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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,640.50 | 1,640.00 | 1,640.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Pharmaceutical Preparations | 30.33B | 4.93B | 1.1970 | 13.71 | 67.54B |
TIDMGSK
RNS Number : 3964D
GlaxoSmithKline PLC
26 April 2017
Hot Features
Premium
Issued: Wednesday, 26 April 2017, London U.K.
GSK delivers another quarter of continued progress
Q1 sales of GBP7.4 billion, +19% AER, + 5% CER
Total EPS of 21.4p >100% AER, >100% CER; Adjusted
EPS of 25.0p, +31% AER, +9% CER
Financial highlights
-- Sales growth across all three businesses: Pharmaceuticals
GBP4.2 billion, +17% AER, +4% CER; Vaccines GBP1.2
billion, +31% AER, +16% CER; Consumer Healthcare
GBP2.0 billion, +16% AER, +2% CER
-- Improved Group operating margin reflecting leverage
from sales growth, focus on costs and benefits
of restructuring. Pharmaceuticals 34.4%; Vaccines
29.6%; Consumer Healthcare 17.2%
-- Net cash flow from operations of GBP1.1 billion
(Q1 2016: GBP0.5 billion). Free cash flow of
GBP0.7 billion (Q1 2016: GBP0.2 billion outflow),
primarily reflecting improved operating performance
and the net benefit of exchange rate movements
-- 19p dividend declared for Q1 2017. Continue to
expect 80p for FY 2017
-- 2017 Adjusted CER earnings per share guidance
maintained
Product and pipeline highlights
-- New product sales of GBP1.4 billion +72% AER,
+52% CER. On track to deliver GBP6 billion (CER)
sales in 2018
-- Results from MUSCA study demonstrate Nucala significantly
improves quality of life and lung function in
patients with severe asthma
-- Positive SWORD study presented for two-drug regimen
of dolutegravir and rilpivirine for treatment
of HIV
-- Positive results reported in-house from ZOSTER-048
study of Shingrix in individuals previously vaccinated
with Zostavax*
-- Flonase Sensimist launched in US; second Rx to
OTC switch in 3 years
Q1 2017 results
Q1 2017 Growth
------------
GBPm GBP% CER%
-------- ----- -----
Turnover 7,384 19 5
Total operating profit 1,718 >100 100
Adjusted operating profit 1,979 30 9
Total earnings per share 21.4 >100 >100
Adjusted earnings per share 25.0 31 9
Net cash from operations 1,144 >100
Free cash flow 650 >100
Emma Walmsley, Chief Executive Officer, GSK said:
"This is a positive start for the year with sales
growth in all three of our businesses and an improvement
in the Group's operating margin. Our clear focus
is on commercial execution and preparation for near-term
launches in Respiratory, HIV and Vaccines. We will
be reviewing these and other priorities for the
business with shareholders alongside our Q2 results
on 26 July."
The Total results are presented under 'Income Statement'
on page 25 and Adjusted results reconciliations
are presented on pages 11 and 41 to 42. The definitions
of GBP% or AER% growth, CER% growth, Adjusted results,
free cash flow and other non-IFRS measures are set
out on page 22. All expectations and targets regarding
future performance should be read together with
"Assumptions related to 2016-2020 outlook" and "Assumptions
and cautionary statement regarding forward-looking
statements" on page 23.
* Zostavax is a trademark of Merck & Co., Inc.
Contents Page
Sales performance 3
Financial performance 9
2017 guidance 15
Research and development 18
Definitions 22
Outlook assumptions and cautionary statements 23
Contacts 24
Income statement - three months ended 31 March
2017 25
Statement of comprehensive income 26
Pharmaceuticals turnover - three months ended
31 March 2017 27
Vaccines turnover - three months ended 31 March
2017 28
Balance sheet 29
Statement of changes in equity 30
Cash flow statement - three months ended 31
March 2017 31
Segment information 32
Legal matters 33
Taxation 33
Additional information 34
Reconciliation of cash flow to movements in
net debt 38
Net debt analysis 38
Free cash flow reconciliation 38
Non-controlling interests in ViiV Healthcare 39
Adjusted results reconciliations 41
Independent review report 43
Sales performance
Group turnover by business and geographic region
Group turnover by business Q1 2017
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Pharmaceuticals 4,189 17 4
Vaccines 1,152 31 16
Consumer Healthcare 2,043 16 2
------ ------- -------
Group turnover 7,384 19 5
------ ------- -------
Group turnover increased 19% AER, 5% CER to GBP7,384
million driven by continued momentum and growth in
all three businesses.
Pharmaceuticals sales were up 17% AER, 4% CER, reflecting
the continued strong growth of new products, driven
particularly by Triumeq, Tivicay and Relvar/Breo
Ellipta, partly offset by the impact of divestments.
Nucala also contributed more significantly to total
Respiratory growth of 19% AER, 5% CER.
Vaccines sales were up 31% AER, 16% CER, with a strong
performance from Meningitis vaccines and higher demand
for Established Vaccines as well as the benefit of
the phasing of shipments in Emerging Markets and
favourable year-on-year US CDC stockpile movements.
Consumer Healthcare had a slower quarter, with reported
growth impacted by the disposal of the Nigeria beverages
business, more challenging conditions in International
markets and a later start to the allergy season.
Strong performances from power brands, particularly
in Oral health more than offset these challenges
to deliver growth of 16% AER and 2% CER.
Sales of New Pharmaceutical and Vaccine products
in the quarter were GBP1,416 million, up 72% AER,
52% CER.
Group turnover by geographic
region Q1 2017
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
US 2,621 26 11
Europe 2,002 10 -
International 2,761 18 4
------ ------- -------
Group turnover 7,384 19 5
------ ------- -------
The US sales growth of 26% AER, 11% CER was driven
by continued strong performances from Triumeq and
Tivicay, growth in the Respiratory portfolio and
favourable year-on-year US CDC stockpile movements
of Pediarix.
Europe sales grew 10% AER but were flat at CER as
growth from Triumeq, Tivicay and Meningitis vaccines
was offset by the decline in Established Pharmaceuticals,
reflecting in part the disposal of the Romanian
distribution business. Respiratory sales were flat
as the decline in Seretide offset the continued
progress in transitioning to the new Respiratory
products.
In International, sales growth of 18% AER, 4% CER
reflected strong performances from Synflorix in
Emerging Markets, boosted by the phasing of tenders,
as well as strong growth in Triumeq, Tivicay and
the Respiratory portfolio, which was partly offset
by the impact of divestments on Established Pharmaceuticals.
Growth in Emerging Markets of 19% AER, 6% CER was
also impacted by the divestments.
Turnover - Q1 2017
Pharmaceuticals
Q1 2017
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Respiratory 1,683 19 5
HIV 985 35 19
Immuno-inflammation 92 42 23
Established Pharmaceuticals 1,429 4 (6)
4,189 17 4
------ ------- -------
US 1,731 26 11
Europe 1,008 8 (2)
International 1,450 14 1
4,189 17 4
------ ------- -------
Pharmaceuticals turnover in the quarter was GBP4,189
million, up 17% AER, 4% CER. Respiratory sales grew
19% AER, 5% CER to GBP1,683 million, driven by the
Ellipta portfolio and Nucala, while HIV sales were
up 35% AER, 19% CER to GBP985 million, driven by
a continued increase in market share for Triumeq
and Tivicay. Sales of Established Pharmaceuticals
grew 4% AER, but declined 6% CER, after the impact
of recent divestments, which reduced overall Pharmaceuticals
CER growth by one percentage point and also impacted
the contribution from Emerging Markets.
In the US, sales growth of 26% AER, 11% CER was
driven by the HIV portfolio and new Respiratory
products. Europe sales grew 8% AER but declined
2% CER reflecting continued generic competition
to Seretide and the disposal of the Romanian distribution
business in Q4 2016. International sales growth
was impacted by the benefit to Q1 2016 of the accelerated
sale of inventory under supply agreements to Novartis
as well as the disposal of the thrombosis and anaesthesia
businesses to Aspen, which reduced growth in Emerging
Markets to 14% AER, 4% CER. Sales in Japan grew
23% AER, 4% CER.
Respiratory
Total Respiratory portfolio sales were up 19% AER,
5% CER, with the US up 21% AER, 6% CER, Europe up
10% AER but flat CER and International up 22% AER,
6% CER. Growth of the new Respiratory products more
than offset the decline in Seretide/Advair.
The new Respiratory products recorded combined sales
of GBP367 million in the quarter with sales of Ellipta
products up 82% AER, 60% CER driven by continued
market share growth in all Regions and the ongoing
roll-out across Europe and International. Sales
of Nucala were GBP59 million in the quarter including
sales of GBP42 million in the US, a Sterling increase
of GBP36 million.
The aggregate growth of the Ellipta products was
primarily driven by the contribution of the US,
where sales were up 76% AER, 55% CER. Total Relvar/Breo
Ellipta sales grew 84% AER, 61% CER with the US
up 95% AER, 70% CER to GBP111 million. Sales of
Relvar/Breo Ellipta in Europe grew 63% AER, 47%
CER, and in International 83% AER, 58% CER, helped
by ongoing launches, particularly in Emerging Markets.
Anoro Ellipta sales grew 88% AER, 67% CER to GBP62
million, reflecting market share gains in the US.
In the US, Ellipta products Breo, Anoro and Incruse
all continued to grow market share during the first
quarter, but the reported sales growth rates for
these products were impacted by inventory reductions
in the channel and unfavourable payer rebate adjustments.
Seretide/Advair sales were flat at actual rates,
but declined 12% CER to GBP752 million. Sales in
the US were also flat at actual rates but declined
12% CER (7% volume decline and a 5% negative impact
of price). Payer rebate adjustments related to prior
periods favourably impacted sales in this period.
In Europe, Seretide sales were down 9% AER, 17%
CER to GBP206 million (10% volume decline and a
7% negative impact of price), reflecting continued
competition from generics and the transition of
the Respiratory portfolio to newer products. In
International, sales of Seretide were up 10% AER
but down 4% CER, at GBP207 million, reflecting increased
generic competition and the transition to newer
Respiratory products.
Ventolin sales grew 20% AER, 7% CER to GBP214 million,
primarily reflecting growth in the US. Flixotide/
Flovent sales were up 7% AER, but decreased 5% CER
to GBP164 million, with growth in International
only partly offsetting the decline in the US.
The overall impact on growth of payer rebate adjustments
related to prior periods across the US Respiratory
portfolio was broadly neutral.
HIV
HIV sales increased 35% AER, 19% CER to GBP985 million
in the quarter, with the US up 43% AER, 25% CER,
Europe up 17% AER, 5% CER and International up 47%
AER, 27% CER. The growth in all three regions was
driven by the continued increase in market share
for Triumeq and Tivicay, with both products now
well-established in most major markets and continuing
to roll-out across International. The ongoing increase
in patient numbers for both Triumeq and Tivicay
resulted in sales of GBP539 million and GBP301 million,
respectively, in the quarter.
Epzicom/Kivexa sales declined 49% AER, 55% CER to
GBP78 million, reflecting the continued increase
in generic competition since Q3 2016. Selzentry
sales increased 27% AER, 13% CER to GBP38 million
helped by favourable inventory movements in the
US.
Immuno-inflammation
Benlysta sales grew 40% AER, 22% CER to GBP91 million,
driven by a strong US performance reflecting both
market share gains and favourable inventory movements.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the quarter
were GBP1,429 million, up 4% AER, but down 6% CER
impacted by the comparison to the benefit in Q1
2016 of the accelerated sale of inventory under
supply agreements to Novartis as well as the disposals
of the Romanian distribution business in Q4 2016
and the thrombosis and anaesthesia businesses to
Aspen during the quarter. Excluding the impact of
the disposals, Established Pharmaceuticals grew
8% AER, but declined 3% CER.
The Avodart franchise was up 21% AER, 6% CER to
GBP160 million primarily due to a strong performance
in Japan following supply interruptions in 2016.
Established products sales grew 5% AER, but fell
5% CER to GBP640 million, primarily reflecting a
decline in Emerging Markets, including the impact
of competitive pressures on Zeffix in China.
Dermatology sales grew 18% AER, 5% CER to GBP113
million, through improved supply, while Augmentin
sales grew 12% AER, 4% CER to GBP155 million.
Sales of products for Rare diseases grew 18% AER,
4% CER to GBP110 million.
