3rd Quarter Results
30/10/2019 12:00
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GlaxoSmithKline PLC
30 October 2019
Issued: Wednesday, 30 October 2019, London U.K.
GSK delivers sales of £9.4 billion +16% AER, +11% CER (Pro-forma +6% CER*)
Total EPS 31.4p +9% AER, -1% CER; Adjusted EPS 38.6p +9% AER, +1% CER
Financial highlights
· Reported Group sales £9.4 billion +16% AER, +11% CER (Pro-forma growth +6%
CER*); Pharmaceuticals £4.5 billion +7% AER, +3% CER; Vaccines £2.3 billion
+20% AER, +15% CER; Consumer Healthcare £2.5 billion +30% AER, +25% CER
(Pro-forma growth +3% CER*)
· Total Group operating margin 22.9%; Adjusted Group operating margin 29.7%
reflecting increased spending on R&D and priority assets, and the impact
of generic Advair in the US, partly offset by Vaccines performance
(Pharmaceuticals 24.1%; Vaccines 50.3%; Consumer Healthcare 24.3%)
· Total EPS 31.4p +9% AER, -1% CER, Adjusted EPS 38.6p +9% AER, +1% CER
reflecting operating performance and lower effective tax rate offset by
increased profit allocation to non-controlling interests
· 9 months net cash flow from operations £4.6 billion. Free cash flow £2.5
billion
· 19p dividend declared for the quarter, continue to expect 80p for FY19
· Consumer Healthcare JV with Pfizer completed 31 July creating new world leader
in Consumer Healthcare
· 2019 Adjusted EPS guidance improved to expectation of around flat at CER from
a decline of -3% to -5%
Product and pipeline highlights
· Shingrix sales £535 million +87% AER, +76% CER driven by continuing strong
execution in the US
· Total Respiratory sales £806 million +25% AER, +19% CER. Nucala £203
million +40% AER, +33% CER, Trelegy £139 million +>100% AER, +>100% CER
· Total HIV sales £1.3 billion, +5% AER, flat at CER. Two-drug regimen sales
£119 million
· Continued progress to strengthen and advance R&D pipeline including:
Oncology:
- Positive data presented at ESMO from PRIMA trial of Zejula monotherapy showing
significant improvement in PFS in women with ovarian cancer regardless of
biomarker status. On track to file by end 2019
- Positive headline data from pivotal DREAMM-2 study of belantamab mafodotin
(GSK2857916) for multiple myeloma. On track to file by end 2019
- Positive data from GARNET study of dostarlimab for advanced or recurrent
endometrial cancer. On track to file by end 2019
- Positive data presented at ESMO on GSK3359609 (ICOS receptor agonist) plus
pembrolizumab in head and neck squamous cell carcinoma. Phase II/III
registrational trial announced
Respiratory:
- Nucala approved in EU for self-administration by patients with severe
eosinophilic asthma
- Trelegy Ellipta submitted to the FDA for use in patients with asthma
HIV:
- Long-acting injectable cabotegravir + rilpivirine submitted to EMA as the
first monthly treatment for HIV
- Positive phase III results from ATLAS-2M study of cabotegravir + rilpivirine
administered every 8 weeks
Other:
- Phase III start for first-in-class antibiotic, gepotidacin, in uncomplicated
urinary tract infection and urogenital gonorrhoea
- Daprodustat filed in Japan for patients with renal anaemia due to chronic
kidney disease
Q3 2019 results
Q3 2019 Growth 9 months 2019 Growth
£m £% CER% £m £% CER%
Turnover 9,385 16 11 24,855 10 7
Total operating profit 2,147 12 3 5,059 29 20
Total earnings per share 31.4p 9 (1) 67.7p 38 28
Adjusted operating profit 2,786 10 3 7,120 9 3
Adjusted earnings per share 38.6p 9 1 99.2p 12 7
Net cash from operating activities 2,515 21 4,567 6
Free cash flow 1,939 25 2,474 4
The Total results are presented under 'Financial performance' on pages 11 and
24 and Adjusted results reconciliations are presented on pages 20, 21, 34 and
35. Adjusted results are a non-IFRS measure that may be considered in
addition to, but not as a substitute for, or superior to, information
presented in accordance with IFRS. Adjusted results are defined on page 9
and £% or AER% growth, CER% growth, free cash flow and other non-IFRS
measures are defined on page 58. GSK provides guidance on an Adjusted
results basis only, for the reasons set out on page 10. All expectations,
guidance and targets regarding future performance and dividend payments should
be read together with "Outlook, assumptions and cautionary statements" on
pages 59 and 60.
* Reported AER and CER growth rates include two months' results of former Pfizer
consumer healthcare business. Pro-forma CER growth rates are calculated as
if the equivalent two months of Pfizer consumer healthcare business results,
as reported by Pfizer, were included in the comparative
period of 2018. See "Pro-forma growth" on page 10.
Emma Walmsley, Chief Executive Officer, GSK said:
"GSK has made further good progress in Q3, with sales growth across all three
businesses, and we have today upgraded our full-year EPS guidance. This
quarter we have continued to strengthen our pipeline and have advanced assets
in Respiratory, HIV and, notably, Oncology, where we are on track to file
three innovative medicines by year end, following positive pivotal trial data.
We also achieved a significant milestone with the completion of our new
Consumer Healthcare Joint Venture with Pfizer, to create a new world leading
consumer healthcare business."
2019 guidance
GSK now expects 2019 Adjusted EPS will be around flat at CER. This new
guidance represents a further improvement to that previously given in July
2019 of an expected decline in Adjusted EPS in the range of -3% to -5% at
CER. The new guidance reflects operating performance in the nine months,
increased investment in R&D and priority assets and a lower expected
effective tax rate of around 17% for the year.
GSK expects to maintain the dividend for 2019 at the current level of 80p per
share.
All expectations, guidance and targets regarding future performance and
dividend payments should be read together with "Outlook, assumptions and
cautionary statements" on pages 59 and 60.
If exchange rates were to hold at the closing rates on 25 October 2019
($1.28/£1, €1.15/£1 and Yen 139/£1) for the rest of 2019, the estimated
positive impact on 2019 Sterling turnover growth would be around 2% and if
exchange gains or losses were recognised at the same level as in 2018, the
estimated positive impact on 2019 Sterling Adjusted EPS growth would be around
4%.
Results presentation
A webcast of the quarterly results presentation hosted by Emma Walmsley, GSK
CEO, will be held at 2pm GMT on 30 October 2019. Presentation materials will
be published on www.gsk.com prior to the webcast and a transcript of the
webcast will be published subsequently.
Information available on GSK's website does not form part of, and is not
incorporated by reference into, this Results Announcement.
Operating performance - Q3 2019
Turnover Q3 2019
£m Growth Growth
£% CER%
Pharmaceuticals 4,531 7 3
Vaccines 2,308 20 15
Consumer Healthcare 2,526 30 25
9,365 16 11
Corporate and other unallocated turnover 20
Group turnover 9,385 16 11
Pro-forma growth 6
Group turnover increased 16% AER, 11% CER to £9,385 million in the quarter,
with growth delivered by all three businesses, primarily driven by Vaccines
and the acquired Pfizer consumer healthcare business to form the new Consumer
Healthcare Joint Venture. Pro-forma turnover growth for the Group was 6%
CER.
Pharmaceuticals sales were up 7% AER, 3% CER with HIV sales of £1,267
million, up 5% AER, flat at CER, as growth in Juluca and Dovato offset
declines in Tivicay and Triumeq. Respiratory sales were up 25% AER, 19% CER
to £806 million, on growth of Trelegy Ellipta and Nucala. Sales of
Established Pharmaceuticals declined 1% AER, 5% CER to £2,223 million
including the impact of loss of exclusivity of Advair.
Vaccines turnover grew 20% AER, 15% CER to £2,308 million, primarily driven
by growth in sales of Shingrix. Meningitis and Influenza vaccines also
contributed to growth.
Consumer Healthcare sales grew 30% AER, 25% CER to £2,526 million, primarily
reflecting the acquired Pfizer legacy brands. On a pro-forma basis, turnover
grew 3% CER, driven by strong performance in Oral health.
Operating profit
Total operating profit was £2,147 million compared with £1,910 million in Q3
2018. Adjusted operating profit was £2,786 million, up 10% AER, 3% CER on a
turnover increase of 11% CER. The Adjusted operating margin of 29.7% was
down 1.5 percentage points at AER, 2.4 percentage points at CER and down 2.0
percentage points CER on a pro-forma basis.
The unwind of the fair value uplift on Consumer Healthcare inventory
acquired from Pfizer and increased re-measurement charges on the contingent
consideration liabilities were partly offset by lower charges for major
restructuring and an increase in the value of the shares in Hindustan Unilever
Limited to be received on the disposal of Horlicks and other Consumer
Healthcare brands. GSK now expects the transaction to complete in Q1 2020,
subject to legal and regulatory approvals.
Operating profit was also impacted by continuing price pressure, including
from the loss of exclusivity of Advair, investment in R&D, including a
significant increase in Oncology investment, and investments in promotional
product support, particularly for new product launches. These were partly
offset by the benefit from sales growth, particularly in Vaccines, a more
favourable mix in Vaccines and Consumer Healthcare and continued tight control
of ongoing costs across all three businesses.
Earnings per share
Total earnings per share was 31.4p, compared with 28.8p in Q3 2018. Adjusted
EPS of 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER, on a 3% CER
increase in Adjusted operating profit. The improvement primarily resulted
from a reduced tax rate and lower net finance costs partly offset by the
higher non-controlling interest allocation of Consumer Healthcare profits.
Cash flow
Net cash inflow from operating activities was £2,515 million (Q3 2018:
£2,077 million) and free cash flow was £1,939 million (Q3 2018: £1,554
million). The increased free cash flow primarily reflected improved
operating profits, a lower seasonal increase in trade receivables and
inventory, and reduced dividend payments to non-controlling interests.
Operating performance - nine months 2019
Turnover 9 months 2019
£m Growth Growth
£% CER%
Pharmaceuticals 12,996 4 1
Vaccines 5,415 23 19
Consumer Healthcare 6,424 12 10
24,835 10 7
Corporate and other unallocated turnover 20
Group turnover 24,855 10 7
Pro-forma growth 5
Group turnover increased 10% AER, 7% CER to £24,855 million in the nine
months, with growth delivered by all three businesses. Pro-forma turnover
growth for the Group was 5% CER.
Pharmaceuticals turnover was £12,996 million, up 4% AER, 1% CER. HIV sales
were up 4% AER, 1% CER, to £3,597 million, with growth in Juluca and Dovato
partly offset by a decline in Triumeq. Respiratory sales were up 23% AER,
18% CER, to £2,189 million, on growth of Trelegy Ellipta and Nucala.
Established Pharmaceuticals sales declined 4% AER, 6% CER to £6,603 million,
including the impact of loss of exclusivity of Advair.
Vaccines turnover grew 23% AER, 19% CER to £5,415 million, primarily driven
by growth in sales of Shingrix. Meningitis and Influenza vaccines also
contributed to growth.
Consumer Healthcare sales grew 12% AER, 10% CER to £6,424 million. On a
pro-forma basis, sales grew 2% CER, driven largely by the International region
with double digit growth in India and China.
Operating profit
Total operating profit was £5,059 million in the nine months compared with
£3,929 million in 2018. Adjusted operating profit was £7,120 million, up
9% AER, 3% CER on a turnover increase of 7% CER. The Adjusted operating
margin of 28.6% was down 0.3 percentage points at AER, 1.0 percentage points
at CER and down 0.9 percentage points CER on a pro-forma basis. Reduced
re-measurement charges on the contingent consideration liabilities and an
increase in value of the shares in Hindustan Unilever Limited to be received
on the disposal of Horlicks and other brands were partly offset by increased
charges for major restructuring, primarily arising from write-downs in
manufacturing sites.
Operating profit also benefited from sales growth in all three businesses,
particularly Vaccines, a more favourable mix in Vaccines and Consumer
Healthcare, a benefit from favourable inventory adjustments in Vaccines and
continued tight control of ongoing costs across all three businesses. This
was partly offset by continuing price pressure, particularly in Respiratory,
including the impact of the loss of exclusivity of Advair, investment in
R&D including a significant increase in Oncology investment, and
investments in promotional product support, particularly for new launches.
Earnings per share
Total earnings per share for the nine months was 67.7p, compared with 49.0p in
2018. Adjusted EPS of 99.2p compared with 88.3p in 2018, up 12% AER, 7% CER,
on a 3% CER increase in Adjusted operating profit. The improvement primarily
resulted from the lower non-controlling interest allocation of Consumer
Healthcare profits, a reduced effective tax rate and an increased share of
after tax profits of associates, partly offset by increased net finance costs.
Cash flow
Net cash inflow from operating activities was £4,567 million (2018: £4,302
million) and free cash flow was £2,474 million (2018: £2,375 million). The
increase primarily reflected improved operating profits, a lower seasonal
increase in trade receivables, lower contingent consideration payments and
reduced dividend payments to non-controlling interests.
R&D pipeline
41 new medicines in development, 17 Vaccines
Pipeline news flow highlights since Q2 2019:
Oncology
Zejula (niraparib)
· Positive phase III results from the PRIMA study of Zejula in the first line
maintenance setting in women with advanced ovarian cancer were presented at
the 2019 European Society for Medical Oncology (ESMO) Congress and
simultaneously published in The New England Journal of Medicine. Regulatory
submissions are on track with US submission expected before end 2019.
· Zejula received FDA approval for an expanded indication for the treatment of
advanced ovarian, fallopian tube or primary peritoneal cancer patients, who
have been treated with three or more prior chemotherapy regimens and whose
cancer is associated with homologous recombination deficiency positive status
including a BRCA mutation.
· The first patient was dosed in the pivotal phase II study (MOONSTONE)
evaluating the combination of Zejula and dostarlimab in patients with platinum
resistant ovarian cancer.
GSK3359609 (ICOS)
· Data (INDUCE-1) presented at ESMO 2019 demonstrated promising anti-tumour
activity with GSK3359609, an ICOS receptor agonist, in combination with
pembrolizumab in head and neck squamous cell carcinoma (HNSCC). These data
support initiation of a phase II/III registrational trial with pembrolizumab
in first-line recurrent/ metastatic HNSCC (INDUCE-3).
