57) 1,322
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 40.1p (5.0)p (0.8)p (2.9)p (2.7)p (1.2)p 27.5p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of shares
(millions) 4,807 4,807
------------ ------------
Income statement - Core results reconciliation
Six months ended 30 June 2013
Core
Core results
results (incl. Acquisition
(before Divest- divest- Major accounting
divest- ments ments) Intangible Intangible restruct- Legal and Total
ments) GBPm GBPm amortisation impairment uring costs other results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 12,628 461 13,089 13,089
Cost of sales (3,421) (244) (3,665) (218) (65) (3,948)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 9,207 217 9,424 (218) (65) 9,141
Selling, general
and
administration (3,947) (100) (4,047) (159) (90) (4,296)
Research and
development (1,701) (3) (1,704) (49) (134) (35) (31) (1,953)
Royalty income 195 195 195
Other operating
income/(expense) - (69) (69)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 3,754 114 3,868 (267) (134) (259) (90) (100) 3,018
Net finance
costs (359) (359) (3) (4) (366)
Profit on
disposal
of associates 29 29
Share of after
tax
profits of
associates
and
joint ventures 18 18 18
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 3,413 114 3,527 (267) (134) (262) (90) (75) 2,699
Taxation (790) (28) (818) 73 35 78 12 34 (586)
Tax rate % 23.1% 23.2% 21.7%
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 2,623 86 2,709 (194) (99) (184) (78) (41) 2,113
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 132 132 (25) 107
Profit
attributable
to shareholders 2,491 86 2,577 (194) (99) (184) (78) (16) 2,006
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 51.4p 1.8p 53.2p (4.0)p (2.0)p (3.8)p (1.6)p (0.4)p 41.4p
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number of shares
(millions) 4,844 4,844
------------ ------------
Principal risks and uncertainties
The principal risks and uncertainties affecting the Group are those
described under the headings below. These are detailed in the 'Risk
factors' section of the Annual Report 2013 with the exception of the
final risk relating to third party oversight which has been added.
Risk that the Group will not develop commercially successful new products;
Risks arising from non-compliance with, or changes to, laws and regulations
affecting the Group;
Risk of substantial adverse outcome of litigation and government investigations;
Risk of failing to appropriately collect, review, follow up or report
adverse events, which could compromise our ability to conduct robust
safety signal detection and interpretation and to ensure that appropriate
decisions are taken with respect to the risk/benefit profile of our
products;
Risks of failing to secure and protect intellectual property rights;
Risk to the patient or consumer as a result of the failure by the
Group, its contractors or suppliers to comply with good manufacturing
practice regulations in commercial manufacturing or through inadequate
governance of quality through product development;
Risk of interruption of product supply;
Risk associated with financial reporting and disclosure and changes
to accounting standards;
Risk that as the Group's business models and tax law and practice
change over time, the Group's existing tax policies and operating
models are no longer appropriate, or that significant losses arise
from treasury investments;
Risk of failing to create a corporate environment opposed to corruption
or failing to instill business practices that prevent corruption by
employees, complementary workers and through third party interactions
and comply with anti-corruption legislation;
Risk associated with commercial or scientific activities that are
inconsistent with legal or industry requirements relating to marketing
and communications about the Group's medicines and associated therapeutic
areas, including inappropriate interactions with healthcare professionals
and failure to provide complete and accurate information related to
the Group's products;
Risk of failing to conduct objective, ethical preclinical and clinical
trials, in which the Group protects and inform patients involved in
human clinical trials, manage human biological samples according to
established ethical standards and regulatory expectations, treat animals
ethically and practice good animal welfare, appropriately disclose
human subject research for medicinal products and maintain the integrity
of the Group's research data and regulatory filings;
Risk of ineffectively managing environment, health, safety, and sustainability
('EHSS') objectives and requirements;
Risk of exposing business critical or sensitive data due to inadequate
data governance or information systems security;
Risk of failing to recover and sustain critical operations following
a disruption or to respond to a crisis incident, such as a natural
disaster, a significant political disruption or a global health emergency,
in a timely manner;
Risk that inadequate governance and oversight over third party relationships
may result in business interruption.