Vaccines
Q1 2017
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Meningitis 191 71 51
Influenza 13 44 11
Established Vaccines 948 25 11
------
1,152 31 16
------ ------- -------
US 363 39 21
Europe 389 15 4
International 400 42 25
------ ------- -------
1,152 31 16
------ ------- -------
Vaccines turnover delivered strong growth of 31%
AER, 16% CER to GBP1,152 million with continued
momentum from Meningitis vaccines across all regions.
Growth also benefited from the performance of the
Established Vaccines, which were driven by higher
demand in Emerging Markets, including the benefit
of the acceleration of a number of shipments, particularly
Synflorix. Favourable year-on-year CDC purchases
and stockpile movements in the US also contributed
to growth.
Meningitis
Meningitis sales grew 71% AER, 51% CER to GBP191
million with Bexsero sales more than doubling at
actual rates and up 79% CER and Menveo up 31% AER,17%
CER. Bexsero sales growth was primarily driven by
private market sales and regional tenders in Europe
and growing demand and share gains in the US, together
with continued progress in International. The Menveo
sales growth was driven particularly by a tender
award in International, partly offset by unfavourable
CDC purchases in the US compared with Q1 2016.
Influenza
Fluarix/FluLaval sales grew 44% AER, 11% CER, driven
by early deliveries in International.
Established Vaccines
Sales of the DTPa-containing vaccines (Infanrix,
Pediarix and Boostrix) were up 25% AER, 10% CER.
Infanrix, Pediarix sales were up 24% AER, 10% CER
boosted by favourable year-on-year US CDC stockpile
movements together with higher market demand in
the quarter, partly offset by increasing competitive
pressures in Europe. Boostrix was up 26% AER, 11%
CER, benefiting from favourable US wholesaler stocking
movements and higher demand, partly offset by the
return to the market of a competitor in Europe.
Hepatitis vaccines grew 23% AER, 8% CER due to a
competitor supply shortage in the US, partly offset
by the impact of supply constraints in Europe.
Synflorix sales were up 46% AER, 31% CER due to
the favourable phasing of shipments and stronger
demand in Emerging Markets.
Rotarix grew 34% AER, 18% CER, driven by increased
US CDC purchases, partly offset by adverse phasing
in International.
Sales of the Priorix/Priorix Tetra/Varilrix portfolio
increased 23% AER, 8% CER to GBP77 million, driven
by higher demand in International.
Consumer Healthcare
Q1 2017
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Wellness 1,070 16 2
Oral health 628 21 7
Nutrition 182 3 (10)
Skin health 163 16 4
------
Total 2,043 16 2
------
US 527 20 5
Europe 605 11 1
International 911 17 2
------ ------- -------
2,043 16 2
------ ------- -------
Consumer Healthcare sales were up 16% AER, 2% CER
in the quarter at GBP2,043 million. Strong performances
in Oral health and the Cold & flu seasonal brands
were partly offset by the disposal of the Nigeria
beverages business in 2016, continuing weakness
in International markets and a later start to the
allergy season. Excluding the impact of the divestment
of the Nigeria beverages business, Consumer Healthcare
sales grew at 17% AER, 3% CER.
Sales from new GSK innovations (product introductions
within the last three years on a rolling basis)
represented approximately 15% of sales in the quarter.
Notable launches within the quarter included Parodontax
and Flonase Sensimist in the US and further Flonase
OTC switches in Europe and Canada.
Wellness
Wellness sales grew 16% AER, 2% CER to GBP1,070
million. This reflected a more challenging quarter
for Pain relief which was flat due to the removal
of Panadol Osteo from the prescription reimbursement
scheme in Australia and stocking pattern changes
in Europe as well as heightened competitor activity,
which impacted Voltaren sales. This was partly offset
by strong performances on core brands, particularly
Excedrin and Fenbid.
Respiratory sales grew 15% AER, 1% CER, driven by
a stronger flu season with double-digit growth from
both Theraflu and Otrivin, largely offset by a later
start to the allergy season in the US and increased
competition from private label products impacting
Flonase, which increased 11% AER, but declined 3%
CER despite positive initial launch take-up of the
new variant, Flonase Sensimist.
Oral health
Oral health sales grew 21% AER, 7% CER to GBP628
million with Sensodyne continuing to drive performance,
reporting growth of 24% AER, 11% CER, with strong
delivery in all regions. Sales of Parodontax grew
strongly, reflecting particularly gains in Europe
and International, driven by dentist recommendations
and share gains, as well as an initial contribution
from the launch of the brand in the US.
Nutrition
Nutrition sales grew 3% AER but declined 10% CER
to GBP182 million, adversely impacted by the sale
of the Nigeria beverages business in 2016. Excluding
the impact of this divestment, Nutrition sales grew
11% AER but declined 3% CER reflecting continued
competitive pressures for Horlicks in India even
though the impact of demonetisation was largely
complete by the end of the quarter.
Skin health
Skin health sales grew 16% AER, 4% CER to GBP163
million with the International region, up 26% AER,
10% CER, driving performance. Fenistil performed
strongly, up 19% AER, 10% CER, with good momentum
in International, particularly the Middle East.
Strong sales of Lamisil Once in International more
than offset the impact of competition in the US
and Europe, generating overall sales growth of 28%
AER, 6% CER. Physiogel sales were adversely impacted
by significant competitor activity in key markets.
Sales from new Pharmaceutical and Vaccine products
Q1 2017
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Pharmaceuticals
Relvar/Breo
Respiratory Ellipta 204 84 61
Anoro Ellipta 62 88 67
Arnuity Ellipta 8 >100 >100
Incruse Ellipta 34 53 35
Nucala 59 >100 >100
CVMU Eperzan/Tanzeum 28 12 -
HIV Tivicay 301 60 41
Triumeq 539 64 45
------
1,235 72 52
------ ------- -------
Vaccines
Menveo 55 31 17
Bexsero 126 >100 79
------ ------- -------
181 74 54
------ ------- -------
Total 1,416 72 52
------ ------- -------
In 2015, GSK identified a series of New Pharmaceutical
and Vaccine products that were expected to deliver
at least GBP6 billion of revenues per annum on a
CER basis by 2020. Those products, plus current
pipeline asset, Shingrix, are as set out above.
Sales of the New Pharmaceutical Vaccine products
are now expected to reach GBP6 billion of revenues
per annum on a CER basis in 2018.
Q1 2017
Sales of New Pharmaceutical and Vaccine products
were GBP1,416 million, grew GBP595 million in Sterling
terms (72% AER, 52% CER) and represented approximately
27% of Pharmaceuticals and Vaccines turnover in
the quarter.
Financial performance
Total results
The Total results for the Group are set out below.
Q1 2017 Q1 2016 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Turnover 7,384 6,229 19 5
Cost of sales (2,513) (2,133) 18 8
-------- -------- ------- -------
Gross profit 4,871 4,096 19 4
Selling, general and
administration (2,452) (2,189) 12 (1)
Research and development (960) (815) 18 7
Royalty income 82 91
Other operating income/(expense) 177 (460)
-------- -------- ------- -------
Operating profit 1,718 723 >100 100
Finance income 21 18
Finance expense (194) (181)
Share of after tax profits
of associates
and joint ventures 5 -
-------- -------- ------- -------
Profit before taxation 1,550 560 >100 >100
Taxation (327) (208)
Tax rate % 21.1% 37.1%
-------- -------- ------- -------
Profit after taxation 1,223 352 >100 >100
-------- -------- ------- -------
Profit attributable to
non-controlling interests 177 70
Profit attributable to
shareholders 1,046 282
-------- -------- ------- -------
1,223 352 >100 >100
-------- -------- ------- -------
Earnings per share 21.4p 5.8p >100 >100
-------- -------- ------- -------
Cost of sales
Cost of sales as a percentage of turnover was 34.0%,
down 0.2 percentage points in Sterling terms and
up 0.9 percentage points in CER terms compared with
Q1 2016. This reflected continued adverse pricing
pressure in Pharmaceuticals, primarily Respiratory,
and continued supply chain investments as well as
the phasing of costs of manufacturing restructuring
programmes, partly offset by a more favourable product
mix in Pharmaceuticals in the quarter, particularly
the impact of higher HIV sales and the disposal of
the distribution business in Romania, as well as
a continued contribution from integration and restructuring
savings in all three businesses.
Selling, general and administration
SG&A costs were 33.2% of turnover, 1.9 percentage
points lower than in Q1 2016 in Sterling terms and
1.9 percentage points lower on a CER basis. This
primarily reflected lower restructuring costs as
well as tight control of ongoing costs and benefits
from Pharmaceuticals restructuring and Vaccines and
Consumer Healthcare integration programmes, partly
offset by reallocation of investment of promotional
product support, particularly for new launches in
Respiratory, HIV, Consumer Healthcare and Vaccines.
Research and development
R&D expenditure was GBP960 million (13% of turnover),
18% higher than in Q1 2016 on a Sterling basis and
7% higher on a CER basis. This reflected increased
investment, particularly in Pharmaceuticals, in progression
of a number of mid and late stage programmes as well
as the costs of the BMS HIV programmes acquired in
February 2016, partly offset by the continued benefit
from cost reduction programmes in Pharmaceuticals,
Consumer Healthcare and Vaccines R&D and lower restructuring
costs.
Royalty and other operating income/(expense)
Net other operating income of GBP259 million (Q1
2016: GBP369 million expense) primarily reflected
the gain of GBP245 million on disposal of the anaesthesia
business to Aspen in the quarter together with royalty
income of GBP82 million. This was partly offset by
the GBP70 million net total of further accounting
charges arising from the re-measurement of the contingent
consideration liabilities related to the former Shionogi-ViiV
Healthcare joint venture and the acquisition of the
former Novartis Vaccines business, the value attributable
to the Consumer Healthcare Joint Venture put option
and the liabilities for the Pfizer put option and
Pfizer and Shionogi preferential dividends in ViiV
Healthcare. These re-measurement charges were driven
primarily by the unwinding of the discount applied
to these future liabilities partly offset by updated
trading forecasts, with no material change in exchange
rates during the quarter. This compares to GBP489
million of equivalent transaction related charges
in Q1 2016.
Operating profit
Total operating profit was GBP1,718 million in Q1
2017 compared with GBP723 million in Q1 2016. Operating
profit benefited from an improved operating margin
driven by strong sales growth, particularly in Vaccines,
and a more favourable mix in the Pharmaceutical business,
continued benefits from restructuring and integration,
tight control of ongoing costs across all three businesses,
as well as reduced restructuring costs, partly offset
by continued price pressure, particularly in Respiratory,
and supply chain investments. In addition, Q1 2017
benefited from the gain on the disposal of the anaesthesia
business and the reduction of the impact of accounting
charges related to re-measurement of the liabilities
for contingent consideration, put options and preferential
dividends.
Contingent consideration cash payments are made to
Shionogi and other companies, which reduce the balance
sheet liability and hence are not recorded in the
income statement. Total contingent consideration
cash payments in the quarter amounted to GBP160 million
(Q1 2016: GBP89 million). This included cash payments
made by ViiV Healthcare to Shionogi in relation to
its contingent consideration liability (including
preferential dividends) which amounted to GBP159
million (Q1 2016: GBP89 million).
Net finance costs
Net finance expense was GBP173 million compared with
GBP163 million in Q1 2016, the increase reflecting
the translation impact of exchange rate movements
on the reported Sterling costs of foreign currency
denominated interest-bearing instruments.
Taxation
A tax charge of GBP327 million on Total profit represented
an effective tax rate of 21.1% (Q1 2016: 37.1%) and
reflected the differing tax effects of the various
adjusting items.
Non-controlling interests
The allocation of earnings to non-controlling interests
amounted to GBP177 million (Q1 2016: GBP70 million),
including the non-controlling interest allocations
of Consumer Healthcare profits of GBP63 million (Q1
2016: GBP11 million) and the allocation of ViiV Healthcare
profits, which increased to GBP102 million (Q1 2016:
GBP24 million) including the impact of changes in
the proportions of preferential dividends due to
each shareholder based on the relative performance
of different products in the quarter. The allocation
also reflected the impact of net losses in some of
the Group's other entities with non-controlling interests,
primarily the Galvani bioelectronics joint venture.
Earnings per share
The Total earnings per share was 21.4p, compared
with 5.8p in Q1 2016. The increase primarily reflected
improved performance and reduced restructuring costs,
the benefit in Q1 2017 from the disposal of the anaesthesia
business to Aspen, together with a reduced impact
of charges arising from increases in the valuations
of the liabilities for contingent consideration and
the put options associated with increases in the
Sterling value of the Group's HIV and Consumer Healthcare
businesses.