Belantamab mafodotin (GSK2857916 BCMA ADC)
· Positive headline results from the pivotal DREAMM-2 study for multiple myeloma
were announced and will be presented at an upcoming medical congress.
Regulatory submissions are on track with US submission expected before end
2019.
Dostarlimab (TSR-042)
· The first patient was dosed in the pivotal RUBY study of dostarlimab plus
chemotherapy versus placebo plus chemotherapy in first line treatment of
endometrial cancer.
· Final data from the pivotal GARNET study of dostarlimab are in-house.
Regulatory submissions are on track with US submission expected before end
2019.
GSK3145095 (RIP1k inhibitor)
· GSK'095 for pancreatic cancer was terminated as part of ongoing portfolio
prioritisation.
HIV/Infectious diseases
Cabotegravir + rilpivirine
· Positive phase III results reported from the ATLAS-2M study of cabotegravir
plus rilpivirine administered every eight weeks.
· Regulatory application was submitted to the European Medicines Agency for
cabotegravir plus rilpivirine, as the first once monthly injectable treatment
for HIV.
Dovato (dolutegravir + lamivudine)
· A supplemental NDA was submitted to the US FDA for the use of Dovato in
Virologically Suppressed Adults with HIV-1.
GSK3389404/3228836 (HBV ASO)
· Option exercised to license Ionis' antisense medicines for people with chronic
hepatitis B virus infection following phase II results.
Gepotidacin (GSK2140944)
· The first patients were dosed in the two pivotal studies of gepotidacin in
uncomplicated urinary tract infection and urogenital gonorrhea.
Immuno-inflammation
Benlysta (belimumab)
· Benlysta received European approval for intravenous use in children with lupus
aged five years and older.
GSK2831781 (LAG3)
· The first patient was dosed in a phase II study of GSK'781 in ulcerative
colitis.
Respiratory
Trelegy Ellipta (FF/UMEC/VI)
· A supplemental NDA was submitted to the US FDA seeking an additional
indication for the use of Trelegy Ellipta for the treatment of asthma in
adults.
Nucala (mepolizumab)
· Nucala received European approval for self-administration by patients with
severe eosinophilic asthma.
· Nucala received US FDA approval for use in children as young as six years old
who are living with severe eosinophilic asthma.
· Results from interim analysis of REALITI-A, a prospective global real-world
study, were presented at the 2019 European Respiratory Society Congress and
showed Nucala significantly reduces exacerbations in patients with severe
eosinophilic asthma.
GSK2292767 (PI3Kd inhibitor)
· GSK'767 for respiratory diseases was terminated as part of ongoing portfolio
prioritisation.
Other pharmaceuticals
Daprodustat
· Japanese New Drug Application was submitted for daprodustat for the treatment
of patients with renal anaemia due to chronic kidney disease.
Linerixibat (GSK2330672, IBAT)
· US FDA granted Orphan Drug Designation for linerixibat for the treatment of
cholestatic pruritus in primary biliary cholangitis.
Vaccines
TB vaccine
· The New England Journal of Medicine published the final 3-year results of a
phase IIb study for candidate TB vaccine M72/AS01(E). Results demonstrate
overall efficacy of 50% over the duration of at least three years after
vaccination.
Ebola vaccines
· Vaccines candidates against Ebola and Marburg viruses have been transferred to
the Sabin Vaccine Institute for clinical development.
C. Difficile vaccine
· First time in human trials were started for a candidate vaccine for the
prevention of Clostridium difficile (C. difficile) infection using the AS01
adjuvant.
SAM (rabies model) vaccine
· First time in human trials were started for self-amplifying mRNA platform
technology with a rabies model antigen.
Contents Page
Total and Adjusted results 9
Financial performance - Q3 2019 11
Financial performance - nine months ended 30 September 2019 24
Cash generation 38
Returns to shareholders 39
Income statements 41
Statement of comprehensive income - three months ended 30 September 2019 42
Statement of comprehensive income - nine months ended 30 September 2019 43
Pharmaceuticals turnover - three months ended 30 September 2019 44
Pharmaceuticals turnover - nine months ended 30 September 2019 45
Vaccines turnover - three months ended 30 September 2019 46
Vaccines turnover - nine months ended 30 September 2019 47
Balance sheet 48
Statement of changes in equity 49
Cash flow statement - nine months ended 30 September 2019 50
Segment information 51
Legal matters 53
Additional information 54
Reconciliation of cash flow to movements in net debt 57
Net debt analysis 57
Free cash flow reconciliation 57
Reporting definitions 58
Outlook, assumptions and cautionary statements 59
Independent review report 61
Contacts
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companies - is committed to improving the quality of human life by enabling
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Total and Adjusted results
Total reported results represent the Group's overall performance.
GSK also uses a number of adjusted, non-IFRS, measures to report the
performance of its business. Adjusted results and other non-IFRS measures
may be considered in addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS. Adjusted results are defined
below and pro-forma growth and other non-IFRS measures are defined on page 58.
GSK believes that Adjusted results, when considered together with Total
results, provide investors, analysts and other stakeholders with helpful
complementary information to understand better the financial performance and
position of the Group from period to period, and allow the Group's performance
to be more easily compared against the majority of its peer companies. These
measures are also used by management for planning and reporting purposes.
They may not be directly comparable with similarly described measures used by
other companies.
GSK encourages investors and analysts not to rely on any single financial
measure but to review GSK's quarterly results announcements, including the
financial statements and notes, in their entirety.
GSK is committed to continuously improving its financial reporting, in line
with evolving regulatory requirements and best practice and has made a number
of changes in recent years. In line with this practice, GSK expects to
continue to review its reporting framework.
Adjusted results exclude the following items from Total results, together with
the tax effects of all of these items:
· amortisation of intangible assets (excluding computer software)
· impairment of intangible assets (excluding computer software) and goodwill
· Major restructuring costs, which include impairments of tangible assets and
computer software, (under specific Board approved programmes that are
structural, of a significant scale and where the costs of individual or
related projects exceed £25 million), including integration costs following
material acquisitions
· transaction-related accounting or other adjustments related to significant
acquisitions
· proceeds and costs of disposal of associates, products and businesses;
significant legal charges (net of insurance recoveries) and expenses on the
settlement of litigation and government investigations; other operating income
other than royalty income, and other items
Costs for all other ordinary course smaller scale restructuring and legal
charges and expenses are retained within both Total and Adjusted results.
As Adjusted results include the benefits of Major restructuring programmes but
exclude significant costs (such as significant legal, major restructuring and
transaction items) they should not be regarded as a complete picture of the
Group's financial performance, which is presented in Total results. The
exclusion of other Adjusting items may result in Adjusted earnings being
materially higher or lower than Total earnings. In particular, when
significant impairments, restructuring charges and legal costs are excluded,
Adjusted earnings will be higher than Total earnings.
GSK has undertaken a number of Major restructuring programmes in recent years
in response to significant changes in the Group's trading environment or
overall strategy, or following material acquisitions. Costs, both cash and
non-cash, of these programmes are provided for as individual elements are
approved and meet the accounting recognition criteria. As a result, charges
may be incurred over a number of years following the initiation of a Major
restructuring programme.
Significant legal charges and expenses are those arising from the settlement
of litigation or government investigations that are not in the normal course
and materially larger than more regularly occurring individual matters. They
also include certain major legacy matters.
Reconciliations between Total and Adjusted results, providing further
information on the key Adjusting items, are set out on pages 20, 21, 34 and
35.
GSK provides earnings guidance to the investor community on the basis of
Adjusted results. This is in line with peer companies and expectations of
the investor community, supporting easier comparison of the Group's
performance with its peers. GSK is not able to give guidance for Total
results as it cannot reliably forecast certain material elements of the Total
results, particularly the future fair value movements on contingent
consideration and put options that can and have given rise to significant
adjustments driven by external factors such as currency and other movements in
capital markets.
Pro-forma growth
The acquisition of the Pfizer consumer healthcare business completed on 31
July 2019 and so GSK's reported results include two months of results of the
former Pfizer consumer healthcare business from 1 August 2019.
The Group has presented pro-forma growth rates at CER for turnover, Adjusted
operating profit and operating profit by business taking account of this
transaction. Pro-forma growth rates for the quarter are calculated comparing
reported results for Q3 2019, calculated applying the exchange rates used in
the comparative period, with the results for Q3 2018 adjusted to include the
equivalent two months of results of the former Pfizer consumer healthcare
business during Q3 2018, as consolidated (in US$) and included in Pfizer's US
GAAP results. Similarly, pro-forma growth rates at CER for the nine months
to 30 September 2019 are calculated comparing reported results for the nine
months to 30 September 2019, calculated applying the exchange rates used in
the comparative period, with the results for the nine months to 30 September
2018, adjusted to include the equivalent two months of results of the former
Pfizer consumer healthcare business, as consolidated (in US$) and included in
Pfizer's US GAAP results.
ViiV Healthcare
ViiV Healthcare is a subsidiary of the Group and 100% of its operating results
(turnover, operating profit, profit after tax) are included within the Group
income statement.
Earnings are allocated to the three shareholders of ViiV Healthcare on the
basis of their respective equity shareholdings (GSK 78.3%, Pfizer 11.7% and
Shionogi 10%) and their entitlement to preferential dividends, which are
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 allocated to each shareholder
also changes. In particular, the increasing sales of dolutegravir-containing
products have a favourable impact on the proportion of the preferential
dividends that is allocated to GSK. Adjusting items are allocated to
shareholders based on their equity interests. GSK was entitled to
approximately 85% of the Total earnings and 82% of the Adjusted earnings of
ViiV Healthcare for 2018.
As consideration for the acquisition of Shionogi's interest in the former
Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received the 10%
equity stake in ViiV Healthcare and ViiV Healthcare also agreed to pay
additional future cash consideration to Shionogi, contingent on the future
sales performance of the products being developed by that joint venture,
principally dolutegravir. Under IFRS 3 'Business combinations', GSK was
required to provide for the estimated fair value of this contingent
consideration at the time of acquisition and is required to update the
liability to the latest estimate of fair value at each subsequent period
end. The liability for the contingent consideration recognised in the
balance sheet at the date of acquisition was £659 million. Subsequent
re-measurements are reflected within other operating income/expense and within
Adjusting items in the income statement in each period. At 30 September
2019, the liability, which is discounted at 8.5%, stood at £5,713 million, on
a post-tax basis.
Cash payments to settle the contingent consideration are made to Shionogi by
ViiV Healthcare each quarter, based on the actual sales performance of the
relevant products in the previous quarter. These payments reduce the balance
sheet liability and hence are not recorded in the income statement. The cash
payments made to Shionogi by ViiV Healthcare in the nine months to September
2019 were £645 million.
Because the liability is required to be recorded at the fair value of
estimated future payments, there is a significant timing difference between
the charges that are recorded in the Total income statement to reflect
movements in the fair value of the liability and the actual cash payments made
to settle the liability.
Further explanation of the acquisition-related arrangements with ViiV
Healthcare are set out on pages 41 and 42 of the Annual Report 2018.
Financial performance - Q3 2019
Total results
The Total results for the Group are set out below.
Q3 2019 Q3 2018 Growth Growth
£m £m £% CER%
Turnover 9,385 8,092 16 11
Cost of sales (3,245) (2,636) 23 21
Gross profit 6,140 5,456 13 7
Selling, general and administration (2,892) (2,527) 14 11
Research and development (1,206) (988) 22 18
Royalty income 118 94 26 24
Other operating expense (13) (125)
Operating profit 2,147 1,910 12 3
Finance income 32 10
Finance expense (245) (233)
Profit on disposal of associates - 3
Share of after tax profits of 17 15
associates and joint ventures
Profit before taxation 1,951 1,705 14 4
Taxation (235) (193)
Tax rate % 12.0% 11.3%
Profit after taxation 1,716 1,512 13 3
Profit attributable to non-controlling 164 94
interests
Profit attributable to shareholders 1,552 1,418
1,716 1,512 13 3
Earnings per share 31.4p 28.8p 9 (1)
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for Q3 2019 and Q3 2018 are set out
on pages 20 and 21.
Q3 2019
£m % of Growth Reported Pro-forma
turnover £% growth growth
CER% CER%
Turnover 9,385 100 16 11 6
Cost of sales (2,785) (29.7) 17 15 8
Selling, general and (2,768) (29.5) 20 16 8
administration
Research and development (1,164) (12.4) 21 17 15
Royalty income 118 1.3 26 24 25
Adjusted operating profit 2,786 29.7 10 3 (1)
Adjusted profit before tax 2,597 12 4
Adjusted profit after tax 2,186 16 8
Adjusted profit attributable to 1,911 9 1
shareholders
Adjusted earnings per share 38.6 9 1
Operating profit by business Q3 2019
£m % of Growth Reported Pro-forma
turnover £% growth growth
CER% CER%
Pharmaceuticals 1,986 43.8 (2) (7) (7)
Pharmaceuticals R&D* (893) 34 28 28
Total Pharmaceuticals 1,093 24.1 (20) (24) (24)
Vaccines 1,162 50.3 41 30 30
Consumer Healthcare 613 24.3 43 34 8
2,868 30.6 10 3 (1)
Corporate & other unallocated (82)
costs
Adjusted operating profit 2,786 29.7 10 3 (1)
* Operating profit of Pharmaceuticals R&D segment, which is the
responsibility of the Chief Scientific Officer and President, R&D. It
excludes ViiV Healthcare R&D expenditure, which is reported within the
Pharmaceuticals segment.
Turnover
Pharmaceuticals turnover
Q3 2019
£m Growth Growth
£% CER%
Respiratory 806 25 19
HIV 1,267 5 -
Immuno-inflammation 171 40 33
Oncology 64 - -
Established Pharmaceuticals 2,223 (1) (5)
4,531 7 3
US 1,972 4 (2)
Europe 1,040 9 9
International 1,519 10 5
4,531 7 3
Pharmaceuticals turnover in the quarter was £4,531 million, up 7% AER, 3%
CER. Respiratory sales were up 25% AER, 19% CER to £806 million, on growth
of Trelegy Ellipta and Nucala. HIV sales of £1,267 million were up 5% AER
but flat at CER, with growth in Juluca and Dovato offset by declines in
Tivicay and Triumeq. Sales of Established Pharmaceuticals declined 1% AER,
5% CER to £2,223 million, with lower Advair sales offset by favourable prior
period payer rebate adjustments and higher Ventolin authorised generic sales
in the US, and a European Relenza tender.