Directors' responsibility statement
The Board of Directors approved this document on 23 July 2014.
The Directors confirm that to the best of their knowledge the unaudited
condensed financial information has been prepared in accordance with
IAS 34 as adopted by the European Union and that the Interim Management
Report includes a fair review of the information required by DTR 4.2.7
and DTR 4.2.8.
After making enquiries, the Directors have a reasonable expectation
that the Group has adequate resources to continue in existence for
the foreseeable future. For this reason, they continue to adopt the
going concern basis in preparing this Interim Management Report.
The Directors of GlaxoSmithKline plc are as follows:
Sir Christopher Gent Chairman (Non-Executive Director)
Sir Andrew Witty Chief Executive (Executive Director)
Simon Dingemans Chief Financial Officer (Executive Director)*
Dr Moncef Slaoui Chairman, Global R&D & Vaccines (Executive Director)**
Professor Sir Roy Independent Non-Executive Director
Anderson
Dr Stephanie Burns Independent Non-Executive Director
Stacey Cartwright Independent Non-Executive Director
Lynn Elsenhans Independent Non-Executive Director
Judy Lewent Independent Non-Executive Director, Audit & Risk
Committee Chairman
Sir Deryck Maughan Senior Independent Non-Executive Director
Dr Daniel Podolsky Independent Non-Executive Director
Tom de Swaan Independent Non-Executive Director, Remuneration
Committee Chairman
Jing Ulrich Independent Non-Executive Director
Hans Wijers Independent Non-Executive Director
* Mr Dingemans is now responsible for GSK's Audit & Assurance function
** Dr Slaoui is now responsible for GSK's Global Product Quality Office
By order of the Board
Sir Andrew Witty Simon Dingemans
Chief Executive Officer Chief Financial Officer
23 July 2014
Independent review report to GlaxoSmithKline plc
Report on the condensed financial information
Our conclusion
We have reviewed the condensed financial information, defined below,
in the Results Announcement of GlaxoSmithKline plc for the three
and six months ended 30 June 2014. Based on our review, nothing has
come to our attention that causes us to believe that the condensed
financial information is not prepared, in all material respects,
in accordance with International Accounting Standard 34 as adopted
by the European Union and the Disclosure and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
This conclusion is to be read in the context of what we say in the
remainder of this report.
What we have reviewed
The condensed financial information, which is prepared by GlaxoSmithKline
plc, comprises:
-- the Balance sheet at 30 June 2014;
-- the Income statement and Statement of comprehensive income for
the three and six month periods then ended;
-- the Cash flow statement for the period then ended;
-- the Statement of changes in equity for the period then ended; and
-- the accounting policies and basis of preparation and related notes
on pages 35 to 44 (excluding the Pharmaceuticals and Vaccines turnover
tables).
As disclosed on page 39, the financial reporting framework that has
been applied in the preparation of the full annual financial statements
of the group is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
The condensed financial information included in the Results Announcement
has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union
and the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
What a review of condensed financial information involves
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.
We have read the other information contained in the Results Announcement
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed financial
information.
Responsibilities for the condensed financial information and the
review
Our responsibilities and those of the Directors
The Results Announcement, including the condensed financial information,
is the responsibility of, and has been approved by, the Directors.
The Directors are responsible for preparing the Results Announcement
in accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express to the Company a conclusion on the
condensed financial information in the Results Announcement based
on our review. This report, including the conclusion, has been prepared
for and only for the Company for the purpose of complying with the
Disclosure and Transparency Rules of the Financial Conduct Authority
and for no other purpose. We do not, in giving this conclusion, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
23 July 2014
London
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 condensed financial information
since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of condensed financial information may differ from
legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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