Adjusting items
GSK presents Total results and Adjusted results
in order to assist shareholders in better understanding
the Group's operational performance.
Total results represent the Group's overall performance.
However, these results can contain material unusual
or non-operational items that may obscure the key
trends and factors determining the Group's operational
performance. GSK therefore also reports Adjusted
results to help shareholders identify and assess
more clearly the key drivers of the Group's performance.
This approach aligns the presentation of the Group's
results more closely with the majority of GSK's
peer group.
From Q1 2017, Adjusted results have been amended
to exclude, instead of all legal charges, only significant
legal charges, as set out in 'Accounting policies
and basis of preparation' on page 34. Comparative
information has been revised accordingly.
Adjusted results exclude the following items from
Total results: amortisation and impairments of intangible
assets and goodwill; major restructuring costs;
significant legal charges and expenses; transaction-related
accounting adjustments; disposals and other operating
income other than royalty income, together with
the tax effects of all of these items.
The adjusting items that reconcile Total operating
profit, profit after tax and earnings per share to
Adjusted results are as follows:
Q1 2016
Q1 2017 (revised)
--------------------------- --------------------------
Profit Profit
Operating after Operating after
Profit tax EPS Profit tax EPS
GBPm GBPm p GBPm GBPm p
---------- ------- ------ ---------- ------- -----
Total results 1,718 1,223 21.4 723 352 5.8
Intangible asset
amortisation 142 111 2.3 144 115 2.4
Intangible asset
impairment 44 31 0.7 - - -
Major restructuring
costs 166 129 2.7 188 161 3.3
Transaction-related
items 92 65 0.9 460 413 6.9
Divestments, significant
legal
and other items (183) (143) (3.0) 9 32 0.7
---------- ------- ------ ---------- ------- -----
Adjusting items 261 193 3.6 801 721 13.3
---------- ------- ------ ---------- ------- -----
Adjusted results 1,979 1,416 25.0 1,524 1,073 19.1
---------- ------- ------ ---------- ------- -----
Full reconciliations between Total results and Adjusted
results are set out on pages 41 to 42 and the definition
of Adjusted results is set out on page 22.
Intangible asset and amortisation and impairment
Intangible asset amortisation was GBP142 million,
compared with GBP144 million in Q1 2016. Intangible
asset impairments of GBP44 million (Q1 2016: nil)
included impairments of R&D and commercial assets.
Both of these charges were non-cash items.
Major restructuring and integration
Major restructuring and integration charges incurred
in the quarter were GBP166 million (Q1 2016: GBP188
million), reflecting reduced charges across the Novartis
integration and Pharmaceuticals restructuring programme
as it enters its later stages. Cash payments made
in the quarter were GBP213 million (Q1 2016: GBP267
million) including the settlement of certain charges
accrued in previous quarters.
Charges for the combined restructuring and integration
programme to date are GBP3.9 billion, of which cash
charges are GBP3.1 billion, including GBP146 million
in the quarter. The total cash charges of the combined
programme are expected to be approximately GBP3.65
billion and the non-cash charges up to GBP1.35 billion.
The programme delivered incremental cost savings
of GBP0.3 billion in the quarter, which included
a currency benefit of GBP0.1 billion and has now
delivered approximately GBP3.3 billion of annual
savings on a moving annual total basis, including
a currency benefit of GBP0.3 billion. The programme
has now delivered the originally targeted total annual
savings of GBP3 billion on a constant currency basis
earlier than expected. In 2017, an estimated GBP300
million of cash charges are expected in addition
to the settlement of cash charges accrued at the
end of 2016, along with some non-cash charges. We
expect to continue to evaluate the programme for
potential incremental savings over the remainder
of the year.
Transaction-related adjustments
Transaction-related adjustments resulted in a net
charge of GBP92 million (Q1 2016: GBP460 million).
This primarily reflects accounting charges for the
re-measurement of the liability and the unwinding
of the discounting effects on the contingent consideration
related to the acquisition of the former Shionogi-ViiV
Healthcare joint venture, the contingent consideration
related to the acquisition of the former Novartis
Vaccines business, and the value attributable to
the Consumer Healthcare Joint Venture put option
held by Novartis.
Q1 2017 Q1 2016
Charge/(credit) GBPm GBPm
-------- --------
Consumer Healthcare Joint Venture put
option 121 260
Contingent consideration on former Shionogi-ViiV
Healthcare Joint Venture
(including Shionogi preferential dividends) 48 212
ViiV Healthcare put options and Pfizer
preferential dividends (114) 4
Contingent consideration on former Novartis
Vaccines business 15 13
Other adjustments 22 (29)
-------- --------
Total transaction-related charges 92 460
-------- --------
The aggregate impact of unwinding the discount on
these future and potential liabilities was GBP237
million (Q1 2016: GBP197 million), including GBP125
million on the Consumer Healthcare Joint Venture
put option and GBP99 million on the contingent consideration
related to the former Shionogi-ViiV Healthcare Joint
Venture. This was partly offset by a credit of GBP172
million primarily reflecting a reduction in the valuation
of the contingent consideration liability due to
Shionogi as a result of updated forecasts and a reduction
in the valuation of the put option liability to Pfizer
following the commitment prior to the quarter-end
to the payment of a dividend by ViiV Healthcare.
There were no material movements in exchange rates
during the quarter.
Contingent consideration cash payments are made to
Shionogi and other companies, which reduce the balance
sheet liability and hence are not recorded in the
income statement. Total contingent consideration
cash payments in the quarter amounted to GBP160 million
(Q1 2016: GBP89 million). This included cash payments
made by ViiV Healthcare to Shionogi in relation to
its contingent consideration liability (including
preferential dividends) which amounted to GBP159
million (Q1 2016: GBP89 million).
An explanation of the accounting for the non-controlling
interests in ViiV Healthcare is set out on page 39.
Divestments, significant legal charges and other
items
Divestments and other items included the profit on
disposal of the anaesthesia business to Aspen of
GBP245 million, a number of other asset disposals,
equity investment impairments and certain other adjusting
items. Significant legal charges of GBP55 million
(Q1 2016: GBP9 million credit) included the benefit
of the settlement of existing matters as well as
provisions for ongoing litigation. Significant legal
cash payments were GBP5 million (Q1 2016: GBP48 million).
Adjusted results
Q1 2017
--------------------------------------
% of Growth Growth
GBPm turnover GBP% CER%
-------- ---------- ------- -------
Turnover 7,384 100 19 5
Cost of sales (2,221) (30.1) 15 5
Selling, general and
administration (2,347) (31.8) 13 -
Research and development (919) (12.4) 19 8
Royalty income 82 1.1 (10) (15)
-------- ---------- ------- -------
Adjusted operating profit 1,979 26.8 30 9
-------- ---------- ------- -------
Adjusted profit before
tax 1,815 33 11
Adjusted profit after
tax 1,416 32 10
Adjusted profit attributable
to shareholders 1,217 31 10
-------- ------- -------
Adjusted earnings per
share 25.0p 31 9
-------- ------- -------
Adjusted operating profit
by business Q1 2017
------------------------------------
% of Growth Growth
GBPm turnover GBP% CER%
------ ---------- ------- -------
Pharmaceuticals 2,118 50.6 25 8
Pharmaceuticals R&D (678) 24 14
Total Pharmaceuticals 1,440 34.4 26 6
Vaccines 341 29.6 38 22
Consumer Healthcare 351 17.2 16 (2)
------ ---------- ------- -------
2,132 28.9 26 7
Corporate & other unallocated
costs (153) (9) (19)
------ ---------- ------- -------
Adjusted operating profit 1,979 26.8 30 9
------ ---------- ------- -------
Adjusted operating profit
Adjusted operating profit was GBP1,979 million, 30%
AER higher than in Q1 2016 and 9% higher in CER terms
on a turnover increase of 5%. The Adjusted operating
margin of 26.8% was 2.3 percentage points higher
than in Q1 2016 and 1.0 percentage points higher
on a CER basis. This reflected improved operating
leverage driven by sales growth across all three
businesses, but particularly Vaccines, and a more
favourable mix in the Pharmaceuticals business, as
well as continued tight control of ongoing costs
across all three businesses and benefits from restructuring
and integration, partly offset by continued price
pressure, particularly in Respiratory, and supply
chain investments.
Cost of sales
Cost of sales as a percentage of turnover was 30.1%,
down 1.0 percentage points in Sterling terms and
flat in CER terms compared with Q1 2016. This reflected
a more favourable product mix in Pharmaceuticals
in the quarter, particularly the impact of higher
HIV sales, as well as the disposal of the distribution
business in Romania. There was also a further contribution
from integration and restructuring savings in all
three businesses, offset by an adverse mix in Vaccines,
continued adverse pricing pressure in Pharmaceuticals,
primarily Respiratory, and additional supply chain
investments.
Selling, general and administration
SG&A costs were 31.8% of turnover, 1.7 percentage
points lower in Sterling terms than in Q1 2016 and
1.7 percentage points lower on a CER basis. This
primarily reflected tight control of ongoing costs
as well as continued cost reductions in Pharmaceuticals,
including the benefits of the Pharmaceuticals restructuring
programme, and integration benefits in Vaccines and
Consumer Healthcare, partly offset by a reallocation
of investment of promotional product support, particularly
for new launches in Respiratory, HIV, Consumer Healthcare
and Vaccines.
Research and development
R&D expenditure was GBP919 million (12.4% of turnover),
19% AER higher than Q1 2016 and 8% higher in CER
terms than Q1 2016, reflecting increased investment,
particularly in Pharmaceuticals, in the progression
in a number of mid and late-stage programmes in HIV,
respiratory and anaemia, as well as the costs of
the BMS HIV programmes acquired in February 2016,
partly offset by the benefit from R&D cost reduction
programmes.
Royalty income
Royalty income was GBP82 million (Q1 2016: GBP91
million). Q1 2016 included the benefit of a prior
year catch-up adjustment.
Operating profit by business
Pharmaceuticals operating profit was GBP1,440 million,
26% AER higher than in Q1 2016 and 6% higher in CER
terms on a turnover increase of 4% CER. The adjusted
operating margin of 34.4% was 2.5 percentage points
higher than in Q1 2016 on a Sterling basis and 0.5
percentage points higher on a CER basis. This reflected
the more favourable product mix, primarily driven
by the growth in HIV sales, and the continued cost
reduction benefit of the Group's Pharmaceuticals
restructuring programme, partly offset by increased
investment in new product support and the continued
impact of lower prices, particularly in Respiratory,
and the broader transition of the Respiratory portfolio.
Vaccines operating profit was GBP341 million, 38%
AER higher than in Q1 2016 and 22% higher in CER
terms on a turnover increase of 16% CER. The operating
margin of 29.6% was 1.7 percentage points higher
than in Q1 2016 on a Sterling basis and 1.5 percentage
points higher on a CER basis. This was primarily
driven by enhanced operating leverage in the quarter
from the strong sales growth, including the phasing
benefits to US and International sales, together
with continued restructuring and integration benefits,
partly offset by increased supply chain costs, increased
SG&A resources to support business growth, and lower
royalty income.
Consumer Healthcare operating profit was GBP351 million,
16% AER higher than in Q1 2016 and 2% lower in CER
terms on a turnover increase of 2% CER. The operating
margin of 17.2% was flat in Sterling terms and 0.8
percentage points lower on a CER basis, reflecting
the earlier phasing of promotional and other operating
expenses compared with Q1 2016, as well as lower
royalty income.
Net finance costs
Net finance expense was GBP169 million compared with
GBP159 million in Q1 2016, the increase reflecting
the translation impact of exchange rate movements
on the reported Sterling costs of foreign currency
denominated interest-bearing instruments.
Taxation
Tax on Adjusted profit amounted to GBP399 million
and represented an effective Adjusted tax rate of
22.0% (Q1 2016: 21.4%). The increase in the effective
rate reflected the Group's changing earnings mix.
See 'Taxation' on page 33 for further details.
Non-controlling interests
The allocation of Adjusted earnings to non-controlling
interests amounted to GBP199 million (Q1 2016: GBP147
million), including the non-controlling interest
allocations of Consumer Healthcare profits of GBP74
million (Q1 2016: GBP46 million) and the allocation
of ViiV Healthcare profits, which increased to GBP113
million (Q1 2016: GBP66 million) including the impact
of changes in the proportions of preferential dividends
due to each shareholder based on the relative performance
of different products in the quarter. The allocation
also reflected the impact of net losses in some of
the Group's other entities with non-controlling interests,
primarily the Galvani bioelectronics joint venture.