In the US, sales grew 4% AER, but declined 2% CER. Excluding Advair and
Relvar/Breo Ellipta, impacted by genericisation of the ICS/LABA market, growth
was 21% AER, 14% CER. Continued growth of Nucala, Trelegy Ellipta and
Benlysta was offset by the decline in Established Products, including the loss
of exclusivity of Advair. In Europe, sales grew 9% AER, 9% CER, with strong
growth in Respiratory and from Zejula. International grew 10% AER, 5% CER,
with growth in all therapy areas.
Respiratory
Total Respiratory sales were up 25% AER, 19% CER, with strong growth in Europe
and International, which both saw growth in Ellipta products, including
Relvar/Breo and Trelegy, and Nucala, up 29% AER and CER in Europe and 82% AER,
65% CER in International. In the US, Trelegy Ellipta and Nucala growth was
partly offset by a decline in Relvar/Breo Ellipta as a result of post-generic
ICS/LABA price pressure.
Sales of Nucala were £203 million in the quarter and grew 40% AER, 33% CER,
continuing to benefit from the global rollout of the product. US sales of
Nucala grew 37% AER, 29% CER to £119 million.
Sales of Ellipta products were up 21% AER, 15% CER to £603 million driven by
growth in Europe and International regions. In the US, sales grew 12% AER,
5% CER, reflecting growth in Trelegy Ellipta and Anoro Ellipta, partly offset
by continued competitive pricing pressures for ICS/LABAs. In Europe, Ellipta
product sales grew 34% AER, 33% CER. Sales of Trelegy Ellipta contributed
£139 million globally in the quarter, driven by an increase in US market
share.
Relvar/Breo Ellipta sales were down 3% AER, 8% CER. In the US, Relvar/Breo
Ellipta declined 26% AER, 32% CER impacted by US competitive pricing pressures
and the impact of generic Advair on the US ICS/LABA market. In Europe and
International, Relvar/Breo Ellipta continued to grow, up 20% AER, 19% CER and
25% AER, 22% CER respectively.
HIV
HIV sales of £1,267 million grew 5% AER but were flat at CER in the
quarter. The dolutegravir franchise grew 6% AER, 2% CER, delivering sales of
£1,211 million in the quarter. The remaining portfolio, with sales of £56
million (4% of total HIV sales), declined 21% AER, 23% CER and reduced the
overall growth of total HIV sales by two percentage points in the quarter.
Sales of dolutegravir products were £1,211 million in the quarter, with
Triumeq and Tivicay delivering sales of £651 million and £441 million,
respectively. The two-drug regimens, Juluca and Dovato, delivered sales of
£119 million in the quarter, with combined growth more than offsetting the
decline in the three-drug regimen, Triumeq, as the business transitions to the
new portfolio.
In the US, following the launch of Dovato in April 2019, combined sales of the
two-drug regimens were £98 million. Total dolutegravir sales grew 6% AER but
were flat at CER, reflecting a year-on-year share decline as the business
transitions to the new two-drug portfolio, offset by a net price benefit. In
Europe, Dovato was launched in the quarter and, combined with Juluca, recorded
sales of £19 million. Total dolutegravir sales grew 3% AER, 3% CER, driven
by Tivicay and our two-drug regimens. International continued to grow
strongly with total dolutegravir sales growth of 13% AER, 9% CER, driven by
Triumeq.
Oncology
Sales of Zejula, the newly acquired PARP inhibitor asset, were £64 million in
the quarter, comprising £38 million in the US and £26 million in Europe.
Immuno-inflammation
Sales of Benlysta in the quarter were up 42% AER, 35% CER to £172 million,
including sales of the sub-cutaneous formulation of £78 million. In the US,
Benlysta grew 39% AER, 29% CER to £150 million.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the quarter were £2,223 million, down
1% AER, 5% CER.
Established Respiratory products declined 8% AER, 12% CER to £939 million.
Advair in the US experienced its second full quarter of generic competition,
resulting in a 62% AER, 64% CER decline. Also in the US, Ventolin benefited
from strong uptake of an authorised generic version launched in the year. In
Europe, Seretide sales were down 8% AER, 9% CER to £121 million, reflecting
continued competition from generic products and the transition of the
Respiratory portfolio to newer products. In International, sales of Seretide
were up 1% AER but down 2% CER.
The remainder of the Established Pharmaceuticals portfolio grew by 5% AER, 1%
CER to £1,284 million with Lamictal down 1% AER, 4% CER to £147 million on
generic competition in the US and International, more than offset by growth in
Dermatology and Augmentin in the quarter, and a European Relenza tender.
Vaccines turnover
Q3 2019
£m Growth Growth
£% CER%
Meningitis 371 13 9
Influenza 371 22 15
Shingles 535 87 76
Established Vaccines 1,031 3 (1)
2,308 20 15
US 1,441 36 28
Europe 396 (1) (2)
International 471 2 -
2,308 20 15
Vaccines turnover grew 20% AER, 15% CER to £2,308 million, primarily driven
by growth in sales of Shingrix. Meningitis vaccines also contributed to
growth, mainly due to Bexsero demand across all regions. Influenza vaccines
sales grew 22% AER, 15% CER to £371 million, primarily due to share gains,
phasing and the favourable impact of a prior-year returns provision reversal
in the US. Established Vaccines grew 3% AER but declined 1% CER to £1,031
million, reflecting lower demand for Cervarix in International and supply
constraints in MMRV vaccines, partly offset by favourable Infanrix, Pediarix
US CDC stockpile movements and strong demand and favourable phasing of
Boostrix in International.
Meningitis
Meningitis sales grew 13% AER, 9% CER to £371 million. Bexsero sales grew
23% AER, 19% CER to £255 million, driven by strong demand across all regions
and share gains in the US. Menveo grew 4% AER but declined 1% CER, primarily
reflecting lower demand in International.
Influenza
Fluarix/FluLaval sales were up 22% AER, 15% CER to £371 million, primarily
due to share gains, phasing and the favourable impact of a prior-year returns
provision reversal in the US.
Shingles
Shingrix recorded sales of £535 million in the quarter, driven by continued
strong uptake in the US. Germany and Canada also contributed to growth.
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) grew 22%
AER, 17% CER. Infanrix, Pediarix sales were up 24% AER, 19% CER to £199
million, reflecting favourable year-on-year CDC stockpile movements and
increased channel inventory in the US, partly offset by competitive pressures
in Europe.
Boostrix sales grew 19% AER, 15% CER to £187 million, mainly due to strong
demand and favourable phasing in International, together with share gains and
higher demand in the US.
Hepatitis vaccines grew 1% AER but declined 2% CER to £216 million, primarily
due to the comparison with a strong Q3 2018, which benefited from a competitor
supply shortage, and lower demand in Europe.
Rotarix sales were up 10% AER, 7% CER to £167 million, reflecting stronger
demand and favourable phasing in International.
Synflorix sales declined 3% AER, 4% CER to £116 million due to lower demand
in International.
MMRV vaccines sales declined 30% AER, 31% CER to £57 million, mainly driven
by supply constraints in Europe and International.
Cervarix sales were down 73% AER, 73% CER to £15 million, mainly reflecting
competitive pressure in China and lower demand elsewhere in International.
Consumer Healthcare turnover
Q3 2019
£m Growth Growth
£% CER%
Wellness 1,277 26 22
Oral health 709 14 10
Nutrition 382 >100 >100
Skin health 158 14 9
2,526 30 25
US 730 62 52
Europe 658 10 10
International 1,138 27 23
2,526 30 25
Pro-forma growth 3
Consumer Healthcare turnover grew 30% AER, 25% CER in the quarter to £2,526
million. On a pro-forma basis, sales grew 3% CER, driven by strong
performance in the Oral health category, partly offset by a decline in the
Skin health category.
Divestments and the phasing out of low margin contract manufacturing had a
negative impact of approximately one percentage point on pro-forma growth in
the quarter.
Sales of the Consumer Healthcare business include nine weeks of legacy Pfizer
brand sales arising after the creation of the Joint Venture. The legacy
Pfizer brands have been included in the existing categories and geographic
regions used to report Consumer Healthcare sales. GSK expects to revise this
category structure for reporting from Q1 2020 onwards.
Wellness
Wellness sales grew 26% AER, 22% CER to £1,277 million in the quarter. On a
pro-forma basis, sales grew in low single digits, with strong performance in
Pain relief partly offset by a decline in Respiratory and the phasing out of
low margin contract manufacturing. In the Pain relief category, Panadol
continued to perform strongly, particularly in the Middle East and Africa, and
benefited from 2018 regulatory and distribution changes. Voltaren grew in
mid-single digits, while Advil was flat, reflecting a partial recovery from
historical supply issues.
Oral health
Oral health sales grew 14% AER, 10% CER to £709 million. Sensodyne
delivered double-digit, broad based growth, led by the US, with some benefit
from prior-year destocking in China. Double-digit growth in Gum health was
achieved, while Denture care grew in mid-single digits. Oral health growth
was also impacted by a decline in non-strategic brands.
Nutrition
Nutrition sales more than doubled to £382 million, largely due to the
inclusion of the Pfizer vitamins, minerals and supplements portfolio. On a
pro-forma basis, sales grew in low single digits, reflecting strong
performances of Horlicks and Caltrate, partly offset by a decline in Centrum.
Skin health
Skin health sales grew 14% AER, 9% CER to £158 million, largely due to the
addition of Chapstick from the Pfizer portfolio. On a pro-forma basis, sales
declined in mid-single digits, largely due to divestments of small tail brands
in the US and UK, which had a negative impact on pro-forma growth of the
category of six percentage points.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 34.6%, 2.0 percentage
points higher at AER and 2.8 percentage points higher in CER terms compared
with Q3 2018. This reflected the unwind of the fair market value uplift on
inventory arising on completion of the Consumer Healthcare Joint Venture with
Pfizer as well as an increase in the costs of manufacturing restructuring
programmes, primarily as a result of write downs in a number of manufacturing
sites, and increased amortisation of intangible assets.
Excluding these and other Adjusting items, Adjusted cost of sales as a
percentage of turnover was 29.7%, 0.2 percentage points higher at AER, and 0.9
percentage points higher at CER compared with Q3 2018. On a pro-forma basis,
Adjusted cost of sales as a percentage of turnover was 29.7%, 0.5% percentage
points higher at CER compared with Q3 2018. The increase reflected continued
adverse pricing pressure in Pharmaceuticals, particularly in Respiratory, an
unfavourable product mix in Pharmaceuticals and a non-restructuring related
write down in a manufacturing site. This was partly offset by a more
favourable product mix in Vaccines, primarily due to the growth of Shingrix in
the US, and favourable year-on-year inventory adjustments.
Selling, general and administration
Total SG&A costs as a percentage of turnover were 30.8%, 0.4 percentage
points lower at AER and 0.2 percentage points lower on a CER basis compared
with Q3 2018. This included reduced major restructuring costs partly offset
by acquisition costs related to the Consumer Healthcare Joint Venture with
Pfizer.
Excluding these and other Adjusting items, Adjusted SG&A costs as a
percentage of turnover were 29.5%, 0.9 percentage points higher at AER than in
Q3 2018 and 1.1 percentage points higher on a CER basis. On a pro-forma
basis, Adjusted SG&A costs as a percentage of turnover were 29.5%, 0.7
percentage points higher at CER compared with Q3 2018. The growth in
Adjusted SG&A costs of 20% AER, 16% CER, (8% CER pro-forma) reflected
increased investment resulting from the acquisition of Tesaro and in
promotional product support, particularly for new launches in Respiratory, HIV
and Vaccines, as well as increased costs for a number of legal settlements in
the quarter. This was partly offset by the continuing benefit of
restructuring in Pharmaceuticals and the tight control of ongoing costs,
particularly in non-promotional spending across all three businesses.
Research and development
Total R&D expenditure was £1,206 million (12.9 % of turnover), up 22%
AER, 18% CER. Adjusted R&D expenditure was £1,164 million (12.4% of
turnover), 21% higher at AER, 17% higher at CER than Q3 2018. On a pro-forma
basis, Adjusted R&D expenditure was 15% higher at CER compared with Q3
2018.
Pharmaceuticals R&D expenditure was £899 million, up 24% AER, 19% CER,
reflecting a significant increase in Oncology study and clinical trial
material investments including on the assets from the Tesaro acquisition,
primarily Zejula and TSR-042, and a number of other mid and late-stage
programmes, including BCMA, NY-ESO and ICOS, as well as increased spending on
the progression of key assets such as aGM-CSF for rheumatoid arthritis. This
was partly offset by a favourable comparison with Q3 2018, which included a
provision for costs payable to a third party relating to the use of a Priority
Review Voucher for Dovato and other projects that were terminated as part of
the R&D prioritisation at the end of 2018, including danirixin and
nemiralisib. R&D expenditure in Vaccines and Consumer Healthcare was
£191 million and £74 million, respectively.
Royalty income
Royalty income was £118 million (Q3 2018: £94 million), up 26% AER, 24% CER,
primarily reflecting increased royalties on sales of Gardasil.
Other operating expense
Net other operating expense of £13 million (Q3 2018: £125 million) primarily
reflected accounting charges of £305 million (Q3 2018: £248 million) arising
from the re-measurement of the contingent consideration liabilities related to
the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the
former Novartis Vaccines business and the liabilities for the Pfizer put
option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
This included a re-measurement charge of £255 million (Q3 2018: £214
million) for the contingent consideration liability due to Shionogi, primarily
arising from changes in exchange rate assumptions and the unwind of the
discount. These accounting charges were partly offset by an increase in
value of the shares in Hindustan Unilever Limited to be received on the
disposal of Horlicks and other Consumer Healthcare brands of £295 million in
the quarter. The cumulative increase in value since the signing of the
proposed transaction was £345 million.
Operating profit
Total operating profit was £2,147 million in Q3 2019 compared with £1,910
million in Q3 2018. The unwind of the fair market value uplift on inventory
arising on completion of the Consumer Healthcare Joint Venture with Pfizer as
well as increased re-measurement charges on the contingent consideration
liabilities and reduced profit on disposals were partly offset by an increase
in the value of the shares in Hindustan Unilever Limited to be received on the
disposal of Horlicks and other Consumer Healthcare brands and reduced
restructuring costs.