Earnings per share
Adjusted EPS of 25.0p was up 31% AER, 9% CER compared
with a 9% CER increase in operating profit.
Currency impact on Q1 2017 results
The Q1 2017 results are based on average exchange
rates, principally GBP1/$1.25, GBP1/EUR1.17 and GBP1/Yen
141. Comparative exchange rates are given on page
35. The period-end exchange rates were GBP1/$1.25,
GBP1/EUR1.17 and GBP1/Yen 139.
In the quarter, turnover increased 19% in Sterling
terms and 5% CER. Total EPS was 21.4p compared with
5.8p in Q1 2016 and Adjusted EPS was 25.0p compared
with 19.1p in Q1 2016, up 31% AER, 9% CER. The positive
currency impact reflected the weakness of Sterling
against the majority of the Group's trading currencies
relative to Q1 2016. Settlement of intercompany transactions
had less than 1 percentage point negative impact
on the positive currency impact of 22 percentage
points on adjusted EPS.
2017 guidance for Adjusted EPS
In the event that no generic version of Advair is
introduced to the US market in 2017, the Group expects
2017 Adjusted EPS growth of 5-7% at CER. This is
based on an expected decline in 2017 US Advair sales
of 15-20%.
In the event of a mid-year introduction of a substitutable
generic competitor to Advair in the US, the Group
expects full year 2017 US Advair sales of around
GBP1 billion at CER (US$1.36/GBP1), with Adjusted
EPS flat to a slight decline in percentage terms
at CER.
We are not able to give guidance for Total results
as we cannot reliably forecast certain material elements
of our Total results such as the future fair value
movements on contingent consideration and put options.
It should be noted that contingent consideration
cash payments are made each quarter primarily to
Shionogi by ViiV Healthcare which reduce the balance
sheet liability and are hence not recorded in the
income statement. An explanation of the acquisition-related
arrangements with ViiV Healthcare, including details
of cash payments to Shionogi, is set out on page
39.
If exchange rates were to hold at the closing rates
on 21 April 2017 ($1.28/GBP1, EUR1.19/GBP1 and Yen
139/GBP1) for the rest of 2017, the estimated positive
impact on full-year 2017 Sterling turnover growth
would be around 5% and if exchange losses were recognised
at the same level as in 2016, the estimated positive
impact on 2017 Sterling Adjusted EPS growth would
be around 8%.
Cash generation and conversion
Cash flow and net debt
Q1 2017 Q1 2016
-------- --------
Net cash inflow from operating
activities (GBPm) 1,144 503
Free cash flow* (GBPm) 650 (240)
Free cash flow growth (%) >100% >(100)%
Free cash flow conversion* (%) 62% (85)%
Net debt (GBPm) 13,743 12,495
-------- --------
* Free cash flow and free cash flow conversion are
defined on page 22.
Q1 2017
The net cash inflow from operating activities for
the quarter was GBP1,144 million (Q1 2016: GBP503
million). The increase primarily reflected the improved
operating performance across all segments, as well
as a positive currency benefit, reduced tax payments
(following a payment of GBP117 million in Q1 2016
on the sale of the Oncology business to Novartis)
and the timing of payments for returns and rebates.
Total cash payments to Shionogi in relation to the
ViiV Healthcare contingent consideration liability
in the quarter were GBP159 million, of which GBP137
million was recognised in cash flows from operating
activities and GBP22 million was recognised in purchases
of businesses within investing cash flows. These
payments are deductible for tax purposes.
Free cash flow was GBP650 million for the quarter.
The improvement primarily reflected the improved
operating performance across all segments, as well
as a positive currency benefit, the timing of payments
for returns and rebates and reduced tax payments
on the sale of the Oncology business to Novartis
(GBP117 million in Q1 2016). Q1 2016 free cash flow
was also impacted by the costs of acquiring the HIV
Clinical assets from BMS for GBP221 million, which
were treated as intangible assets purchases.
Net debt
At 31 March 2017, net debt was GBP13.7 billion, compared
with GBP13.8 billion at 31 December 2016, comprising
gross debt of GBP18.3 billion and cash and liquid
investments of GBP4.6 billion. Net debt reduced slightly
as the improved free cash flow of GBP650 million
and disposal proceeds of GBP229 million, together
with favourable translation movements, more than
offset the cost of dividends paid to shareholders
of GBP925 million.
At 31 March 2017, GSK had short-term borrowings (including
overdrafts) repayable within 12 months of GBP3,740
million with loans of GBP2,199 million repayable
in the subsequent year.
Working capital
31 30 31
March 31 December 30 September June March
2017 2016 2016 2016 2016
-------- ------------- ------------- ------ -------
Working capital conversion
cycle* (days) 203 193 216 217 209
Working capital percentage
of turnover (%) 23 22 27 26 25
-------- ------------- ------------- ------ -------
Working capital conversion cycle is defined on
* page 22.
The increase in Q1 2017 of 10 days compared to December
2016 was predominantly due to a 2 day increase in
the cycle from adverse exchange rates, as well as
increases in inventory levels reflecting seasonal
factors and building of inventory in advance of new
product launches. Trade receivables have increased
as a result of higher sales and timing of collections,
with trade payables reducing as a result of lower
costs in the quarter.
Returns to shareholders
Quarterly dividends
The Board has declared a first interim dividend for
2017 of 19 pence per share (Q1 2016: 19 pence per
share).
GSK expects to pay an annual ordinary dividend of
80p for 2017.
Future returns to shareholders of surplus capital
will be subject to the Group's strategic progress,
visibility on the put options associated with ViiV
Healthcare and the Consumer Healthcare joint venture
and other capital requirements.
Payment of dividends
The equivalent interim dividend receivable by ADR
holders will be calculated based on the exchange
rate on 11 July 2017. An annual fee of $0.02 per
ADS (or $0.005 per ADS per quarter) is charged by
the Depositary.
The ex-dividend date will be 11 May 2017 (10 May
2017 for ADR holders), with a record date of 12 May
2017 and a payment date of 13 July 2017.
Pence
Paid/ per
payable share GBPm
------------ ------- ------
2017
13 July
First interim 2017 19 928
2016
14 July
First interim 2016 19 923
13 October
Second interim 2016 19 925
12 January
Third interim 2017 19 925
13 April
Fourth interim 2017 23 1,124
------- ------
80 3,897
------- ------
GSK made no share repurchases during the quarter.
The company issued 2.2 million shares under employee
share schemes amounting to GBP32 million (Q1 2016:
GBP9 million).
The weighted average number of shares for Q1 2017
was 4,877 million, compared with 4,847 million in
Q1 2016.
Group strategy and outlook
GSK has created a Group of three world-leading businesses
in Pharmaceuticals, Vaccines and Consumer Healthcare,
which aims to deliver growth and improving returns
to shareholders through development of innovative
healthcare options for patients and consumers.
GSK has a strong portfolio of innovative products
across its three businesses with a presence in more
than 150 markets. Revenues are split across Pharmaceuticals
58%, Consumer Healthcare 26% and Vaccines 16% based
on 2016 turnover.
R&D innovation underpins all three businesses. In
November 2015, the Group profiled to investors an
R&D portfolio of 40 assets focused on Oncology,
Immuno-inflammation, Vaccines, HIV and Infectious
diseases, Respiratory and Rare diseases. All three
businesses are supported by proprietary technologies
and manufacturing capabilities in areas such as
devices, adjuvants, bio-electronics and formulations.
The Group aims to improve returns from its R&D innovation
by striking a balance between pricing and volume
generation. Details of the Group's innovative R&D
portfolio and the progress of assets in development
can be found on pages 18 to 21 of this Announcement.
At its Investor Day on 6 May 2015, GSK outlined
a series of expectations for its performance over
the five-year period 2016-2020. This included an
expectation that Group Adjusted EPS would grow at
a CAGR of mid-to-high single digits on a CER basis.
The introduction of a generic alternative to Advair
in the US was factored into the Group's assessment
of its future performance. The Group also stated
it expects to pay an annual ordinary dividend of
80p for each of the years 2015-2017.
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.
With effect from 1 January 2017, depreciation within
Pharmaceuticals R&D is now reported within the central
support functions rather than against individual
business units. Comparative information has been
revised accordingly. R&D expenditure for Q1 2017
is analysed below.
Q1 2016
Q1 2017 (revised) Growth Growth
GBPm GBPm GBP% CER%
-------- ----------- ------- -------
Discovery 250 181 38 27
Development 325 253 28 16
Facilities and central
support functions 147 141 4 (4)
-------- ----------- ------- -------
Pharmaceuticals R&D 722 575 26 15
Vaccines 136 139 (2) (12)
Consumer Healthcare 61 61 - (8)
-------- ----------- ------- -------
Adjusted R&D 919 775 19 8
Amortisation and impairment
of intangible assets 20 10
Major restructuring costs 15 27
Other items 6 3
Total R&D 960 815 18 7
-------- ----------- ------- -------
Adjusted R&D expenditure increased 19% AER and 8%
on a CER basis reflecting increased investment in
Pharmaceuticals R&D. The increase in Discovery expenditure
reflected further investment in the early stage Oncology
portfolio. The growth in Development expenditure
reflected the progression of a number of mid and
late-stage programmes in HIV, respiratory and anaemia,
as well as the costs of the HIV programmes acquired
from BMS in February 2016.
R&D pipeline
At a presentation to investors in New York on 3 November
2015, GSK described a deep portfolio of innovation,
focused across six core areas of scientific research
and development: HIV & infectious diseases, Respiratory,
Vaccines, Immuno-inflammation, Oncology and Rare
diseases. Around 40 new potential medicines and vaccines
were profiled, supporting the Group's outlook for
growth in the period 2016-2020 and the significant
opportunity the Group has to create value beyond
2020.
HIV and infectious diseases - including new options
for long-term control and prevention of HIV and opportunities
designed to cure or induce long-term remission in
both Hepatitis B and C
News since Q4 2016:
-- GSK and ViiV announced positive results from the
SWORD1 and SWORD2 Phase III studies presented at
CROI showing that suppressed HIV patients could
maintain virologic suppression after switching
from a 3 or 4 drug regimen to a 2 drug regimen
of dolutegravir and rilpivirine (13 February).
Respiratory - including the next generation of respiratory
medicines beyond inhaled treatments
News since Q4 2016:
-- Announced positive results from the MUSCA study
presented at AAAAI, showing that Nucala significantly
improves quality of life and lung function in patients
with severe asthma (6 March);
-- Announced start of a Phase III study of mepolizumab
in patients with severe hypereosinophilic syndrome
(HES) (31 March).
Vaccines - including a novel maternal immunisation
platform for vaccines
News since Q4 2016:
-- Positive results reported in-house from ZOSTER-048
study of Shingrix in individuals previously vaccinated
with Zostavax. Data will be presented at an upcoming
meeting;
-- Announced Japan regulatory submission for Shingrix
in prevention of shingles (18 April).
Immuno-inflammation - a portfolio of new antibodies
& novel orals for inflammatory diseases including
rheumatoid arthritis, Sjögren's syndrome, osteoarthritis
and inflammatory bowel disease
News since Q4 2016:
-- Data published in The Lancet from SIRROUND-T Phase
III study of sirukumab in patients with active
RA refractory to anti-TNF therapy (15 February);
-- Started Phase II programme for 2982772 (oral RIP1
kinase inhibitor) in patients with ulcerative colitis
(19 April).
Oncology - leading-edge molecules in the field of
epigenetics and immuno-oncology for the treatment
of cancer
News since Q4 2016:
-- OncoMed announced Phase II trial of tarextumab
in small cell lung cancer did not meet endpoints
(17 April).
Rare diseases - breakthrough cell and gene therapies
for treatment of rare diseases
No news since Q4 2016.
Other pharmaceuticals profiled at investor event
No news since Q4 2016.
Pipeline news flow since Q4 2016 for other assets
not profiled at the Investor event:
-- Started Phase I programme for 1795091 (TLR4 agonist)
in cancer (26 January);
-- Data published in The Lancet from Phase IIa study
of 2330670 (iBAT inhibitor) on pruritus in primary
biliary cholangitis (7 February);
-- Started Phase II programme for 3117391 (ESM-HDAC
inhibitor) in severe rheumatoid arthritis (14 February);
-- Announced positive data from a study showing that
patients with well-controlled asthma were able
to switch to once-daily Relvar Ellipta from twice-daily
Seretide Diskus without compromising their lung
function
(23 February);
-- Announced US regulatory submission for use of Fluarix
Quadrivalent influenza vaccine in infants 6 months
and older (15 March);
-- FDA granted Fast Track designation to danirixin
for treatment of hospitalised patients with complicated
influenza (20 March);
-- Approval in Japan of once daily Arnuity Ellipta
(ICS mono) for asthma (30 March);
-- Started Phase II programme for 2838232 (HIV maturation
inhibitor) in HIV (17 April).
Listed below are the 40 pipeline assets profiled
at our R&D event in November 2015 which are in active
clinical development and/or other assets acquired
since the R&D event.
Respiratory Phase
---------------------------------------------------------------- ---------------
3772847A (IL33R mAb) Severe asthma Ph I
---------------------------------- ---------------------------- ---------------
3008348 (Alpha V beta Idiopathic pulmonary Ph I
6 integrin antagonist) fibrosis
---------------------------------- ---------------------------- ---------------
2862277 (TNFR1 dAb) Acute lung injury Ph II
---------------------------------- ---------------------------- ---------------
danirixin (CXCR2 antagonist) COPD Ph II
---------------------------------- ---------------------------- ---------------
2269557 (PI3 kinase delta COPD & asthma Ph II
inhibitor)
---------------------------------- ---------------------------- ---------------
2245035 (TLR7 agonist) Asthma Ph II
---------------------------------- ---------------------------- ---------------
Nucala (mepolizumab) Nasal polyposis Ph II
---------------------------------- ---------------------------- ---------------
COPD Ph III
---------------------------------- ---------------------------- ---------------
Hypereosinophilic Ph III
syndrome
---------------------------------- ---------------------------- ---------------
FF+UMEC+VI (Closed Triple) COPD US: Filed
Nov 2016
EU: Filed
Dec 2016
---------------------------------- ---------------------------- ---------------
Asthma Ph III
---------------------------------- ---------------------------- ---------------
HIV/Infectious diseases Phase
---------------------------------------------------------------- ---------------
3389404 (HBV LICA antisense Hepatitis B Ph I
oligonucleotide)(1)
---------------------------------- ---------------------------- ---------------
3228836 (HBV antisense Hepatitis B Ph I
oligonucleotide)(1)
---------------------------------- ---------------------------- ---------------
2878175 + RG-101 (NS5B Hepatitis C Ph II
inhibitor + anti-Mir122
antisense oligonucleotide)
---------------------------------- ---------------------------- ---------------
gepotidacin (Type 2 topoisomerase Bacterial infections Ph II
inhibitor)
---------------------------------- ---------------------------- ---------------
cabotegravir + rilpivirine HIV infections Ph III
(Integrase inhibitor +
NNRTI, both
long-acting parenteral
formulations)
---------------------------------- ---------------------------- ---------------
cabotegravir (long-acting HIV pre-exposure Ph III
integrase inhibitor) prophylaxis
---------------------------------- ---------------------------- ---------------
fostemsavir (3684934) HIV infections Ph III
(HIV attachment inhibitor)
---------------------------------- ---------------------------- ---------------
dolutegravir + lamivudine HIV infections Ph III
---------------------------------- ---------------------------- ---------------
dolutegravir + rilpivirine HIV infections Ph III
(Integrase inhibitor + - two drug maintenance
NNRTI) regimen
---------------------------------- ---------------------------- ---------------
Immuno-inflammation Phase
---------------------------------------------------------------- ---------------
2982772 (RIP1 kinase inhibitor) Ulcerative colitis Ph II
---------------------------------- ---------------------------- ---------------
Psoriasis and Ph II
rheumatoid arthritis
---------------------------------- ---------------------------- ---------------
2618960 (IL7 receptor Sjögren's Ph I
mAb) syndrome
---------------------------------- ---------------------------- ---------------
3050002 (CCL20 mAb) Psoriatic arthritis Ph I
---------------------------------- ---------------------------- ---------------
2831781 (LAG3 mAb) Autoimmune diseases Ph I
---------------------------------- ---------------------------- ---------------
2330811 (OSM mAb) Systemic sclerosis Ph I
---------------------------------- ---------------------------- ---------------
3196165 (GM-CSF mAb) Rheumatoid arthritis Ph II
and hand osteoarthritis
---------------------------------- ---------------------------- ---------------
Benlysta + Rituxan (BLyS Sjögren's Ph II
mAb, s.c. + CD20 mAb) syndrome
---------------------------------- ---------------------------- ---------------
Benlysta (BLyS mAb, s.c.) Systemic lupus Filed in
erythematosus EU & US
Sept 2016
---------------------------------- ---------------------------- ---------------
sirukumab (IL6 human mAb) Giant cell arteritis Ph III
---------------------------------- ---------------------------- ---------------
Rheumatoid arthritis Filed in
EU & US
Sept 2016
---------------------------------- ---------------------------- ---------------
Oncology Phase
---------------------------------------------------------------- ---------------
3359609 (ICOS agonist Solid tumours Ph I
mAb) and haematological
malignancies
---------------------------------- ---------------------------- ---------------
525762 (BET inhibitor) Solid tumours Ph I
and haematological
malignancies
---------------------------------- ---------------------------- ---------------
2879552 (LSD1 inhibitor) Acute myeloid Ph I
leukaemia and
small cell lung
cancer
---------------------------------- ---------------------------- ---------------
3174998 (OX40 agonist Solid tumours Ph I
mAb) and haematological
malignancies
---------------------------------- ---------------------------- ---------------
3377794 (NY-ESO-1 T-cell Sarcoma, multiple Ph II
receptor)(2) myeloma, non-small
cell lung cancer,
melanoma and ovarian
cancer
---------------------------------- ---------------------------- ---------------
tarextumab (Notch 2/3 Small cell lung Ph II
mAb)(3) cancer
---------------------------------- ---------------------------- ---------------
Vaccines Phase
---------------------------------------------------------------- ---------------
RSV Respiratory syncytial Ph II
virus prophylaxis
---------------------------------- ---------------------------- ---------------
RSV Respiratory syncytial Ph II
virus prophylaxis
(maternal immunisation)
---------------------------------- ---------------------------- ---------------
Group B Streptococcus Group B streptococcus Ph II
prophylaxis (maternal
immunisation)
---------------------------------- ---------------------------- ---------------
Men ABCWY Meningococcal Ph II
A,B,C,W,Y disease
prophylaxis in
adolescents
---------------------------------- ---------------------------- ---------------
COPD Reduction of COPD Ph II
exacerbations
associated with
non-typeable Haemophilus
influenzae and
Moraxella catarrhalis
---------------------------------- ---------------------------- ---------------
Shingrix* (Zoster vaccine) Shingles prophylaxis US: Filed
Oct 2016
EU: Filed
Nov 2016
---------------------------------- ---------------------------- ---------------
Rare diseases Phase
---------------------------------------------------------------- ---------------
2696277 (ex-vivo stem Beta thalassemia Ph I
cell gene therapy)(4)
---------------------------------- ---------------------------- ---------------
2398852 + 2315698 (SAP Amyloidosis Ph II
mAb + SAP depleter)
---------------------------------- ---------------------------- ---------------
2696274 (ex-vivo stem Metachromatic Ph III
cell gene therapy) leukodystrophy
---------------------------------- ---------------------------- ---------------
2696275 (ex-vivo stem Wiscott-Aldrich Ph III
cell gene therapy) syndrome
---------------------------------- ---------------------------- ---------------
Strimvelis (ex-vivo stem Adenosine deaminase EU: Approved
cell gene therapy) severe combined May 2016
immune deficiency US: Ph II/III
(ADA-SCID)
---------------------------------- ---------------------------- ---------------
2998728 (TTR production Transthyretin Ph III
inhibitor)(1) amyloidosis
---------------------------------- ---------------------------- ---------------
mepolizumab (IL5 mAb) Eosinophilic granulomatosis Ph III
with polyangiitis
---------------------------------- ---------------------------- ---------------
Other pharmaceuticals Phase
---------------------------------------------------------------- ---------------
daprodustat (1278863) Wound healing Ph I
(Prolyl hydroxylase inhibitor)
---------------------------------- ---------------------------- ---------------
daprodustat (1278863) Anaemia associated Ph III
(Prolyl hydroxylase inhibitor) with chronic renal
disease
---------------------------------- ---------------------------- ---------------
(1) Option-based alliance with Ionis Pharmaceuticals
(2) Option-based alliance with Adaptimmune Ltd.
(3) Option-based alliance with OncoMed Pharmaceuticals
Option-based alliance with Telethon and Ospedale
(4) San Raffaele
The name Shingrix has not yet been approved for
(*) use by any regulatory authority
The full version of the GSK product development pipeline
chart (updated in March 2017) with all clinical assets
in Phase I to Phase III can be found at: http://www.gsk.com/en-gb/investors/product-pipeline/
Definitions
Adjusted results
Total reported results represent the Group's overall
performance. However, these results can contain material
unusual or non-operational items that may obscure
the key trends and factors determining the Group's
operational performance. As a result, GSK also reports
adjusted results.
As announced on 11 April 2017 in the 'Change to financial
reporting framework' press release, from Q1 2017
core results has been renamed Adjusted results and,
instead of all legal charges and expenses, only significant
legal charges and expenses are excluded in order
to present Adjusted results. All other legal charges
and expenses are included in Adjusted results. Significant
legal charges and expenses are those arising from
the settlement of litigation or a government investigation
that are not in the normal course and materially
larger than more regularly occurring individual matters.
They also include certain major legacy legal matters.
Any new significant legal matters excluded in order
to present Adjusted results will be disclosed at
the time.
Adjusted results now 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; significant
legal charges (net of insurance recoveries) and expenses
on the settlement of litigation and government investigations,
transaction-related accounting adjustments for significant
acquisitions, and other items, including disposals
of associates, products and businesses and other
operating income other than royalty income, together
with the tax effects of all of these items.
GSK believes that adjusted results are more representative
of the performance of the Group's operations and
allow the key trends and factors driving that performance
to be more easily and clearly identified by shareholders.
The definition of Adjusted results, as set out above,
also aligns the Group's results with the majority
of its peer companies and how they report earnings.
Reconciliations between Total and Adjusted results,
as set out on pages 11 and 41 to 42, including detailed
breakdowns of the key adjusting items, are provided
to shareholders to ensure greater visibility and
transparency as they assess the Group's performance.
CER and AER 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. CER% represents growth
at constant exchange rates. GBP% or AER% represents
growth at actual exchange rates.
Free cash flow
From Q1 2017, adjusted free cash flow will no longer
be reported and the free cash flow definition has
been amended to include all contingent consideration
payments made during the period.
Free cash flow is now defined as the net cash inflow
from operating activities less capital expenditure,
contingent consideration payments, net 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.
Free cash flow conversion
Free cash flow conversion is free cash flow as a
percentage of earnings.
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. Zostavax is a
trademark of Merck & Co., Inc and Trumenba is a trademark
of Pfizer, Inc.
Outlook assumptions and cautionary statements
Assumptions related to 2017 guidance and 2016-2020
outlook
In outlining the expectations for 2017 and the five-year
period 2016-2020, the Group has made certain assumptions
about the healthcare sector, the different markets
in which the Group operates and the delivery of
revenues and financial benefits from its current
portfolio, pipeline and restructuring programmes.
For the Group specifically, over the period to 2020
GSK expects further declines in sales of Seretide/Advair.
The introduction of a generic alternative to Advair
in the US has been factored into the Group's assessment
of its future performance. The Group assumes no
premature loss of exclusivity for other key products
over the period. The Group's expectation of at least
GBP6 billion of revenues per annum on a CER basis
in 2018 from products launched since 2013 includes
contributions from the current pipeline asset Shingrix.
The Group also expects volume demand for its products
to increase, particularly in Emerging Markets.
The assumptions for the Group's revenue and earnings
expectations assume no material interruptions to
supply of the Group's products and no material mergers,
acquisitions, disposals, litigation costs or share
repurchases for the Company; and no change in the
Group's shareholdings in ViiV Healthcare or Consumer
Healthcare. They also assume no material changes
in the macro-economic and healthcare environment.
The Group's expectations assume successful delivery
of the Group's integration and restructuring plans
over the period 2016-2020. Material costs for investment
in new product launches and R&D have been factored
into the expectations given. The expectations are
given on a constant currency basis and assume no
material change to the Group's effective tax rate.
Assumptions and cautionary statement regarding forward-looking
statements
The Group's management believes that the assumptions
outlined above are reasonable, and that the aspirational
targets described in this report are achievable based
on those assumptions. However, given the longer term
nature of these expectations and targets, they are
subject to greater uncertainty, including potential
material impacts if the above assumptions are not
realised, and other material impacts related to foreign
exchange fluctuations, macroeconomic activity, changes
in regulation, government actions or intellectual
property protection, actions by our competitors,
and other risks inherent to the industries in which
we operate.