Excluding these and other Adjusting items, Adjusted operating profit was
£2,786 million, 10% higher than Q3 2018 at AER and 3% higher at CER on a
turnover increase of 11% CER. The Adjusted operating margin of 29.7% was 1.5
percentage points lower at AER, 2.4 percentage points lower on a CER basis
than in Q3 2018. On a pro-forma basis, Adjusted operating profit was 1%
lower at CER on a turnover increase of 6% CER. The Adjusted pro-forma
operating margin of 29.7% was 2.0 percentage points lower on a CER basis than
in Q3 2018.
The reduction in Adjusted operating profit primarily reflected continuing
price pressure, particularly in Respiratory, including the impact of the
launch of a generic version of Advair in the US in February 2019, investment
in R&D, including a significant increase in Oncology investment, partly on
the assets from the Tesaro acquisition, investments in promotional product
support, particularly for new launches in Vaccines, HIV and Respiratory as
well as increased costs for a number of legal settlements in the quarter.
This was partly offset by the benefit from sales growth, particularly in
Vaccines, a more favourable mix in Vaccines and continued tight control of
ongoing costs across all three businesses.
Contingent consideration cash payments which are made to Shionogi and other
companies reduce the balance sheet liability and hence are not recorded in the
income statement. Total contingent consideration cash payments in the
quarter amounted to £217 million (Q3 2018: £213 million). This included
cash payments made to Shionogi of £206 million (Q3 2018: £208 million).
Operating profit by business
Pharmaceuticals operating profit was £1,093 million, down 20% AER, 24% CER on
a turnover increase of 3% CER. The operating margin of 24.1% was 8.1
percentage points lower at AER than in Q3 2018 and 8.5 percentage points lower
on a CER basis. This primarily reflected the continued impact of lower
prices, particularly in Respiratory, including the impact of the launch of a
generic version of Advair in the US in February 2019, an unfavourable product
mix, primarily as a result of the growth in some lower margin established
products and a non-restructuring related write down in a manufacturing site
together with a significant increase in Oncology R&D investment and
investment in new product support and targeted priority markets as well as
increased costs for a number of legal settlements in the quarter. This was
partly offset by continued benefit of restructuring and tight control of
ongoing costs and the benefits of re-prioritisation of the R&D portfolio.
Vaccines operating profit was £1,162 million, 41% higher than Q3 2018 at AER
and 30% higher at CER on a turnover increase of 15% CER. The operating
margin of 50.3% was 7.4 percentage points higher than in Q3 2018 at AER and
5.7 percentage points higher on a CER basis. This was primarily driven by
enhanced operating leverage from strong sales growth, particularly Shingrix in
the US, improved product mix, favourable year-on-year inventory adjustments
and higher royalty income.
Consumer Healthcare operating profit was £613 million, up 43% AER, 34% CER on
a turnover increase of 25% CER. On a pro-forma basis operating profit of
£613 million was up 8% CER on a turnover increase of 3% CER. The operating
margin of 24.3% was 2.2 percentage points higher at AER and 1.6 percentage
points higher on a CER basis. The pro-forma operating margin of 24.3% was
1.2 percentage points higher on a CER basis than in Q3 2018. This primarily
reflected continued manufacturing restructuring savings, improved growth from
higher margin power brands, which included some seasonal sell-ins, and tight
control of promotional and other operating expenses.
Net finance costs
Total net finance costs were £213 million compared with £223 million in Q3
2018. Adjusted net finance costs were £206 million compared with £221
million in Q3 2018. The decrease primarily reflected a favourable comparison
with Q3 2018, which included interest of £23 million on an historic tax
settlement, together with a fair value gain on interest rate swaps in Q3 2019,
partly offset by higher debt levels reflecting the acquisition of Tesaro in
January 2019. Following the introduction of IFRS 16, 'Leases', finance costs
included an unwind of the discount on the lease liability of £9 million in
the quarter.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was £17 million (Q3 2018: £15
million).
Taxation
The charge of £235 million represented an effective tax rate on Total results
of 12.0% (Q3 2018: 11.3%) and reflected the different tax effects of the
various Adjusting items, including the non-taxable gain arising from the
increase in value of the shares in Hindustan Unilever Limited to be received
on the disposal of Horlicks and other Consumer Healthcare brands. Tax on
Adjusted profit amounted to £411 million and represented an effective
Adjusted tax rate of 15.8% (Q3 2018: 18.6%), reflecting the impact of the
settlement of a number of open issues with tax authorities.
Issues related to taxation are described in Note 14, 'Taxation' in the Annual
Report 2018. 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.
Non-controlling interests
The allocation of Total earnings to non-controlling interests amounted to
£164 million (Q3 2018: £94 million). The increase was primarily due to the
allocation of Pfizer's interest in the profits of the Consumer Healthcare
Joint Venture (£47 million), an increased allocation of ViiV Healthcare
profits to £86 million (Q3 2018: £78 million) including charges for
movements in contingent consideration liabilities and higher net profits in
some of the Group's other entities with non-controlling interests.
The allocation of Adjusted earnings to non-controlling interests amounted to
£275 million (Q3 2018: £141 million). The increase in allocation was
primarily due to the allocation of Pfizer's interest in the profits of the
Consumer Healthcare Joint Venture (£103 million), an increased allocation of
ViiV Healthcare profits of £141 million (Q3 2018: £125 million) and higher
net profits in some of the Group's other entities with non-controlling
interests.
Earnings per share
Total earnings per share was 31.4p, compared with 28.8p in Q3 2018. The
increase in earnings per share primarily reflected an increase in the value of
the shares in Hindustan Unilever Limited to be received on the disposal of
Horlicks and other Consumer Healthcare brands, a reduced effective tax rate
and reduced restructuring costs.
Adjusted EPS of 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER, on a
3% CER increase in Adjusted operating profit. This reflected a reduced
effective tax rate and reduced net finance costs partly offset by an increased
non-controlling interest allocation of Consumer Healthcare profits following
the creation of the new Consumer Healthcare Joint Venture in Q3 2019.
Currency impact on Q3 2019 results
The Q3 2019 results are based on average exchange rates, principally
£1/$1.23, £1/€1.11 and £1/Yen 133. Comparative exchange rates are given
on page 55. The period-end exchange rates were £1/$1.23, £1/€1.13 and
£1/Yen 133.
In the quarter, turnover increased 16% AER, 11% CER. Total EPS was 31.4p
compared with 28.8p in Q3 2018. Adjusted EPS was 38.6p compared with 35.5p
in Q3 2018, up 9% AER, 1% CER. The positive currency impact primarily
reflected the weakness of Sterling, particularly against the US$ and Yen,
partly offset by weakness in emerging market currencies, relative to Q3
2018. Exchange gains or losses on the settlement of intercompany
transactions had a negligible impact on the positive currency impact of eight
percentage points on Adjusted EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for Q3 2019 and
Q3 2018 are set out below.
Three months ended 30 September 2019
Total Intangible Intangible Major Transaction- Divestments, Adjusted
results amort- impair- restruct- related significant results
£m isation ment uring £m legal and £m
£m £m £m other items
£m
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 9,385 9,385
Cost of sales (3,245) 191 10 108 151 (2,785)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 6,140 191 10 108 151 6,600
Selling, general and administration (2,892) (1) 77 30 18 (2,768)
Research and development (1,206) 14 17 12 (1) (1,164)
Royalty income 118 118
Other operating (expense)/income (13) 2 300 (289) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 2,147 205 26 199 481 (272) 2,786
Net finance costs (213) 3 4 (206)
Share of after tax profits of 17 17
associates and joint ventures
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before taxation 1,951 205 26 202 481 (268) 2,597
Taxation (235) (39) (6) (33) (86) (12) (411)
Tax rate % 12.0% 15.8%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after taxation 1,716 166 20 169 395 (280) 2,186
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit attributable to 164 111 275
non-controlling interests
Profit attributable to 1,552 166 20 169 284 (280) 1,911
shareholders
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per share 31.4p 3.4p 0.4p 3.4p 5.7p (5.7)p 38.6p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average number of 4,951 4,951
shares (millions)
------------ ------------
Three months ended 30 September 2018
Total Intangible Intangible Major Transaction- Divestments, Adjusted
results amort- impair- restruct- related significant results
£m isation ment uring £m legal and £m
£m £m £m other items
£m
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 8,092 8,092
Cost of sales (2,636) 133 41 69 5 (2,388)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 5,456 133 41 69 5 5,704
Selling, general and administration (2,527) 209 (9) 14 (2,313)
Research and development (988) 10 8 4 5 (961)
Royalty income 94 94
Other operating (expense)/income (125) 1 251 (127) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,910 143 49 283 247 (108) 2,524
Net finance costs (233) 2 (221)
Profit on disposal of associates 3 (3) -
Share of after tax profits of 15 15
associates and joint ventures
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before taxation 1,705 143 49 283 247 (109) 2,318
Taxation (193) (29) (6) (67) (24) (111) (430)
Tax rate % 11.3% 18.6%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after taxation 1,512 114 43 216 223 (220) 1,888
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit attributable to 94 47 141
non-controlling interests
Profit attributable to 1,418 114 43 216 176 (220) 1,747
shareholders
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per share 28.8p 2.3p 0.9p 4.4p 3.6p (4.5)p 35.5p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average number of 4,917 4,917
shares (millions)
------------ ------------
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated manufacturing
operations and supply chains and long lifecycle of the business mean that
restructuring programmes, particularly those that involve the rationalisation
or closure of manufacturing or R&D sites are likely to take several years
to complete.
Major restructuring costs are those related to specific Board approved Major
restructuring programmes and are excluded from Adjusted results. Major
restructuring programmes, including integration costs following material
acquisitions, are those that are structural and are of a significant scale
where the costs of individual or related projects exceed £25 million. Other
ordinary course smaller scale restructuring costs are retained within Total
and Adjusted results.
Total Major restructuring charges incurred in the quarter were £199 million
(Q3 2018: £283 million), analysed as follows:
Q3 2019 Q3 2018
Cash Non-cash Total Cash Non-cash Total
£m £m £m £m £m £m
2018 major restructuring 68 45 113 128 - 128
programme (incl. Tesaro)
Consumer Healthcare Joint 104 - 104 - - -
Venture integration
Programme
Combined restructuring and (30) 12 (18) 136 19 155
integration programme
142 57 199 264 19 283
Cash charges arose from restructuring of the manufacturing organisation,
R&D and some administrative functions, and the integration of Tesaro under
the 2018 major restructuring programme, as well as initial integration costs
under the Consumer Healthcare Joint Venture integration programme. The
reduction in cash charges under the Combined restructuring and integration
programme arose from a profit on sale of land. Non-cash charges arising
under the 2018 major restructuring programme primarily related to the
write-down of assets as part of the plans to reduce the manufacturing
network. Non-cash charges under the Combined restructuring and integration
programme primarily related to announced plans to restructure the
manufacturing network.
Total cash payments made in the quarter were £105 million, £28 million for
the existing Combined restructuring and integration programme (Q3 2018: £140
million) and £39 million under the 2018 major restructuring programme
including the settlement of certain charges accrued in previous quarters and a
further £38 million relating to the Consumer Healthcare Joint Venture
integration programme.
The analysis of Major restructuring charges by business was as follows:
Q3 2019 Q3 2018
£m £m
Pharmaceuticals 47 191
Vaccines 31 29
Consumer Healthcare 125 36
203 256
Corporate & central functions (4) 27
Total Major restructuring costs 199 283
The analysis of Major restructuring charges by Income statement line was as
follows:
Q3 2019 Q3 2018
£m £m
Cost of sales 108 69
Selling, general and administration 77 209
Research and development 12 4
Other operating expense 2 1
Total Major restructuring costs 199 283
The Major restructuring programmes delivered incremental cost savings in the
quarter of £0.1 billion.
Transaction-related adjustments
Transaction-related adjustments resulted in a net charge of £481 million (Q3
2018: £247 million). This primarily reflected £305 million of accounting
charges for the re-measurement of the contingent consideration liabilities
related to the acquisitions of the former Shionogi-ViiV Healthcare joint
venture and the former Novartis Vaccines business and the liabilities for the
Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV
Healthcare.
Charge/(credit) Q3 2019 Q3 2018
£m £m
Contingent consideration on former Shionogi-ViiV Healthcare joint venture 255 214
(including Shionogi preferential dividends)
ViiV Healthcare put options and Pfizer preferential dividends (10) (20)
Contingent consideration on former Novartis Vaccines business 60 54
Other adjustments 176 (1)
Total transaction-related charges 481 247
The £255 million charge relating to the contingent consideration for the
former Shionogi-ViiV Healthcare joint venture represented an increase in the
valuation of the contingent consideration due to Shionogi, primarily as a
result of updated exchange rate assumptions and a £109 million unwind of the
discount.
Other adjustments included the unwind of the fair market value uplift on
inventory (£148 million) as well as transaction costs arising on completion
of the Consumer Healthcare Joint venture with Pfizer.
An explanation of the accounting for the non-controlling interests in ViiV
Healthcare is set out on page 10.
Divestments, significant legal charges and other items
Divestments and other items included a gain in the quarter of £295 million
arising from the increase in value of the shares in Hindustan Unilever Limited
to be received on the disposal of Horlicks and other Consumer Healthcare
brands. This was partly offset by certain other Adjusting items. A charge
of £18 million (Q3 2018: £12 million) for significant legal matters included
the benefit of the settlement of existing matters as well as provisions for
ongoing litigation. Significant legal cash payments were £5 million (Q3
2018: £12 million).
Financial performance - nine months 2019
Total results
The Total results for the Group are set out below.
9 months 2019 9 months 2018 Growth Growth
£m £m £% CER%
Turnover 24,855 22,624 10 7
Cost of sales (8,615) (7,337) 17 17
Gross profit 16,240 15,287 6 2
Selling, general and administration (7,959) (7,295) 9 7
Research and development (3,325) (2,817) 18 14
Royalty income 269 220 22 22
Other operating expense (166) (1,466)
Operating profit 5,059 3,929 29 20
Finance income 87 57
Finance expense (706) (589)
Profit on disposal of associates - 3
Share of after tax profits of associates 70 26
and joint ventures
Profit before taxation 4,510 3,426 32 22
Taxation (759) (680)
Tax rate % 16.8% 19.8%
Profit after taxation 3,751 2,746 37 27
Profit attributable to non-controlling 405 338
interests
Profit attributable to shareholders 3,346 2,408
3,751 2,746 37 27
Earnings per share 67.7p 49.0p 38 28
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for the nine months 2019 and the
nine months 2018 are set out on pages 34 and 35.