This document contains statements that are, or may
be deemed to be, "forward-looking statements". Forward-looking
statements give the Group's current expectations
or forecasts of future events. An investor can identify
these statements by the fact that they do not relate
strictly to historical or current facts. They use
words such as 'anticipate', 'estimate', 'expect',
'intend', 'will', 'project', 'plan', 'believe', 'target'
and other words and terms of similar meaning in connection
with any discussion of future operating or financial
performance. In particular, these include statements
relating to future actions, prospective products
or product approvals, future performance or results
of current and anticipated products, sales efforts,
expenses, the outcome of contingencies such as legal
proceedings, and financial results. Other than in
accordance with its legal or regulatory obligations
(including under the UK Listing Rules and the Disclosure
and Transparency Rules of the Financial Conduct Authority),
the Group undertakes no obligation to update any
forward-looking statements, whether as a result of
new information, future events or otherwise. The
reader should, however, consult any additional disclosures
that the Group may make in any documents which it
publishes and/or files with the SEC. All readers,
wherever located, should take note of these disclosures.
Accordingly, no assurance can be given that any particular
expectation will be met and investors are cautioned
not to place undue reliance on the forward-looking
statements.
Forward-looking statements are subject to assumptions,
inherent risks and uncertainties, many of which relate
to factors that are beyond the Group's control or
precise estimate. The Group cautions investors that
a number of important factors, including those in
this document, could cause actual results to differ
materially from those expressed or implied in any
forward-looking statement. Such factors include,
but are not limited to, those discussed under 'Principal
risks and uncertainties on pages 253-262 of the GSK
2016 Annual Report. Any forward looking statements
made by or on behalf of the Group speak only as of
the date they are made and are based upon the knowledge
and information available to the Directors on the
date of this report.
Contacts
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and healthcare companies - is committed to improving
the quality of human life by enabling people to do
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please visit www.gsk.com.
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Financial information
Income statement
Q1 2017 Q1 2016
GBPm GBPm
-------- --------
TURNOVER 7,384 6,229
Cost of sales (2,513) (2,133)
-------- --------
Gross profit 4,871 4,096
Selling, general and administration (2,452) (2,189)
Research and development (960) (815)
Royalty income 82 91
Other operating income/(expense) 177 (460)
-------- --------
OPERATING PROFIT 1,718 723
Finance income 21 18
Finance expense (194) (181)
Share of after tax profits of associates
and joint ventures 5 -
-------- --------
PROFIT BEFORE TAXATION 1,550 560
Taxation (327) (208)
Tax rate % 21.1% 37.1%
-------- --------
PROFIT AFTER TAXATION FOR THE PERIOD 1,223 352
-------- --------
Profit attributable to non-controlling
interests 177 70
Profit attributable to shareholders 1,046 282
-------- --------
1,223 352
-------- --------
EARNINGS PER SHARE 21.4p 5.8p
-------- --------
Diluted earnings per share 21.3p 5.8p
-------- --------
Statement of comprehensive income
Q1 2017 Q1 2016
GBPm GBPm
-------- --------
Profit for the period 1,223 352
Items that may be reclassified subsequently
to income statement:
Exchange movements on overseas net
assets and net investment hedges 196 683
Fair value movements on available-for-sale
investments 53 (71)
Reclassification of fair value movements
on available-for-sale investments (4) (2)
Deferred tax on fair value movements
on available-for-sale investments (2) 43
Deferred tax reversed on reclassification
of available-for-sale investments (1) 2
Fair value movements on cash flow hedges (2) -
Deferred tax on fair value movements
on cash flow hedges (1) (1)
Reclassification of cash flow hedges
to income statement - (2)
239 652
-------- --------
Items that will not be reclassified
to income statement:
Exchange movements on overseas net
assets of non-controlling interests 27 143
Re-measurement gains/(losses) on defined
benefit plans 234 (537)
Deferred tax on re-measurement gains/(losses)
on defined benefit plans (55) 134
-------- --------
206 (260)
-------- --------
Other comprehensive income for the
period 445 392
-------- --------
Total comprehensive income for the
period 1,668 744
-------- --------
Total comprehensive income for the
period attributable to:
Shareholders 1,464 531
Non-controlling interests 204 213
-------- --------
1,668 744
-------- --------
Pharmaceuticals turnover - three months ended 31
March 2017
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Respiratory 1,683 19 5 767 21 6 382 10 - 534 22 6
Anoro Ellipta 62 88 67 40 74 52 14 100 86 8 >100 >100
Arnuity Ellipta 8 >100 >100 8 >100 >100 - - - - - -
Avamys/Veramyst 91 17 - - - - 21 17 6 70 30 9
Flixotide/Flovent 164 7 (5) 89 - (12) 28 12 - 47 21 8
Incruse Ellipta 34 53 35 20 7 (4) 10 >100 >100 4 >100 >100
Nucala 59 >100 >100 42 >100 >100 11 >100 >100 6 >100 >100
Relvar/Breo
Ellipta 204 84 61 111 95 70 49 63 47 44 83 58
Seretide/Advair 752 - (12) 339 - (12) 206 (9) (17) 207 10 (4)
Ventolin 214 20 7 117 27 11 35 13 3 62 11 2
Other 95 21 4 1 >(100) >100 8 31 31 86 19 3
HIV 985 35 19 608 43 25 259 17 5 118 47 27
Epzicom/Kivexa 78 (49) (55) 14 (76) (79) 39 (44) (50) 25 (9) (21)
Selzentry 38 27 13 20 30 13 10 (11) (18) 8 >100 >100
Tivicay 301 60 41 200 60 40 70 43 29 31 >100 93
Triumeq 539 64 45 360 67 46 134 54 39 45 81 53
Other 29 2 (14) 14 7 (7) 6 22 11 9 (16) (38)
Immuno-inflammation 92 42 23 84 42 24 6 20 20 2 100 -
Benlysta 91 40 22 83 41 22 6 20 20 2 100 -
Established
Pharmaceuticals 1,429 4 (6) 272 7 (5) 361 - (9) 796 5 (5)
Cardiovascular,
metabolic
and urology
(CVMU) 216 17 3 58 (2) (14) 86 10 - 72 53 30
Avodart 160 21 6 5 (29) (43) 83 8 (3) 72 50 27
Eperzan/Tanzeum 28 12 - 28 12 (4) 1 - - (1) - -
Other 28 4 (7) 25 (7) (15) 2 >100 >100 1 >(100) (100)
Established
products 640 5 (5) 191 12 (1) 132 5 (4) 317 1 (7)
Coreg 35 9 (3) 35 9 (3) - - - - - -
Imigran/Imitrex 53 29 20 30 67 56 16 - (6) 7 - (14)
Lamictal 166 19 5 89 27 11 26 4 (4) 51 16 -
Requip 27 8 (4) 4 33 33 6 (14) (14) 17 13 (7)
Serevent 26 18 5 15 50 30 9 - (11) 2 (33) (33)
Seroxat/Paxil 45 (8) (18) - - - 9 - (11) 36 9 (3)
Valtrex 31 15 - 4 (20) (20) 7 17 17 20 25 -
Zeffix 26 (16) (23) - - - 1 (50) (50) 25 (11) (18)
Other 231 (5) (11) 14 (42) (54) 58 12 - 159 (5) (8)
Other
pharmaceuticals 573 (1) (11) 23 (8) (12) 143 (9) (18) 407 2 (8)
Dermatology 113 18 5 - - - 41 8 - 72 44 26
Augmentin 155 12 4 - - - 53 8 (2) 102 13 7
Other
anti-bacterials 48 (2) (14) 1 (50) (50) 17 13 - 30 (6) (19)
Rare diseases 110 18 4 14 27 18 37 12 3 59 20 2
Oncology 20 (66) (66) - - - - - - 20 (66) (66)
Other 127 (12) (21) 8 100 >100 (5) >(100) >(100) 124 4 (6)
-------- -------- -------- -------- -------- ---------------- -------- -------- ---------(3)------- -------- -------- ----------------
Pharmaceuticals 4,189 17 4 1,731 26 11 1,008 8 (2) 1,450 14 1
-------- -------- -------- -------- -------- ---------- -------- -------- --------- -------- -------- ---------
Vaccines turnover - three months ended 31 March 2017
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Meningitis 191 71 51 46 21 5 104 76 58 41 >100 >100
Bexsero 126 >100 79 27 69 50 83 >100 83 16 >100 >100
Menveo 55 31 17 19 (14) (27) 16 23 8 20 >100 >100
Other 10 25 13 - - - 5 - (20) 5 67 67
Influenza 13 44 11 (3) >(100) >(100) 1 >100 >100 15 88 50
Fluarix,
FluLaval 13 44 11 (3) >(100) >(100) 1 >100 >100 15 88 50
Established
Vaccines 948 25 11 320 43 26 284 1 (7) 344 33 17
Infanrix,
Pediarix 234 24 10 125 60 40 83 (9) (16) 26 37 11
Boostrix 111 26 11 54 50 31 39 - (10) 18 38 23
Hepatitis 167 23 8 85 37 19 51 4 (4) 31 24 4
Rotarix 146 34 18 54 29 12 22 22 11 70 43 27
Synflorix 133 46 31 - - - 14 27 9 119 49 34
Priorix,
Priorix
Tetra,
Varilrix 77 23 8 - - - 37 2 (6) 40 52 29
Cervarix 17 - (12) - (41) (15) 7 - (14) 10 - (10)
Other 63 (9) (13) 2 (60) (40) 31 8 5 30 (16) (24)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines 1,152 31 16 363 39 21 389 15 4 400 42 25
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Balance sheet
31 March 31 December
2017 2016
GBPm GBPm
----------- ------------
ASSETS
Non-current assets
Property, plant and equipment 10,812 10,808
Goodwill 5,960 5,965
Other intangible assets 18,753 18,776
Investments in associates
and joint ventures 276 263
Other investments 1,049 985
Deferred tax assets 4,351 4,374
Other non-current assets 1,247 1,199
----------- ------------
Total non-current assets 42,448 42,370
----------- ------------
Current assets
Inventories 5,417 5,102
Current tax recoverable 227 226
Trade and other receivables 6,224 6,026
Derivative financial instruments 124 156
Liquid investments 88 89
Cash and cash equivalents 4,509 4,897
Assets held for sale 198 215
----------- ------------
Total current assets 16,787 16,711
----------- ------------
TOTAL ASSETS 59,235 59,081
----------- ------------
LIABILITIES
Current liabilities
Short-term borrowings (3,740) (4,129)
Contingent consideration
liabilities (595) (561)
Trade and other payables (12,033) (11,964)
Derivative financial instruments (168) (194)
Current tax payable (1,414) (1,305)
Short-term provisions (807) (848)
----------- ------------
Total current liabilities (18,757) (19,001)
----------- ------------
Non-current liabilities
Long-term borrowings (14,600) (14,661)
Deferred tax liabilities (1,965) (1,934)
Pensions and other post-employment
benefits (3,885) (4,090)
Other provisions (658) (652)
Derivative financial instruments (1) -
Contingent consideration
liabilities (5,199) (5,335)
Other non-current liabilities (8,577) (8,445)
----------- ------------
Total non-current liabilities (34,885) (35,117)
----------- ------------
TOTAL LIABILITIES (53,642) (54,118)
----------- ------------
NET ASSETS 5,593 4,963
----------- ------------
EQUITY
Share capital 1,343 1,342
Share premium account 2,995 2,954
Retained earnings (4,906) (5,392)
Other reserves 2,282 2,220
----------- ------------
Shareholders' equity 1,714 1,124
Non-controlling interests 3,879 3,839
----------- ------------
TOTAL EQUITY 5,593 4,963
----------- ------------
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
2017 1,342 2,954 (5,392) 2,220 1,124 3,839 4,963
Profit for the
period 1,046 1,046 177 1,223
Other
comprehensive
income for
the
period 375 43 418 27 445
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income for the
period 1,421 43 1,464 204 1,668
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (161) (161)
Dividends to
shareholders (925) (925) (925)
Changes in
non-controlling
interests (2) (2) (3) (5)
Shares issued 1 31 32 32
Shares acquired
by
ESOP Trusts 10 70 (141) (61) (61)
Write-down on
shares
held by ESOP
Trusts (160) 160 - -
Share-based
incentive
plans 82 82 82
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 March 2017 1,343 2,995 (4,906) 2,282 1,714 3,879 5,593
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2016 1,340 2,831 (1,397) 2,340 5,114 3,764 8,878
Profit for the
period 282 282 70 352
Other
comprehensive
income/(expense)
for the period 275 (26) 249 143 392
------------ ------------ ------------ ------------ ------------
Total comprehensive
income/(expense)
for the period 557 (26) 531 213 744
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (40) (40)
Dividends to
shareholders (919) (919) (919)
Recognition of
liabilities
with
non-controlling
interests (2,013) (2,013) (159) (2,172)
Changes in
non-controlling
interests 42 42 (45) (3)
Shares issued - 9 9 9
Shares acquired by
ESOP Trusts (52) (52) (52)
Write-down on
shares
held by ESOP
Trusts (66) 66 - -
Share-based
incentive
plans 96 96 96
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 March 2016 1,340 2,840 (3,700) 2,328 2,808 3,733 6,541
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash flow statement
Three months ended 31 March 2017
Q1 2017 Q1 2016
GBPm GBPm
-------- --------
Profit after tax 1,223 352
Tax on profits 327 208
Share of after tax profits of associates (5) -
and joint ventures
Net finance expense 173 163
Depreciation and other adjusting items 326 558
Increase in working capital (604) (558)
Contingent consideration paid (138) (71)
Increase in other net liabilities
(excluding contingent consideration
paid) 48 243
-------- --------
Cash generated from operations 1,350 895
Taxation paid (206) (392)
-------- --------
Net cash inflow from operating activities 1,144 503
-------- --------
Cash flow from investing activities
Purchase of property, plant and equipment (260) (289)
Proceeds from sale of property, plant
and equipment 13 2
Purchase of intangible assets (156) (330)
Purchase of equity investments (21) (31)
Proceeds from sale of equity investments 6 4
Contingent consideration paid (22) (18)
Purchase of non-controlling interests - 4
Purchase of businesses, net of cash
acquired - (24)
Disposal of businesses 223 (1)
Investment in associates and joint
ventures (6) (2)
Interest received 24 18
-------- --------
Net cash outflow from investing activities (199) (667)
-------- --------
Cash flow from financing activities
Issue of share capital 32 9
Shares acquired by ESOP Trusts (61) (52)
Repayment of short-term loans (528) (201)
Net repayment of obligations under
finance leases (3) (5)
Interest paid (93) (86)
Dividends paid to shareholders (925) (919)
Distributions to non-controlling interests - (40)
Other financing items 69 (19)
-------- --------
Net cash outflow from financing activities (1,509) (1,313)
-------- --------
Decrease in cash and bank overdrafts
in the period (564) (1,477)
-------- --------
Cash and bank overdrafts at beginning
of the period 4,605 5,486
Exchange adjustments 11 (36)
Decrease in cash and bank overdrafts (564) (1,477)
-------- --------
Cash and bank overdrafts at end of
the period 4,052 3,973
-------- --------
Cash and bank overdrafts at end of
the period comprise:
Cash and cash equivalents* 4,509 5,179
Overdrafts* (457) (1,206)
-------- --------
4,052 3,973
-------- --------
Comparative figures have been revised, see page
* 34 for further details.