9 months 2019
£m % of Growth Reported Pro-forma
turnover £% growth growth
CER% CER%
Turnover 24,855 100 10 7 5
Cost of sales (7,231) (29.1) 9 8 6
Selling, general and (7,598) (30.6) 10 7 5
administration
Research and development (3,175) (12.8) 17 13 12
Royalty income 269 1.1 22 22 22
Adjusted operating profit 7,120 28.6 9 3 2
Adjusted profit before tax 6,577 9 3
Adjusted profit after tax 5,466 12 7
Adjusted profit attributable to 4,904 13 7
shareholders
Adjusted earnings per share 99.2p 12 7
Operating profit by business 9 months 2019
£m % of Growth Reported Pro-forma
turnover £% growth growth
CER% CER%
Pharmaceuticals 6,029 46.4 (1) (5) (5)
Pharmaceuticals R&D* (2,442) 29 24 24
Total Pharmaceuticals 3,587 27.6 (14) (17) (17)
Vaccines 2,388 44.1 57 47 47
Consumer Healthcare 1,434 22.3 23 19 9
7,409 29.8 8 3 2
Corporate & other unallocated (289)
costs
Adjusted operating profit 7,120 28.6 9 3 2
* Operating profit of Pharmaceuticals R&D segment, which is the
responsibility of the Chief Scientific Officer and President, R&D. It
excludes ViiV Healthcare R&D expenditure, which is reported within the
Pharmaceuticals segment.
Turnover
Pharmaceuticals turnover
9 months 2019
£m Growth Growth
£% CER%
Respiratory 2,189 23 18
HIV 3,597 4 1
Immuno-inflammation 443 32 25
Oncology 164 - -
Established Pharmaceuticals 6,603 (4) (6)
12,996 4 1
US 5,444 2 (4)
Europe 3,077 4 4
International 4,475 7 6
12,996 4 1
Pharmaceuticals turnover in the nine months was £12,996 million, up 4% AER,
1% CER. Respiratory sales were up 23% AER, 18% CER, to £2,189 million, on
growth of Trelegy Ellipta and Nucala. HIV sales were up 4% AER, 1% CER, to
£3,597 million, with growth in Juluca and Dovato partly offset by a decline
in Triumeq. Sales of Established Pharmaceuticals were £6,603 million, down
4% AER, 6% CER, including the impact of loss of exclusivity of Advair.
In the US, sales grew 2% AER but declined 4% CER. Excluding Advair and
Relvar/Breo Ellipta, impacted by genericisation of the ICS/LABA market, growth
was 15% AER, 9% CER. Continued growth of Nucala, Trelegy Ellipta and
Benlysta was offset by the decline in Established Products including the loss
of exclusivity of Advair. In Europe, sales grew 4% AER, 4% CER, with strong
growth in Respiratory partly offset by a decline in Established
Pharmaceuticals. International grew 7% AER, 6% CER, with growth in all
therapy areas.
Respiratory
Total Respiratory sales were up 23% AER, 18% CER, with strong growth in all
regions. Ellipta product sales grew 17% AER, 13% CER, with Europe up 30%
AER, 30% CER and International up 33% AER, 30% CER on Trelegy and Relvar/Breo
growth. Nucala was up 39% AER, 39% CER in Europe and 65% AER, 56% CER in
International. In the US, Trelegy Ellipta and Nucala growth more than offset
the decline in Relvar/Breo Ellipta on post generic ICS/LABA price pressure.
Sales of Nucala were £550 million in the nine months and grew 41% AER, 35%
CER, continuing to benefit from the global rollout of the product. US sales
of Nucala grew 37% AER, 29% CER to £321 million.
Sales of Ellipta products were up 17% AER, 13% CER to £1,639 million, driven
by growth in Europe and International regions. In the US, sales grew 8% AER,
2% CER, reflecting continued competitive pricing pressures for ICS/LABAs, post
generic Advair. Sales of Trelegy Ellipta contributed £346 million globally
in the nine months, driven by an increase in US market share.
Relvar/Breo Ellipta sales were down 7% AER, 10% CER. This was driven by the
US, where Relvar/Breo Ellipta declined 31% AER, 35% CER as a result of
competitive pricing pressures and the impact of generic Advair on the ICS/LABA
market. In Europe and International, Relvar/Breo Ellipta continued to grow,
up 14% AER, 14% CER in Europe, and 23% AER, 21% CER in International.
HIV
HIV sales grew 4% AER, 1% CER to £3,597 million in the nine months. The
dolutegravir franchise grew 7% AER, 3% CER, delivering sales of £3,425
million. The remaining portfolio, with sales of £172 million (5% of total
HIV sales), declined 26% AER, 26% CER and reduced the overall HIV growth by
two percentage points.
Sales of dolutegravir products were £3,425 million, with Triumeq and Tivicay
delivering sales of £1,911 million and £1,236 million, respectively. The
two-drug regimens, Juluca and Dovato, delivered sales of £278 million in the
nine months with combined growth more than offsetting the decline in the
three-drug regimen, Triumeq, as the business transitions to the new portfolio.
In the US, following the launch of Dovato in April 2019, combined sales of the
two-drug regimens were £234 million. US dolutegravir sales grew 5% AER but
declined 1% CER, reflecting a year-on-year share decline as the business
transitions to the new two-drug portfolio, partly offset by a net price
benefit. In Europe, Dovato and Juluca reported combined sales of £40
million, and total dolutegravir sales grew 1% AER, 1% CER, with growth in
market share more than offsetting price erosion and the timing of clawback
payments. International performed strongly with total dolutegravir sales
growth of 27% AER, 26% CER, driven by Tivicay and Triumeq.
Oncology
Sales of Zejula, were £163 million in the period from the date of
acquisition, comprising £97 million in the US and £66 million in Europe.
Immuno-inflammation
Sales of Benlysta in the nine months were up 32% AER, 26% CER to £443
million, including sales of the sub-cutaneous formulation of £189 million.
In the US, Benlysta grew 29% AER, 22% CER to £387 million.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the nine months were £6,603 million,
down 4% AER, 6% CER.
Established Respiratory products declined 7% AER, 9% CER to £2,935 million,
with the decline in Advair/Seretide partly offset by higher sales of Ventolin
and allergy products. In the US, a generic version of Advair was launched in
February, resulting in a 50% AER, 53% CER decline in the nine months. In
Europe, Seretide sales were down 15% AER, 15% CER to £383 million, reflecting
continued competition from generic products and the transition of the
Respiratory portfolio to newer products. In International, sales of Seretide
grew 1% AER but were flat at CER. Globally, Ventolin grew by 36% AER, 32%
CER, driven by the strong uptake of an authorised generic version in the US.
The remainder of the Established Pharmaceuticals portfolio declined 2% AER, 3%
CER to £3,668 million, with Lamictal down 8% AER, 11% CER to £421 million on
generic competition in the US and International, partly offset by growth in
Augmentin in the nine months and a European Relenza tender.
Vaccines turnover
9 months 2019
£m Growth Growth
£% CER%
Meningitis 815 18 16
Influenza 403 22 16
Shingles 1,278 >100 >100
Established Vaccines 2,919 3 1
5,415 23 19
US 2,996 47 39
Europe 1,138 (4) (4)
International 1,281 7 7
5,415 23 19
Vaccines turnover grew 23% AER, 19% CER to £5,415 million, primarily driven
by growth in sales of Shingrix. Meningitis vaccines also contributed to
growth mainly due to Bexsero demand and share gains in the US together with
stronger demand in International. Influenza vaccines sales were up 22% AER,
16% CER to £403 million, primarily due to share gains in the US and
International together with the favourable impact of phasing and a prior-year
returns provision reversal in the US. Established Vaccines grew 3% AER, 1%
CER to £2,919 million, primarily reflecting strong growth in Boostrix,
Infanrix, Pediarix and Hepatitis, partly offset by supply constraints in MMRV
vaccines and lower Cervarix demand in International.
Meningitis
Meningitis sales grew 18% AER, 16% CER to £815 million. Bexsero sales grew
21% AER, 19% CER to £567 million, driven by demand and share gains in the US
together with stronger demand in International and Europe, partly offset by
the completion of the vaccination of catch-up cohorts in certain markets in
Europe. Menveo grew 7% AER, 3% CER, primarily reflecting improved supply in
International.
Influenza
Fluarix/FluLaval sales were up 22% AER, 16% CER to £403 million, primarily
due to share gains in the US and International together with the favourable
impact of phasing and a prior-year returns provision reversal in the US.
Shingles
Shingrix recorded sales of £1,278 million, primarily driven by continued
strong uptake and the favourable benefit of prior-period rebate adjustments in
the US. Germany and Canada also contributed to growth.
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) grew 15%
AER, 12% CER. Boostrix sales were up 20% AER, 17% CER to £454 million
mainly due to strong demand and favourable phasing in International together
with share gains and higher demand in the US.
Infanrix/Pediarix sales grew 12% AER, 9% CER to £577 million, reflecting
favourable US CDC stockpile movements and stronger demand in International,
partly offset by competitive pressures in Europe.
Hepatitis vaccines grew 10% AER, 6% CER to £679 million, primarily due to
favourable CDC stockpile movements and the continued benefit from a competitor
supply shortage in the US, partly offset by supply constraints and lower
demand in Europe.
Synflorix sales grew 8% AER, 8% CER to £344 million, primarily due to
stronger demand in both International and Europe.
Rotarix sales were up 8% AER, 6% CER to £417 million, reflecting stronger
demand in International.
MMRV vaccines sales declined 33% AER, 33% CER to £162 million, largely driven
by supply constraints in Europe and International.
Cervarix sales were down 49% AER, 49% CER to £63 million, reflecting
competitive pressure in China and lower demand elsewhere in International.
Consumer Healthcare turnover 9 months 2019
£m Growth Growth
£% CER%
Wellness 3,232 10 8
Oral health 2,022 8 6
Nutrition 713 46 43
Skin health 457 1 -
6,424 12 10
US 1,694 27 19
Europe 1,835 2 2
International 2,895 11 10
6,424 12 10
Pro-forma growth 2
Consumer Healthcare sales grew 12% AER, 10% CER to £6,424 million in the nine
months. On a pro-forma basis, sales grew 2% CER, driven largely by the
International region with double digit growth in India and China. At a
category level, strong growth in Oral health was partly offset by a decline in
Skin health.
Divestments and the phasing out of low margin contract manufacturing had a
negative impact of approximately one percentage point on pro-forma growth.
Sales of the Consumer Healthcare business include nine weeks of legacy Pfizer
brand sales arising after the creation of the Joint Venture. The legacy
Pfizer brands have been included in the existing categories and geographic
regions used to report Consumer Healthcare sales. GSK expects to revise this
category structure for reporting from Q1 2020 onwards.
Wellness
Wellness sales grew 10% AER, 8% CER to £3,232 million. On a pro-forma
basis, sales grew in low single digits, with a strong performance in Pain
relief partly offset by a decline in Respiratory and the phasing out of low
margin contract manufacturing. In the Pain relief category, Panadol
continued to perform strongly, particularly in the Middle East and Africa, and
benefited from 2018 regulatory and distribution changes. Voltaren sales grew
in low single-digits, reflecting a stronger Q3 performance. Respiratory
sales declined as Flonase growth was offset by a decline in Theraflu,
following a strong cold and flu season comparator in 2018. Growth was also
impacted by weak performances in other Respiratory brands.
Oral health
Oral health grew 8% AER, 6% CER to £2,022 million. Sensodyne reported
broad-based, double-digit growth, benefiting from major innovation launches.
Gum health sales saw double digit-growth, reflecting strong performances in
Europe and the US. Denture care grew in low single-digits. Oral health
growth was also impacted by a decline in non-strategic brands.
Nutrition
Nutrition sales grew 46% AER, 43% CER to £713 million, largely due to the
inclusion of the Pfizer vitamins, minerals and supplements portfolio. On a
pro-forma basis, sales grew in low single digits, with India growing in high
single digits.
Skin health
Skin health sales of £457 million grew 1% AER, but were flat at CER, largely
due to the addition of Chapstick from the Pfizer portfolio, offset by declines
in other Skin health brands. On a pro-forma basis, sales declined in
mid-single digits, largely due to divestments of small tail brands in the US
and UK, which had a negative impact on pro-forma growth of the category of
four percentage points.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 34.7%, 2.2 percentage
points higher at AER and 2.9 percentage points higher in CER terms compared
with 2018. This reflected an increase in the costs of manufacturing
restructuring programmes, primarily as a result of write downs in a number of
manufacturing sites, the unwind of the fair market value uplift on inventory
arising on completion of the Consumer Healthcare Joint Venture with Pfizer as
well as increased amortisation of intangible assets.
Excluding these and other Adjusting items, Adjusted cost of sales as a
percentage of turnover was 29.1%, down 0.3 percentage points at AER, but 0.3
percentage points higher at CER compared with 2018. On a pro-forma basis,
Adjusted cost of sales as a percentage of turnover was 29.1%, 0.2 percentage
points higher at CER, compared with 2018. This reflected continued adverse
pricing pressure in Pharmaceuticals, particularly in Respiratory, an
unfavourable product mix in Pharmaceuticals and a non-restructuring related
write down in a manufacturing site. This was partly offset by a more
favourable product mix in Vaccines, primarily due to growth of Shingrix in the
US and in Consumer Healthcare, a favourable impact of inventory adjustments in
Vaccines and a further contribution from integration and restructuring savings
in Pharmaceuticals and Consumer Healthcare.
Selling, general and administration
Total SG&A costs as a percentage of turnover were 32.0%, 0.2 percentage
points lower at AER but flat on a CER basis. This included increased
significant legal costs, costs related to the acquisition of the Pfizer
consumer healthcare business, as well as a reversal of an indemnity receivable
from Novartis following a tax settlement, with an equivalent release of a tax
provision which was reflected in the tax charge, partly offset by reduced
restructuring costs.
Excluding these and other Adjusting items, Adjusted SG&A costs as a
percentage of turnover were 30.6%, 0.1 percentage points lower at AER than in
2018 but 0.1 percentage points higher on a CER basis. On a pro-forma basis,
Adjusted SG&A costs as a percentage of turnover was 30.6%, flat at CER,
compared with 2018.
The growth in Adjusted SG&A costs of 10% AER, 7% CER and 5% CER on a
pro-forma basis reflected increased investment resulting from the acquisition
of Tesaro and in promotional product support, particularly for new launches in
Vaccines, Respiratory and HIV as well as increased costs for a number of legal
settlements in Q3 2019. This was partly offset by the continuing benefit of
restructuring in Pharmaceuticals and the tight control of ongoing costs,
particularly in non-promotional spending across all three businesses.
Research and development
Total R&D expenditure was £3,325 million (13.4 % of turnover), up 18%
AER, 14% CER. Adjusted R&D expenditure was £3,175 million (12.8% of
turnover), 17% higher at AER, 13% higher at CER than the same period in
2018. On a pro-forma basis, Adjusted R&D expenditure grew 12% CER
compared with 2018.
Pharmaceuticals R&D expenditure was £2,449 million, up 21% AER, 16% CER,
reflecting a significant increase in study and clinical trial material
investment in Oncology compared with the 9 months to September 2018,
reflecting the progression of assets from the Tesaro acquisition, primarily
Zejula and TSR-042, and a number of other programmes, including BCMA, NY-ESO
and ICOS. R&D expenditure in Vaccines and Consumer Healthcare was £532
million and £194 million, respectively.
Royalty income
Royalty income was £269 million (2018: £220 million), up 22% AER, 22% CER,
primarily reflecting increased royalties on sales of Gardasil.
Other operating expense
Net other operating expense of £166 million (2018: £1,466 million) primarily
reflected accounting charges of £408 million (2018: £1,617 million) arising
from the re-measurement of the contingent consideration liabilities related to
the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the
former Novartis Vaccines business and the liabilities for the Pfizer put
option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
This included a re-measurement charge of £421 million (2018: £927 million)
for the contingent consideration liability due to Shionogi, primarily arising
from changes in exchange rate assumptions and the unwind of the discount.
2018 also included a re-measurement charge of £658 million in relation to
the Consumer Healthcare put option. In addition there was an increase in
value of the shares in Hindustan Unilever Limited to be received on the
disposal of Horlicks and other Consumer Healthcare brands of £247 million in
the nine months. The cumulative increase in value since the signing of the
proposed transaction was £345 million. This was partly offset by the profit
on a number of asset disposals.
Operating profit
Total operating profit was £5,059 million in the nine months compared with
£3,929 million in 2018. Reduced re-measurement charges on the contingent
consideration liabilities, no Consumer Healthcare put option charge and an
increase in value of the shares in Hindustan Unilever Limited to be received
on the disposal of Horlicks and other Consumer Healthcare brands were partly
offset by increased charges for major restructuring, primarily arising from
write downs in a number of manufacturing sites.
Excluding these and other Adjusting items, Adjusted operating profit was
£7,120 million, 9% higher than 2018 at AER and 3% higher at CER on a turnover
increase of 7% CER. The Adjusted operating margin of 28.6% was 0.3
percentage points lower at AER, and 1.0 percentage points lower on a CER basis
than in 2018. On a pro-forma basis, Adjusted operating profit was 2% higher
at CER on a turnover increase of 5% CER. The Adjusted pro-forma operating
margin of 28.6% was 0.9 percentage points lower on a CER basis than in 2018.
The increase in Adjusted operating profit primarily reflected the benefit from
sales growth in all three businesses, particularly Vaccines, a more favourable
mix in Vaccines and Consumer Healthcare, a benefit from favourable inventory
adjustments in Vaccines, the continued benefit of restructuring and tight
control of ongoing costs across all three businesses. This was partly offset
by continuing price pressure, particularly in Respiratory, including the
impact of the launch of a generic version of Advair in the US in February
2019, investment in R&D including a significant increase in Oncology
investment, partly on the assets from the Tesaro acquisition, and investments
in promotional product support, particularly for new launches in Vaccines, HIV
and Respiratory.
Contingent consideration cash payments which are made to Shionogi and other
companies reduce the balance sheet liability and hence are not recorded in the
income statement. Total contingent consideration cash payments in the nine
months amounted to £660 million (2018: £915 million). This included cash
payments made to Shionogi of £645 million (2018: £584 million).
Operating profit by business
Pharmaceuticals operating profit was £3,587 million, down 14% AER, 17% CER on
a turnover increase of 1% CER. The operating margin of 27.6% was 6.0
percentage points lower at AER than in 2018 and 6.2 percentage points lower
on a CER basis. This primarily reflected the increase in cost of sales
percentage due to the continued impact of lower prices, particularly in
Respiratory, including the impact of the launch of a generic version of Advair
in the US in February 2019, an unfavourable product mix, primarily as a result
of the growth in some lower margin established products, a non-restructuring
related write down in a manufacturing site in Q3 and higher legal costs,
together with a significant increase in Oncology R&D investment and
investment in new product support and targeted priority markets. This was
partly offset by the continued benefit of restructuring and tight control of
ongoing costs and the benefits of re-prioritisation of the R&D portfolio.
Vaccines operating profit was £2,388 million, 57% AER, 47% CER higher than in
2018 on a turnover increase of 19% CER. The operating margin of 44.1% was 9.6
percentage points higher at AER than in 2018 and 8.2 percentage points higher
on a CER basis. This was primarily driven by enhanced operating leverage from
strong sales growth, particularly Shingrix in the US, improved product mix and
higher royalty income. Increased SG&A investment to support business
growth was partly offset by income from one-off settlements.
Consumer Healthcare operating profit was £1,434 million, up 23% AER, 19% CER
higher on a turnover increase of 10% CER. On a pro-forma basis, operating
profit was £1,434 million, 9% CER higher on a turnover increase of 2% CER.
The operating margin of 22.3% was 2.1 percentage points higher at AER and 1.7
percentage points higher on a CER basis than in 2018. The pro-forma
operating margin of 22.3% was 1.4 percentage points higher on a CER basis.
This primarily reflected continued manufacturing restructuring savings,
improved growth from higher margin power brands and divestment of lower margin
tail products as well as tight control of promotional and other operating
expenses.
Net finance costs
Total net finance costs were £619 million compared with £532 million in
2018. Adjusted net finance costs were £613 million compared with £525
million in 2018. The increase primarily reflected higher debt levels
following the acquisition from Novartis of its stake in the Consumer
Healthcare Joint Venture in June 2018 and the acquisition of Tesaro in January
2019, as well as an adverse comparison with a one-off accounting adjustment of
£20 million to amortisation of interest charges in 2018. This was partly
offset by the benefit from older bonds being refinanced at lower interest
rates, a fair value gain on interest rate swaps and interest of £23 million
in Q3 2018 on an historic tax settlement. Following the introduction of IFRS
16, 'Leases', finance costs included an unwind of the discount on the lease
liability of £29 million in the nine months.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was £70 million (2018: £26
million). This included a one-off adjustment of £51 million to reflect
GSK's share of increased after tax profits of Innoviva primarily as a result
of a non-recurring income tax benefit.
Taxation
The charge of £759 million represented an effective tax rate on Total results
of 16.8% (2018: 19.8%) and reflected the different tax effects of the various
Adjusting items, including the non-taxable profit arising from the increase in
value of the shares in Hindustan Unilever Limited to be received on the
disposal of Horlicks and other Consumer Healthcare brands as well as
recognition of a deferred tax liability as a result of disposal of a
manufacturing site. Tax on Adjusted profit amounted to £1,111 million and
represented an effective Adjusted tax rate of 16.9% (2018: 19.5%), reflecting
the impact of the settlement of a number of open issues with tax authorities.
Issues related to taxation are described in Note 14, 'Taxation' in the Annual
Report 2018. 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.
Non-controlling interests
The allocation of Total earnings to non-controlling interests amounted to
£405 million (2018: £338 million). The increase was primarily due to an
increased allocation of ViiV Healthcare profits to £290 million (2018: £175
million) and higher net profits in some of the Group's other entities with
non-controlling interests. This was partly offset by the lower allocation of
Consumer Healthcare profits of £47 million (2018: £117 million) following
the buyout of Novartis' interest in June 2018 and the completion of the new
Consumer Healthcare Joint Venture with Pfizer on 31 July 2019.
The allocation of Adjusted earnings to non-controlling interests amounted to
£562 million (2018: £535 million). The increase in allocation was again
primarily due to increased allocation of ViiV Healthcare profits of £391
million (2018: £371 million) and higher net profits in some of the Group's
other entities with non-controlling interests, partly offset by the lower
allocation of Consumer Healthcare profits of £103 million (2018: £118
million).
Earnings per share
Total earnings per share was 67.7p, compared with 49.0p in 2018. The
increase in earnings per share primarily reflected reduced re-measurement
charges on the contingent consideration liabilities and put options, an
increase in the value of the shares in Hindustan Unilever Limited to be
received on the disposal of Horlicks and other Consumer Healthcare brands, an
improved trading performance, a reduced effective tax rate and the increased
share of after tax profit of the associate Innoviva.
Adjusted EPS of 99.2p compared with 88.3p in 2018, up 12% AER, 7% CER, on a 3%
CER increase in Adjusted operating profit. The improvement primarily
resulted from the lower non-controlling interest allocation of Consumer
Healthcare profits, a reduced effective tax rate and an increased share of
after tax profits of associates as a result of a non-recurring income tax
benefit in Innoviva, partly offset by increased net finance costs.
Currency impact on nine months 2019 results
The results for the nine months to September 2019 are based on average
exchange rates, principally £1/$1.27, £1/€1.13 and £1/Yen 139.
Comparative exchange rates are given on page 55. The period-end exchange
rates were £1/$1.23, £1/€1.13 and £1/Yen 133.
In the nine months, turnover increased 10% AER, 7% CER. Total EPS was 67.7p
compared with 49.0p in 2018. Adjusted EPS was 99.2p compared with 88.3p in
2018, up 12% AER, 7% CER. The positive currency impact primarily reflected
the weakness of Sterling, particularly against the US$ and Yen, partly offset
by weakness in emerging market currencies, relative to 2018. Exchange gains
or losses on the settlement of intercompany transactions had a negligible
impact on the positive currency impact of five percentage points on Adjusted
EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for the nine
months 2019 and the nine months 2018 are set out below.
Nine months ended 30 September 2019
Total Intangible Intangible Major Transaction- Divestments, Adjusted
results amort- impair- restruct- related significant results
£m isation ment uring £m legal and £m
£m £m £m other items
£m
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 24,855 24,855
Cost of sales (8,615) 550 27 647 160 (7,231)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 16,240 550 27 647 160 17,624
Selling, general and administration (7,959) 5 169 100 87 (7,598)
Research and development (3,325) 48 30 71 1 (3,175)
Royalty income 269 269
Other operating (expense)/income (166) 1 415 (250) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 5,059 598 62 888 675 (162) 7,120
Net finance costs (619) 4 2 (613)
Share of after tax profits of 70 70
associates and joint ventures
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before taxation 4,510 598 62 892 675 (160) 6,577
Taxation (759) (115) (11) (150) (139) 63 (1,111)
Tax rate % 16.8% 16.9%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after taxation 3,751 483 51 742 536 (97) 5,466
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit attributable to 405 157 562
non-controlling interests
Profit attributable to 3,346 483 51 742 379 (97) 4,904
shareholders
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per share 67.7p 9.8p 1.0p 15.0p 7.7p (2.0)p 99.2p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average number of 4,945 4,945
shares (millions)
------------ ------------
Nine months ended 30 September 2018
Total Intangible Intangible Major Transaction- Divestments, Adjusted
results amort- impair- restruct- related significant results
£m isation ment uring £m legal and £m
£m £m £m other items
£m
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 22,624 22,624
Cost of sales (7,337) 400 69 211 11 (6,646)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 15,287 400 69 211 11 15,978
Selling, general and administration (7,295) 2 267 61 32 (6,933)
Research and development (2,817) 30 33 27 11 (2,716)
Royalty income 220 220
Other operating (expense)/income (1,466) 1 1,634 (169) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 3,929 430 104 506 1,706 (126) 6,549
Net finance costs (532) 2 5 (525)
Profit on disposal of associates 3 (3) -
Share of after tax profits of 26 26
associates and joint ventures
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before taxation 3,426 430 104 508 1,706 (124) 6,050
Taxation (680) (85) (15) (122) (201) (77) (1,180)
Tax rate % 19.8% 19.5%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after taxation 2,746 345 89 386 1,505 (201) 4,870
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit attributable to 338 197 535
non-controlling interests
Profit attributable to 2,408 345 89 386 1,308 (201) 4,335
shareholders
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per share 49.0p 7.0p 1.8p 7.9p 26.6p (4.0)p 88.3p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average number of 4,911 4,911
shares (millions)
------------ ------------
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated manufacturing
operations and supply chains and long lifecycle of the business mean that
restructuring programmes, particularly those that involve the rationalisation
or closure of manufacturing or R&D sites are likely to take several years
to complete.
Major restructuring costs are those related to specific Board approved Major
restructuring programmes and are excluded from Adjusted results. Major
restructuring programmes, including integration costs following material
acquisitions, are those that are structural and are of a significant scale
where the costs of individual or related projects exceed £25 million. Other
ordinary course smaller scale restructuring costs are retained within Total
and Adjusted results.
The Board approved a new Major restructuring programme in July 2018, which is
designed to significantly improve the competitiveness and efficiency of the
Group's cost base with savings delivered primarily through supply chain
optimisation and reductions in administrative costs.
The Group acquired Tesaro in January 2019, and is expected to incur around
£50 million of integration and restructuring cash costs, leading to annual
cost-saving benefits of around £50 million. This has been added to and
reported as part of the 2018 Major restructuring programme.
The completion of the new Consumer Healthcare Joint Venture with Pfizer is
expected to realise substantial cost synergies, generating total annual cost
savings of £0.5 billion by 2022 for expected total major restructuring cash
costs of £0.9 billion and non-cash charges of £0.3 billion. Up to 25% of
the cost savings are intended to be reinvested in the business to support
innovation and other growth opportunities.