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). GSK reports results under four segments:
Pharmaceuticals; Pharmaceuticals R&D; Vaccines and
Consumer Healthcare, and individual members of the
CET are responsible for each segment.
The Pharmaceuticals R&D segment is the responsibility
of the President, Pharmaceuticals R&D and is reported
as a separate segment.
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.
From Q1 2017, Adjusted results have been amended
to exclude, instead of all legal charges, only significant
legal charges, as set out in 'Accounting policies
and basis of preparation' on page 34. Comparative
information has been revised accordingly.
Turnover by segment
Q1 2017 Q1 2016 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 4,189 3,586 17 4
Vaccines 1,152 882 31 16
Consumer Healthcare 2,043 1,761 16 2
-------- -------- ------- -------
Total turnover 7,384 6,229 19 5
-------- -------- ------- -------
Operating profit by segment
Q1 2016
Q1 2017 (revised) Growth Growth
GBPm GBPm GBP% CER%
-------- ----------- ------- -------
Pharmaceuticals 2,118 1,690 25 8
Pharmaceuticals R&D (678) (547) 24 14
-------- ----------- ------- -------
Pharmaceuticals including
R&D 1,440 1,143 26 6
Vaccines 341 246 38 22
Consumer Healthcare 351 303 16 (2)
-------- ----------- ------- -------
Segment profit 2,132 1,692 26 7
Corporate and other unallocated
costs (153) (168) (9) (19)
-------- ----------- ------- -------
Adjusted operating profit 1,979 1,524 30 9
Adjustments (261) (801)
-------- ----------- ------- -------
Total operating profit 1,718 723 >100 100
Finance income 21 18
Finance costs (194) (181)
Share of after tax profits
of associates
and joint ventures 5 -
-------- ----------- ------- -------
Profit before taxation 1,550 560 >100 >100
-------- ----------- ------- -------
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 2016.
At 31 March 2017, the Group's aggregate provision
for legal and other disputes (not including tax matters
described under 'Taxation' below) was GBP0.4 billion
(31 December 2016: GBP0.3 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 2016 are as follows:
In February 2017, Teva Pharmaceuticals (Teva) sent
the Group a notification under the US Hatch-Waxman
Act challenging three Group patents covering Flovent
HFA. On 31 March 2017, the Group filed suit against
Teva on two of the challenged patents covering dose-counter
devices that expire in 2023 and 2026. The other challenged
patent, known as the '413 patent, is directed at
treating diseases using a formulation containing
only drug and propellant and covers Flovent HFA,
Ventolin HFA and Advair HFA. This patent expires
in 2021. After analysing the ownership, patent claims
and patent term of the '413 patent in light of the
Teva notification, as well as patent case law developments,
the Group elected not to sue Teva under this patent
and has requested that the FDA delists it from the
Orange Book.
On 24 April 2017, the Group entered into an agreement
with Pfizer, Inc. regarding the Group's meningitis
B vaccine, Bexsero, and Pfizer's meningitis B vaccine,
Trumenba. The agreement resolves all patent disputes
between the companies in various markets, including
the US, Canada, UK, Italy, Ireland and Austria. Terms
of the agreement are confidential.
Developments with respect to tax matters are described
in 'Taxation' below.
Taxation
There have been no material changes to historical
tax matters since the publication of the Annual Report
2016.
Issues related to taxation are described in the 'Taxation'
note in the Annual Report 2016. The Group continues
to believe 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.
In the quarter, tax on Adjusted profits amounted
to GBP399 million and represented an effective Adjusted
tax rate of 22.0% (Q1 2016: 21.4%). The charge for
taxation on Total profits amounted to GBP327 million
and represented an effective tax rate of 21.1% (Q1
2016: 37.1%).
The Adjusted tax rate for the full year is expected
to be in the range of 21-22%. The Group's balance
sheet at 31 March 2017 included a tax payable liability
of GBP1,414 million and a tax recoverable asset of
GBP227 million.
Additional information
Accounting policies and basis of preparation
This unaudited Results Announcement contains condensed
financial information for the three months ended
31 March 2017, and should be read in conjunction
with the Annual Report 2016, 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 2016.
Following an agenda decision by the IFRS Interpretations
Committee regarding offsetting and cash pooling arrangements,
the Group has revised its disclosure of its cash
pooling arrangements in the comparative balance sheet
at 31 March 2016. The revision had the effect of
increasing both cash and cash equivalents and short-term
borrowings by GBP769 million. There is no change
to the results or cash flows for the three months
to 31 March 2016 and there was no impact at 1 January
2016.
As detailed in the definition of Adjusted results
on page 22, from Q1 2017 core results has been renamed
Adjusted results and only significant legal charges
and expenses are excluded in order to present Adjusted
results. A reconciliation of Total to the revised
Adjusted results for Q1 2016 is presented on page
42. The revision had the effect of decreasing Adjusted
Q1 2016 operating profit by GBP35 million due to
the inclusion of non-significant legal charges and
expenses in the Pharmaceuticals segment (GBP17 million)
and in Corporate & other unallocated costs (GBP18
million).
From Q1 2017, adjusted free cash flow will no longer
be reported and the free cash flow definition has
been amended to include all contingent consideration
payments made during the period. The impact of the
change on the free cash flow for Q1 2016 was to increase
the free cash outflow by GBP18 million.
The Group is required to implement a new accounting
standard, IFRS 15 'Revenue from contracts with customers',
from 1 January 2018. The Group is currently assessing
the new standard and does not expect to be able to
quantify the impact of any potential changes until
later in 2017.
The Group is also assessing the potential impact
of IFRS 9 'Financial instruments', which it is required
to implement from 1 January 2018 and does not expect
to be able to quantify the impact of any potential
changes until later in 2017.
IFRS 16 'Leases' is required to be implemented by
the Group from 1 January 2019. The Group is in the
early stages of assessing the potential impact of
the new standard.
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 2016 were published in the
Annual Report 2016, 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:
Q1 2017 Q1 2016 2016
-------- -------- -----
Average rates:
US$/GBP 1.25 1.43 1.36
Euro/GBP 1.17 1.30 1.23
Yen/GBP 141 167 149
Period-end rates:
US$/GBP 1.25 1.44 1.24
Euro/GBP 1.17 1.26 1.17
Yen/GBP 139 162 144
During Q1 2017, average Sterling exchange rates
were weaker against the US Dollar, the Euro and
the Yen, compared with the same period in 2016.
Similarly, period-end Sterling exchange rates were
weaker against the US Dollar, the Euro and the Yen.
Weighted average number of shares
Q1 2017 Q1 2016
millions millions
---------- ----------
Weighted average number of shares -
basic 4,877 4,847
Dilutive effect of share options and
share awards 41 43
---------- ----------
Weighted average number of shares -
diluted 4,918 4,890
---------- ----------
At 31 March 2017, 4,886 million shares were in free
issue (excluding Treasury shares and shares held
by the ESOP Trusts). This compares with 4,858 million
shares at 31 March 2016.
Net assets
The book value of net assets increased by GBP630
million from GBP4,963 million at 31 December 2016
to GBP5,593 million at 31 March 2017. This primarily
reflects the impact of operating profits partly offset
by the dividend paid in the period.
The carrying value of investments in associates and
joint ventures at 31 March 2017 was GBP276 million,
with a market value of GBP549 million.
At 31 March 2017, the net deficit on the Group's
pension plans was GBP1,880 million compared with
GBP2,084 million at 31 December 2016. The decrease
in the net deficit primarily arose from UK asset
gains partly offset by a decrease in the rate used
to discount UK pension liabilities from 2.7% to 2.6%.
At 31 March 2017, the post-retirement benefits provision
was GBP1,674 million compared with GBP1,693 million
at 31 December 2016.
At 31 March 2017, the estimated present value of
the potential redemption amount of the Consumer Healthcare
Joint Venture put option recognised in Other non-current
liabilities was GBP7,541 million (31 December 2016:
GBP7,420 million). The estimated present value of
the potential redemption amount of the Pfizer put
option related to ViiV Healthcare was GBP1,205 million,
which is recorded in Other payables in Current liabilities.
Contingent consideration amounted to GBP5,794 million
at 31 March 2017 (31 December 2016: GBP5,896 million),
of which GBP5,193 million (31 December 2016: GBP5,304
million) represented the estimated present value
of amounts payable to Shionogi relating to ViiV Healthcare
and GBP554 million (31 December 2016: GBP545 million)
represented the estimated present value of contingent
consideration payable to Novartis related to the
Vaccines acquisition. The liability due to Shionogi
included GBP224 million in respect of preferential
dividends. The liability for preferential dividends
due to Pfizer at 31 March 2017 was GBP23 million
(31 December 2016: GBP23 million). An explanation
of the accounting for the non-controlling interests
in ViiV Healthcare is set out on page 39.
Of the contingent consideration payable (on a post-tax
basis) at 31 March 2017, GBP595 million (31 December
2016: GBP561 million) is expected to be paid within
one year. The consideration payable for the acquisition
of the Shionogi-ViiV Healthcare joint venture and
the Novartis Vaccines business is expected to be
paid over a number of years. As a result, the total
estimated liabilities are discounted to their present
values, on a post-tax basis using post-tax discount
rates. The Shionogi-ViiV Healthcare contingent consideration
liability is discounted at 8.5% and the Novartis
Vaccines contingent consideration liability is discounted
partly at 8% and partly at 9%.