Total Major restructuring charges incurred in the nine months were £888
million (2018: £506 million), analysed as follows:
9 months 2019 9 months 2018
Cash Non-cash Total Cash Non-cash Total
£m £m £m £m £m £m
2018 major restructuring 179 549 728 128 - 128
programme (incl. Tesaro)
Consumer Healthcare Joint 135 - 135 - - -
Venture integration
programme
Combined restructuring and (8) 33 25 278 100 378
integration programme
306 582 888 406 100 506
Non-cash charges arising under the 2018 major restructuring programme
primarily related to the write-down of assets as part of the plans to reduce
the manufacturing network. Cash charges arose from restructuring of the
manufacturing organisation, R&D and some administrative functions as well
as the integration of Tesaro under the 2018 major restructuring programme, and
initial integration costs under the Consumer Healthcare Joint Venture
integration programme. Non-cash charges under the Combined restructuring and
integration programme primarily related to announced plans to restructure the
manufacturing network, and the reduction in cash charges arose from a profit
on sale of land.
Total cash payments made in the nine months were £390 million, £247 million
for the existing Combined restructuring and integration programme (2018: £353
million) and £85 million under the 2018 major restructuring programme
including the settlement of certain charges accrued in previous quarters and a
further £58 million relating to the Consumer Healthcare Joint Venture
integration programme.
The analysis of Major restructuring charges by business was as follows:
9 months 2019 9 months 2018
£m £m
Pharmaceuticals 615 295
Vaccines 48 76
Consumer Healthcare 187 100
850 471
Corporate & central functions 38 35
Total Major restructuring costs 888 506
The analysis of Major restructuring charges by Income statement line was as
follows:
9 months 2019 9 months 2018
£m £m
Cost of sales 647 211
Selling, general and administration 169 267
Research and development 71 27
Other operating expense 1 1
Total Major restructuring costs 888 506
The Combined restructuring and integration programme delivered incremental
annual cost savings in the nine months of £0.2 billion. The 2018 major
restructuring programme delivered incremental cost savings in the nine months
of £0.2 billion.
Total cash charges for the Combined restructuring and integration programme
are now expected to be approximately £4.1 billion with non-cash charges up to
£1.6 billion. The programme has now delivered approximately £4.1 billion
of annual savings, including an estimated currency benefit of £0.3 billion.
The programme is now expected to deliver by 2020 total annual savings of £4.4
billion on a constant currency basis, including an estimated benefit of £0.4
billion from currency on the basis of the nine months 2019 average exchange
rates.
The 2018 major restructuring programme, now including Tesaro, is expected to
cost £1.75 billion over the period to 2021, with cash costs of £0.85 billion
and non-cash costs of £0.9 billion, and is expected to deliver annual savings
of around £450 million by 2021 (at September 2019 rates). These savings
will be fully re-invested to help fund targeted increases in R&D and
commercial support of new products.
Transaction-related adjustments
Transaction-related adjustments resulted in a net charge of £675 million
(2018: £1,706 million). This primarily reflected £421 million of
accounting charges for the re-measurement of the contingent consideration
liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare
joint venture and the former Novartis Vaccines business and the liabilities
for the Pfizer put option and Pfizer and Shionogi preferential dividends in
ViiV Healthcare.
Charge/(credit) 9 months 2019 9 months 2018
£m £m
Consumer Healthcare Joint Venture put option - 658
Contingent consideration on former Shionogi-ViiV Healthcare joint venture 421 927
(including Shionogi preferential dividends)
ViiV Healthcare put options and Pfizer preferential dividends (81) (18)
Contingent consideration on former Novartis Vaccines business 68 50
Other adjustments 267 89
Total transaction-related charges 675 1,706
The £421 million charge relating to the contingent consideration for the
former Shionogi-ViiV Healthcare joint venture represented an increase in the
valuation of the contingent consideration due to Shionogi, primarily as a
result of a £323 million unwind of the discount and updated exchange rate
assumptions, partly offset by adjustments to sales forecasts.
Other adjustments included an unwind of the fair market value uplift on
inventory of £148 million and transaction costs arising on completion of the
Consumer Healthcare Joint Venture with Pfizer, as well as a reversal of an
indemnity receivable from Novartis following a tax settlement, with an
equivalent release of a tax provision.
An explanation of the accounting for the non-controlling interests in ViiV
Healthcare is set out on page 10.
Divestments, significant legal charges and other items
Divestments and other items included a gain in the nine months of £247
million arising from the increase in value of the shares in Hindustan Unilever
Limited to be received on the disposal of Horlicks and other Consumer
Healthcare brands, as well as equity investment impairments and certain other
Adjusting items together with the profit on a number of asset disposals. A
charge of £87 million (2018: £29 million) for significant legal matters
included the benefit of the settlement of existing matters as well as
provisions for ongoing litigation. Significant legal cash payments were £13
million (2018: £24 million).
Cash generation
Cash flow
Q3 2019 9 months 2019 9 months 2018
Net cash inflow from operating activities (£m) 2,515 4,567 4,302
Free cash flow* (£m) 1,939 2,474 2,375
Free cash flow growth (%) 25% 4% 42%
Free cash flow conversion* (%) >100% 74% 99%
Net debt** (£m) 28,139 28,139 23,837
* Free cash flow and free cash flow conversion are defined on page 58.
** Net debt is analysed on page 57.
Q3 2019
Net cash inflow from operating activities for the quarter was £2,515 million
(Q3 2018: £2,077 million). The increase primarily reflected improved
operating profits, a lower seasonal increase in trade receivables and the
reclassification of lease payments from operating to financing activities
following the transition to IFRS 16, partly offset by the adverse 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 £206 million (Q3 2018: £208
million), of which £182 million was recognised in cash flows from operating
activities and £24 million was recognised in contingent consideration paid
within investing cash flows. These payments are deductible for tax purposes.
Free cash flow was £1,939 million for the quarter (Q3 2018: £1,554
million). The increase primarily reflected improved operating profits, a
lower seasonal increase in trade receivables and inventory, lower dividends to
non-controlling interests and the reclassification of lease payments from
operating to financing activities following the transition to IFRS 16. This
was partly offset by the adverse timing of payments for returns and rebates
and lower disposals of intangible assets compared with Q3 2018.
9 months 2019
The net cash inflow from operating activities for the nine months was £4,567
million (2018: £4,302 million). The increase primarily reflected improved
operating profits, a lower seasonal increase in trade receivables, lower
contingent consideration payments compared with 2018, which included a
milestone payment to Novartis, and the reclassification of lease payments from
operating to financing activities following the transition to IFRS 16, partly
offset by the adverse timing of payments for returns and rebates and the
initial step-down impact from US Advair generic competition.
Total cash payments to Shionogi in relation to the ViiV Healthcare contingent
consideration liability in the nine months were £645 million (2018: £584
million), of which £572 million was recognised in cash flows from operating
activities and £73 million was recognised in contingent consideration paid
within investing cash flows. These payments are deductible for tax purposes.
Free cash flow was £2,474 million in the nine months (2018: £2,375
million). The increase primarily reflected improved operating profits, a
lower seasonal increase in trade receivables, lower contingent consideration
payments compared with 2018 which included a milestone payment to Novartis,
reduced dividend payments to non-controlling interests and the
reclassification of lease payments from operating to financing activities
following the transition to IFRS 16. This was partly offset by the adverse
timing of payments for returns and rebates, as well as the initial step-down
impact from US Advair generic competition, increased capital expenditure
including the acquisition of intangible assets and increased interest
payments.
Net debt
At 30 September 2019, net debt was £28.1 billion, compared with £21.6
billion at 31 December 2018, comprising gross debt of £33.0 billion and cash
and liquid investments of £4.9 billion, including £0.5 billion reported
within Assets held for sale. Net debt increased due to the £3.9 billion
acquisition of Tesaro Inc as well as £0.2 billion of Tesaro net debt,
together with the £1.3 billion impact from the implementation of IFRS 16, the
dividend paid to shareholders of £3.0 billion and £0.4 billion of
unfavourable exchange impacts from the translation of non-Sterling denominated
debt, partly offset by £2.5 billion of free cash flow.
At 30 September 2019, GSK had short-term borrowings (including overdrafts and
lease liabilities) repayable within 12 months of £8.2 billion with loans of
£3.4 billion repayable in the subsequent year.
Returns to shareholders
Quarterly dividends
The Board has declared a third interim dividend for 2019 of 19 pence per share
(Q3 2018: 19 pence per share).
GSK recognises the importance of dividends to shareholders and aims to
distribute regular dividend payments that will be determined primarily with
reference to the free cash flow generated by the business after funding the
investment necessary to support the Group's future growth.
The Board intends to maintain the dividend for 2019 at the current level of
80p per share, subject to any material change in the external environment or
performance expectations. Over time, as free cash flow strengthens, it
intends to build free cash flow cover of the annual dividend to a target range
of 1.25-1.50x, before returning the dividend to growth.
Payment of dividends
The equivalent interim dividend receivable by ADR holders will be calculated
based on the exchange rate on 7 January 2020. An annual fee of $0.03 per ADS
(or $0.0075 per ADS per quarter) (2018: $0.02 per ADS; $0.005 per ADS per
quarter) is charged by the Depositary.
The ex-dividend date will be 14 November 2019, with a record date of 15
November 2019 and a payment date of 9 January 2020.
Paid/ Pence per £m
payable share
2019
First interim 11 July 2019 19 940
Second interim 10 October 2019 19 941
Third interim 9 January 2020 19 941
2018
First interim 12 July 2018 19 934
Second interim 11 October 2018 19 934
Third interim 10 January 2019 19 935
Fourth interim 11 April 2019 23 1,137
80 3,940
Weighted average number of shares
Q3 2019 Q3 2018
millions millions
Weighted average number of shares - basic 4,951 4,917
Dilutive effect of share options and share awards 56 55
Weighted average number of shares - diluted 5,007 4,972
Weighted average number of shares
9 months 2019 9 months 2018
millions millions
Weighted average number of shares - basic 4,945 4,911
Dilutive effect of share options and share awards 56 55
Weighted average number of shares - diluted 5,001 4,966
At 30 September 2019, 4,952 million shares (30 September 2018: 4,919 million)
were in free issue (excluding Treasury shares and shares held by the ESOP
Trusts). GSK made no share repurchases during the period. The company
issued 0.6 million shares under employee share schemes in the quarter for
proceeds of £8 million (Q3 2018: £8 million).
At 30 September 2019, the ESOP Trust held 36.8 million GSK shares against the
future exercise of share options and share awards. The carrying value of
£201 million has been deducted from other reserves. The market value of
these shares was £649 million.
At 30 September 2019, the company held 393.5 million Treasury shares at a cost
of £5,505 million, which has been deducted from retained earnings.