The liabilities for the Consumer Healthcare Joint
Venture put option, the ViiV Healthcare put option
and the ViiV Healthcare contingent consideration
at 31 March 2017 have been calculated based on the
closing exchange rates at 31 March 2017, primarily
US$1.25/GBP1 and Euro 1.17/GBP1.
Movements in these exchange rates would have the
following approximate effects on the liabilities:
Consumer Shionogi-
Healthcare ViiV
Joint ViiV Healthcare
Venture Healthcare contingent
Increase/(decrease) in liability put option put option consideration
GBPm GBPm GBPm
------------ ------------ ---------------
5 cent appreciation of US
Dollar 21 31 165
5 cent depreciation of US
Dollar (19) (28) (152)
10 cent appreciation of US
Dollar 43 64 344
10 cent depreciation of US
Dollar (37) (55) (293)
5 cent appreciation of Euro 98 18 45
5 cent depreciation of Euro (90) (16) (42)
10 cent appreciation of Euro 206 37 95
10 cent depreciation of Euro (173) (31) (80)
------------ ------------ ---------------
Movements in contingent consideration are as follows:
Q1 2017 Q1 2016
GBPm GBPm
-------- --------
Contingent consideration at beginning
of the period 5,896 3,855
Additions - 194
Amount reversed - (41)
Re-measurement through income statement 58 225
Cash payments: operating cash flows (138) (72)
Cash payments: investing activities (22) (18)
Other movements - 9
-------- --------
Contingent consideration at end of
the period 5,794 4,152
-------- --------
The additions in Q1 2016 reflected the recognition
of the preferential dividend payable to Shionogi
in relation to ViiV Healthcare and contingent consideration
on the acquisition of the BMS HIV programmes. The
amount reversed in Q1 2016 relates to a provision
that had been made in respect of a small acquisition
in 2012 but that was no longer required.
The re-measurement increases in contingent consideration
in the period primarily reflected the unwind of the
discount on the liabilities and updated forecasts.
The cash settlement in the period included GBP159
million (Q1 2016: GBP89 million) of payments to Shionogi
in relation to ViiV Healthcare. These payments are
deductible for tax purposes.
At 31 March 2017, the ESOP Trusts held 31.8 million
GSK shares against the future exercise of share options
and share awards. The carrying value of GBP267 million
has been deducted from other reserves. The market
value of these shares was GBP528 million.
At 31 March 2017, the company held 453.2 million
Treasury shares at a cost of GBP6,381 million, which
has been deducted from retained earnings.
Contingent liabilities
There were contingent liabilities at 31 March 2017
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 33.
Reconciliation of cash flow to movements in net debt
Q1 2017 Q1 2016
GBPm GBPm
--------- ---------
Net debt at beginning of the period (13,804) (10,727)
Decrease in cash and bank overdrafts (564) (1,477)
Net repayment of short-term loans 528 201
Net repayment of obligations under
finance leases 3 5
Exchange adjustments 97 (496)
Other non-cash movements (3) (1)
--------- ---------
Decrease/(increase) in net debt 61 (1,768)
--------- ---------
Net debt at end of the period (13,743) (12,495)
--------- ---------
Net debt analysis
31 March 31 December
2017 2016
GBPm GBPm
--------- ------------
Liquid investments 88 89
Cash and cash equivalents 4,509 4,897
Short-term borrowings (3,740) (4,129)
Long-term borrowings (14,600) (14,661)
Net debt at end of the period (13,743) (13,804)
--------- ------------
Free cash flow reconciliation
Q1 2017 Q1 2016
GBPm GBPm
-------- --------
Net cash inflow from operating
activities 1,144 503
Purchase of property, plant
and equipment (260) (289)
Proceeds from sale of property,
plant and equipment 13 2
Purchase of intangible assets (156) (330)
Net finance costs (69) (68)
Contingent consideration paid (reported
in investing activities) (22) (18)
Distributions to non-controlling
interests - (40)
-------- --------
Free cash inflow/(outflow) 650 (240)
Non-controlling interests in ViiV Healthcare
Trading profit allocations
Because ViiV Healthcare is a subsidiary of the Group,
100% of its operating results (turnover, operating
profit, profit after tax) are included within the
Group income statement and then a portion of the
earnings is allocated to the non-controlling interests
owned by the other shareholders, in line with their
respective equity shareholdings (Pfizer 11.7% and
Shionogi 10%). Each of the shareholders, including
GSK, is also entitled to preferential dividends determined
by the performance of certain products that each
shareholder contributed. As the relative performance
of these products changes over time, the proportion
of the overall earnings of ViiV Healthcare allocated
to each shareholder will change. In particular, the
increasing sales of Tivicay and Triumeq have a favourable
impact on the proportion of the preferential dividends
that is allocated to GSK. GSK was entitled to approximately
80% of the core earnings of ViiV Healthcare for 2016.
Re-measurements of the liabilities for the preferential
dividends allocated to Pfizer and Shionogi are included
within other operating income.
Acquisition-related arrangements
As part of the agreement reached to acquire Shionogi's
interest in the former Shionogi-ViiV Healthcare joint
venture in 2012, the Group agreed to pay additional
consideration to Shionogi contingent on the performance
of the products being developed by that joint venture,
principally dolutegravir. The liability for this
contingent consideration was estimated and recognised
in the balance sheet at the date of acquisition.
Subsequent re-measurements are reflected within Adjusting
items in the income statement.
Cash payments are made to Shionogi by ViiV Healthcare
each quarter which reduce the balance sheet liability
and are hence not recorded in the income statement.
The payments are calculated based on the sales performance
of the relevant products in the previous quarter
and are reflected in the cash flow statement partly
in operating cash flows and partly within investing
activities. The tax relief on these payments is reflected
in the Group's Adjusting items and total tax charge.
The part of each payment relating to the original
estimate of the fair value of the contingent consideration
on the acquisition of the Shionogi-ViiV Healthcare
joint venture in 2012 of GBP659 million is reported
within investing activities in the cash flow statement
and the part of each payment relating to the increase
in the liability since the acquisition is reported
within operating cash flows.
Movements in contingent consideration payable to
Shionogi are as follows:
Q1 2017 Q1 2016
GBPm GBPm
-------- --------
Contingent consideration at beginning
of the period 5,304 3,409
Additions - 154
Re-measurement through income statement 48 212
Cash payments: operating cash flows (137) (71)
Cash payments: investing activities (22) (18)
Contingent consideration at end of
the period 5,193 3,686
-------- --------
The additions in Q1 2016 represented the recognition
of the preferential dividends payable to Shionogi.
Of the contingent consideration payable (on a post-tax
basis) to Shionogi at 31 March 2017, GBP579 million
(31 December 2016: GBP545 million) is expected to
be paid within one year.
Exit rights
Pfizer may request an IPO of ViiV Healthcare at any
time and if either GSK does not consent to such IPO
or an offering is not completed within nine months,
Pfizer could require GSK to acquire its shareholding.
Under the original agreements, GSK had the unconditional
right, so long as it made no subsequent distribution
to its shareholders, to withhold its consent to the
exercise of the Pfizer put options and, as a result,
in accordance with IFRS, GSK did not recognise a
liability for the put option on its balance sheet.
However, during Q1 2016, GSK notified Pfizer that
it had irrevocably given up this right and accordingly
recognised the liability for the put option on the
Group's balance sheet during Q1 2016 at an initial
value of GBP1,070 million. Consistent with this revised
treatment, at the end of Q1 2016 GSK also recognised
liabilities for the future preferential dividends
anticipated to become payable to Pfizer and Shionogi
on the Group's balance sheet.
The closing balances of the liabilities related to
Pfizer's shareholding are as follows:
31 December
Q1 2017 2016
GBPm GBPm
-------- ------------
Pfizer put option 1,205 1,319
Pfizer preferential dividend 23 23
Under the original agreements, Shionogi could also
have requested GSK to acquire its shareholding in
ViiV Healthcare in six month windows commencing in
2017, 2020 and 2022. GSK had the unconditional right,
so long as it made no subsequent distribution to
its shareholders, to withhold its consent to the
exercise of the Shionogi put option and, as a result,
GSK did not recognise a liability for the put option
on its balance sheet. However, during Q1 2016, GSK
notified Shionogi that it had irrevocably given up
this right and accordingly recognised the liability
for the put option on the Group's balance sheet during
Q1 2016 at an initial value of GBP926 million. In
Q4 2016, Shionogi irrevocably agreed to waive its
put option and as a result GSK de-recognised the
liability for this put option on the Group's balance
sheet directly to equity. The value of the liability
was GBP1,244 million when it was de-recognised.
GSK also has a call option over Shionogi's shareholding
in ViiV Healthcare, which under the original agreements
was exercisable in six month windows commencing in
2027, 2030 and 2032. GSK has now irrevocably agreed
to waive the first two exercise windows, but the
last six month window in 2032 remains. As this call
option is at fair value, it has no value for accounting
purposes.
Adjusted results reconciliations
The reconciliations between total results and adjusted
results for Q1 2017 and Q1 2016 are set out below.
Income statement - Adjusted results reconciliation
Three months ended 31 March 2017
Divestments,
significant
legal
Intangible Intangible Major and
Total amort- impair- restruct- Transaction- other Adjusted
results isation ment uring related items results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 7,384 7,384
Cost of sales (2,513) 131 35 104 22 (2,221)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 4,871 131 35 104 22 5,163
Selling, general
and
administration (2,452) 47 58 (2,347)
Research and
development (960) 11 9 15 6 (919)
Royalty income 82 82
Other operating
income/(expense) 177 70 (247) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,718 142 44 166 92 (183) 1,979
Net finance costs (173) 1 3 (169)
Share of after
tax profits of
associates and
joint ventures 5 5
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,550 142 44 167 92 (180) 1,815
Taxation (327) (31) (13) (38) (27) 37 (399)
Tax rate % 21.1% 22.0%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 1,223 111 31 129 65 (143) 1,416
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 177 22 199
Profit
attributable
to shareholders 1,046 111 31 129 43 (143) 1,217
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 21.4p 2.3p 0.7p 2.7p 0.9p (3.0)p 25.0p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number of shares
(millions) 4,877 4,877
------------ ------------
Adjusted results exclude the above items from Total
results as GSK believes that Adjusted results are
more representative of the performance of the Group's
operations and allow the key trends and factors driving
performance to be more easily and clearly identified
by shareholders. For a fuller explanation of Adjusted
results, see 'Definitions' on page 22.
Income statement - Adjusted results reconciliation
Three months ended 31 March 2016
Divestments,
significant
legal
and Adjusted
Total Intangible Major Transaction- other results
results amortisation restructuring related items (revised)
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------
Turnover 6,229 6,229
Cost of sales (2,133) 134 48 15 - (1,936)
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 4,096 134 48 15 - 4,293
Selling, general
and administration (2,189) 113 (9) (2,085)
Research and development (815) 10 27 3 (775)
Royalty income 91 91
Other operating
income/(expense) (460) 445 15 -
------------ ------------ ------------ ------------ ------------ ------------
Operating profit 723 144 188 460 9 1,524
Net finance costs (163) 1 3 (159)
------------ ------------ ------------ ------------ ------------ ------------
Profit before taxation 560 144 189 460 12 1,365
Taxation (208) (29) (28) (47) 20 (292)
Tax rate % 37.1% 21.4%
------------ ------------ ------------ ------------ ------------ ------------
Profit after taxation 352 115 161 413 32 1,073
------------ ------------ ------------ ------------ ------------ ------------
Profit attributable
to
non-controlling
interests 70 77 147
Profit attributable
to shareholders 282 115 161 336 32 926
------------ ------------ ------------ ------------ ------------ ------------
Earnings per share 5.8p 2.4p 3.3p 6.9p 0.7p 19.1p
------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number of shares
(millions) 4,847 4,847
------------ ------------
Adjusted results exclude the above items from Total
results as GSK believes that Adjusted results are
more representative of the performance of the Group's
operations and allow the key trends and factors driving
performance to be more easily and clearly identified
by shareholders. For a fuller explanation of Adjusted
results, see 'Definitions' on page 22.
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 months ended 31 March 2017. 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 the accounting policies set out
in the accounting policies and basis of preparation
section on page 34 of the Results Announcement.
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 31 March 2017;
-- the income statement and statement of comprehensive
income for the three month period 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 32 to 40.
As disclosed on page 34, 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 the accounting policies set out in the accounting
policies and basis of preparation section on page
34.
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 accounting policies set out
in the accounting policies and basis of preparation
section on page 34.
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 management's stewardship
purposes 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
26 April 2017
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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