Financial information
Income statements
Q3 2019 Q3 2018 9 months 9 months
£m £m 2019 2018
£m £m
TURNOVER 9,385 8,092 24,855 22,624
Cost of sales (3,245) (2,636) (8,615) (7,337)
Gross profit 6,140 5,456 16,240 15,287
Selling, general and administration (2,892) (2,527) (7,959) (7,295)
Research and development (1,206) (988) (3,325) (2,817)
Royalty income 118 94 269 220
Other operating expense (13) (125) (166) (1,466)
OPERATING PROFIT 2,147 1,910 5,059 3,929
Finance income 32 10 87 57
Finance expense (245) (233) (706) (589)
Profit on disposal of associates - 3 - 3
Share of after tax profits of 17 15 70 26
associates and joint ventures
PROFIT BEFORE TAXATION 1,951 1,705 4,510 3,426
Taxation (235) (193) (759) (680)
Tax rate % 12.0% 11.3% 16.8% 19.8%
PROFIT AFTER TAXATION 1,716 1,512 3,751 2,746
Profit attributable to non-controlling 164 94 405 338
interests
Profit attributable to shareholders 1,552 1,418 3,346 2,408
1,716 1,512 3,751 2,746
EARNINGS PER SHARE 31.4p 28.8p 67.7p 49.0p
Diluted earnings per share 31.0p 28.5p 66.9p 48.5p
Statement of comprehensive income
Q3 2019 Q3 2018
£m £m
Profit for the period 1,716 1,512
Items that may be reclassified subsequently to income statement:
Exchange movements on overseas net assets and net investment hedges (150) 4
Fair value movements on cash flow hedges (33) 3
Reclassification of cash flow hedges to income statement 2 1
(181) 8
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling interests 38 (11)
Fair value movements on equity investments 52 115
Deferred tax on fair value movements on equity investments 3 -
Re-measurement (losses)/gains on defined benefit plans (619) 189
Tax on re-measurement (losses)/gains on defined benefit plans 113 (35)
(413) 258
Other comprehensive (expense)/income for the period (594) 266
Total comprehensive income for the period 1,122 1,778
Total comprehensive income for the period attributable to:
Shareholders 920 1,695
Non-controlling interests 202 83
1,122 1,778
Statement of comprehensive income
9 months 9 months
2019 2018
£m £m
Profit for the period 3,751 2,746
Items that may be reclassified subsequently to income statement:
Exchange movements on overseas net assets and net investment hedges (195) (368)
Fair value movements on cash flow hedges (106) 182
Reclassification of cash flow hedges to income statement 3 (164)
Deferred tax on fair value movements on cash flow hedges - (24)
Deferred tax reversed on reclassification of cash flow hedges - 20
(298) (354)
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling interests 28 (19)
Fair value movements on equity investments 96 268
Deferred tax on fair value movements on equity investments (27) (13)
Re-measurement (losses)/gains on defined benefit plans (1,192) 1,103
Tax on re-measurement (losses)/gains on defined benefit plans 215 (205)
(880) 1,134
Other comprehensive (expense)/income for the period (1,178) 780
Total comprehensive income for the period 2,573 3,526
Total comprehensive income for the period attributable to:
Shareholders 2,140 3,207
Non-controlling interests 433 319
2,573 3,526
Pharmaceuticals turnover - three months ended 30 September 2019
Total US Europe International
--------------------------------------- --------------------------------------- --------------------------------------- ---------------------------------------
Growth Growth Growth Growth
------------------------ ------------------------ ------------------------ ------------------------
£m £% CER% £m £% CER% £m £% CER% £m £% CER%
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Respiratory 806 25 19 465 18 10 200 32 32 141 42 35
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Ellipta products 603 21 15 346 12 5 147 34 33 110 34 29
Anoro Ellipta 143 24 19 94 22 16 30 25 25 19 36 29
Arnuity Ellipta 12 20 10 10 11 11 - - - 2 100 -
Incruse Ellipta 60 (20) (24) 34 (33) (37) 18 - - 8 33 17
Relvar/Breo Ellipta 249 (3) (8) 103 (26) (32) 71 20 19 75 25 22
Trelegy Ellipta 139 >100 >100 105 >100 >100 28 >100 >100 6 >100 >100
Nucala 203 40 33 119 37 29 53 29 29 31 82 65
HIV 1,267 5 - 797 6 (1) 293 1 1 177 7 3
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Dolutegravir products 1,211 6 2 780 6 - 275 3 3 156 13 9
Tivicay 441 2 (3) 268 (1) (7) 102 10 10 71 4 -
Triumeq 651 (3) (7) 414 (3) (9) 154 (10) (10) 83 19 14
Juluca 101 >100 >100 83 >100 >100 16 >100 >100 2 >100 >100
Dovato 18 - - 15 - - 3 - - - - -
Epzicom/Kivexa 19 (21) (25) 1 - - 6 (33) (33) 12 (14) (21)
Selzentry 25 (4) (12) 14 - (7) 7 (12) (12) 4 - (25)
Other 12 (43) (33) 2 (67) (50) 5 (17) (17) 5 (44) (33)
Immuno- 171 40 33 150 39 30 12 33 33 9 80 >100
inflammation
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Benlysta 172 42 35 150 39 29 12 20 20 10 >100 >100
Oncology 64 - - 38 - - 26 - - - - -
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Zejula 64 - - 38 - - 26 - - - - -
Established 2,223 (1) (5) 522 (18) (22) 509 2 2 1,192 8 3
Pharmaceuticals
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Established 939 (8) (12) 364 (19) (24) 185 (8) (8) 390 5 -
Respiratory
Seretide/Advair 418 (32) (35) 117 (62) (64) 121 (8) (9) 180 1 (2)
Flixotide/Flovent 171 46 38 110 86 76 18 (5) (5) 43 10 3
Ventolin 231 34 27 136 64 53 27 (7) (7) 68 13 8
Avamys/Veramyst 66 10 3 - - - 15 - - 51 13 4
Other Respiratory 53 - (4) 1 >100 >100 4 (20) - 48 - (6)
Dermatology 118 8 6 - - - 40 - - 78 15 12
Augmentin 151 14 10 - - - 38 (5) (3) 113 22 15
Avodart 150 4 - 2 (33) (33) 51 (14) (15) 97 18 12
Imigran/Imitrex 36 9 6 15 15 8 13 - - 8 14 14
Lamictal 147 (1) (4) 74 - (7) 31 3 - 42 (5) (2)
Seroxat/Paxil 42 - (5) - - - 10 11 11 32 (3) (9)
Valtrex 28 (13) (16) 4 (33) (50) 9 12 12 15 (17) (17)
Other 612 5 2 63 (28) (28) 132 29 31 417 6 1
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Pharmaceuticals 4,531 7 3 1,972 4 (2) 1,040 9 9 1,519 10 5
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Pharmaceuticals turnover - nine months ended 30 September 2019
Total US Europe International
--------------------------------------- --------------------------------------- --------------------------------------- ---------------------------------------
Growth Growth Growth Growth
------------------------ ------------------------ ------------------------ ------------------------
£m £% CER% £m £% CER% £m £% CER% £m £% CER%
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Respiratory 2,189 23 18 1,221 15 8 569 32 32 399 38 35
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Ellipta products 1,639 17 13 900 8 2 419 30 30 320 33 30
Anoro Ellipta 373 12 8 233 6 - 87 21 21 53 33 30
Arnuity Ellipta 33 6 - 28 - (4) - - - 5 67 33
Incruse Ellipta 185 (6) (10) 109 (13) (19) 55 2 2 21 24 24
Relvar/Breo Ellipta 702 (7) (10) 274 (31) (35) 208 14 14 220 23 21
Trelegy Ellipta 346 >100 >100 256 >100 >100 69 >100 >100 21 >100 >100
Nucala 550 41 35 321 37 29 150 39 39 79 65 56
HIV 3,597 4 1 2,222 4 (2) 860 (2) (2) 515 17 16
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Dolutegravir products 3,425 7 3 2,170 5 (1) 808 1 1 447 27 26
Tivicay 1,236 4 - 733 (3) (9) 295 8 8 208 31 30
Triumeq 1,911 (2) (6) 1,203 (3) (9) 473 (10) (10) 235 22 21
Juluca 255 >100 >100 214 >100 >100 37 >100 >100 4 >100 >100
Dovato 23 - - 20 - - 3 - - - - -
Epzicom/Kivexa 60 (31) (31) 3 - - 18 (45) (45) 39 (24) (24)
Selzentry 74 (12) (14) 40 (5) (10) 22 (15) (15) 12 (25) (25)
Other 38 (37) (37) 9 (50) (50) 12 (33) (33) 17 (29) (29)
Immuno- 443 32 25 387 29 22 34 31 31 22 >100 >100
inflammation
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Benlysta 443 32 26 387 29 22 34 26 26 22 >100 >100
Oncology 164 - - 97 - - 67 - - - - -
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Zejula 163 - - 97 - - 66 - - - - -
Established 6,603 (4) (6) 1,517 (18) (22) 1,547 (5) (5) 3,539 3 2
Pharmaceuticals
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Established 2,935 (7) (9) 1,074 (16) (21) 611 (11) (11) 1,250 5 4
Respiratory
Seretide/Advair 1,316 (26) (27) 398 (50) (53) 383 (15) (15) 535 1 -
Flixotide/Flovent 443 3 - 253 6 - 66 (1) (1) 124 1 -
Ventolin 712 36 32 423 75 64 89 (5) (5) 200 8 8
Avamys/Veramyst 252 11 8 - - - 54 (5) (5) 198 16 12
Other Respiratory 212 7 2 - - - 19 (10) (5) 193 8 3
Dermatology 333 4 4 3 50 50 119 1 1 211 6 6
Augmentin 444 5 4 - - - 125 (5) (5) 319 9 9
Avodart 434 3 1 4 (56) (56) 160 (11) (12) 270 15 12
Imigran/Imitrex 103 2 - 44 13 8 39 (9) (9) 20 5 5
Lamictal 421 (8) (11) 211 (7) (12) 84 1 - 126 (15) (15)
Seroxat/Paxil 122 (2) (3) - - - 28 (3) (3) 94 (1) (3)
Valtrex 80 (11) (13) 10 (29) (36) 23 - - 47 (11) (13)
Other 1,731 (4) (5) 171 (37) (40) 358 8 8 1,202 1 (1)
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Pharmaceuticals 12,996 4 1 5,444 2 (4) 3,077 4 4 4,475 7 6
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Vaccines turnover - three months ended 30 September 2019
Total US Europe International
--------------------------------------- --------------------------------------- --------------------------------------- ---------------------------------------
Growth Growth Growth Growth
------------------------ ------------------------ ------------------------ ------------------------
£m £% CER% £m £% CER% £m £% CER% £m £% CER%
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Meningitis 371 13 9 234 22 14 90 8 10 47 (13) (11)
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Bexsero 255 23 19 145 33 24 84 9 10 26 24 29
Menveo 106 4 (1) 89 7 1 4 - - 13 (13) (13)
Other 10 (50) (50) - - - 2 - - 8 (56) (56)
Influenza 371 22 15 318 26 19 34 3 3 19 - (5)
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Fluarix, FluLaval 371 22 15 318 26 19 34 3 3 19 - (5)
Shingles 535 87 76 496 80 69 16 >100 >100 23 >100 >100
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Shingrix 535 87 76 496 80 69 16 >100 >100 23 >100 >100
Established 1,031 3 (1) 393 16 9 256 (10) (11) 382 1 (1)
Vaccines
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Infanrix, Pediarix 199 24 19 106 61 53 55 (10) (10) 38 15 6
Boostrix 187 19 15 101 7 2 42 (2) (2) 44 >100 >100
Hepatitis 216 1 (2) 131 6 - 57 (14) (14) 28 22 17
Rotarix 167 10 7 36 (3) (8) 28 - - 103 18 15
Synflorix 116 (3) (4) - - - 11 (8) (8) 105 (2) (4)
Priorix, Priorix Tetra, 57 (30) (31) - - - 23 (45) (45) 34 (12) (15)
Varilrix
Cervarix 15 (73) (73) - - - 5 67 67 10 (81) (81)
Other 74 9 6 19 - (21) 35 17 10 20 4 25
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Vaccines 2,308 20 15 1,441 36 28 396 (1) (2) 471 2 -
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Vaccines turnover - nine months ended 30 September 2019
Total US Europe International
--------------------------------------- --------------------------------------- --------------------------------------- ---------------------------------------
Growth Growth Growth Growth
------------------------ ------------------------ ------------------------ ------------------------
£m £% CER% £m £% CER% £m £% CER% £m £% CER%
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Meningitis 815 18 16 405 25 18 260 1 1 150 35 43
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Bexsero 567 21 19 248 40 32 243 2 2 76 41 54
Menveo 201 7 3 157 7 1 12 (8) (8) 32 14 21
Other 47 34 34 - - - 5 (17) (17) 42 45 45
Influenza 403 22 16 320 28 20 34 (3) (3) 49 9 9
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Fluarix, FluLaval 403 22 16 320 28 20 34 (3) (3) 49 9 9
Shingles 1,278 >100 >100 1,175 >100 >100 35 >100 >100 68 >100 91
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Shingrix 1,278 >100 >100 1,175 >100 >100 35 >100 >100 68 >100 91
Established 2,919 3 1 1,096 17 11 809 (9) (9) 1,014 1 -
Vaccines
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Infanrix, Pediarix 577 12 9 292 32 25 169 (18) (18) 116 32 30
Boostrix 454 20 17 233 16 9 122 (2) (2) 99 90 90
Hepatitis 679 10 6 418 18 11 178 (4) (4) 83 6 5
Rotarix 417 8 6 106 5 (1) 84 2 4 227 11 10
Synflorix 344 8 8 - - - 44 19 19 300 7 6
Priorix, Priorix Tetra, 162 (33) (33) - - - 74 (42) (42) 88 (23) (23)
Varilrix
Cervarix 63 (49) (49) - - - 16 7 7 47 (56) (56)
Other 223 (11) (12) 47 (15) (24) 122 8 7 54 (33) (30)
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Vaccines 5,415 23 19 2,996 47 39 1,138 (4) (4) 1,281 7 7
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Balance sheet
30 September 2019 30 September 2018 31 December 2018
£m £m £m
ASSETS
Non-current assets
Property, plant and equipment 10,668 10,923 11,058
Right of use assets 1,032 - -
Goodwill 11,046 5,848 5,789
Other intangible assets 32,455 17,263 17,202
Investments in associates and joint ventures 334 221 236
Other investments 1,592 1,393 1,322
Deferred tax assets 3,909 3,412 3,887
Derivative financial instruments 161 51 69
Other non-current assets 1,058 2,075 1,576
Total non-current assets 62,255 41,186 41,139
Current assets
Inventories 6,776 5,788 5,476
Current tax recoverable 169 257 229
Trade and other receivables 8,173 7,292 6,423
Derivative financial instruments 518 56 188
Liquid investments 86 80 84
Cash and cash equivalents 4,305 3,793 3,874
Assets held for sale 963 152 653
Total current assets 20,990 17,418 16,927
TOTAL ASSETS 83,245 58,604 58,066
LIABILITIES
Current liabilities
Short-term borrowings (8,216) (2,902) (5,793)
Contingent consideration liabilities (838) (818) (837)
Trade and other payables (14,737) (13,093) (14,037)
Derivative financial instruments (310) (63) (127)
Current tax payable (610) (813) (965)
Short-term provisions (803) (706) (732)
Total current liabilities (25,514) (18,395) (22,491)
Non-current liabilities
Long-term borrowings (24,833) (24,808) (20,271)
Corporation tax payable (273) (272) (272)
Deferred tax liabilities (3,914) (1,223) (1,156)
Pensions and other post-employment benefits (3,793) (3,079) (3,125)
Other provisions (686) (652) (691)
Derivative financial instruments - - (1)
Contingent consideration liabilities (5,288) (5,414) (5,449)
Other non-current liabilities (884) (1,038) (938)
Total non-current liabilities (39,671) (36,486) (31,903)
TOTAL LIABILITIES (65,185) (54,881) (54,394)
NET ASSETS 18,060 3,723 3,672
EQUITY
Share capital 1,345 1,344 1,345
Share premium account 3,165 3,049 3,091
Retained earnings 5,265 (2,081) (2,137)
Other reserves 1,997 2,164 2,061
Shareholders' equity 11,772 4,476 4,360
Non-controlling interests 6,288 (753) (688)
TOTAL EQUITY 18,060 3,723 3,672
Statement of changes in equity
Share Share Retained Other Share- Non- Total
capital premium earnings reserves holder's controlling equity
£m £m £m £m equity interests £m
£m £m
------------ ------------ ------------ ------------ ------------ ------------ ------------
As previously reported 1,345 3,091 (2,137) 2,061 4,360 (688) 3,672
Implementation of IFRS 16 - - (93) - (93) - (93)
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2019, as adjusted 1,345 3,091 (2,230) 2,061 4,267 (688) 3,579
Profit for the period 3,346 3,346 405 3,751
Other comprehensive (expense)/income (1,171) (35) (1,206) 28 (1,178)
for the period
------------ ------------ ------------ ------------ ------------
Total comprehensive income/(expense) 2,175 (35) 2,140 433 2,573
for the period
------------ ------------ ------------ ------------ ------------
Distributions to non-controlling interests (313) (313)
Changes to non-controlling interests 10 10
Dividends to shareholders (3,012) (3,012) (3,012)
Recognition of interest in Consumer 8,082 8,082 6,846 14,928
Healthcare Joint Venture
Shares issued - 41 41 41
Realised after tax profits on disposal of (4) 4 -
equity investments
Shares acquired by ESOP Trusts 33 295 (328) -
Write-down on shares held by ESOP Trusts (295) 295 -
Share-based incentive plans 254 254 254
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 September 2019 1,345 3,165 5,265 1,997 11,772 6,288 18,060
------------ ------------ ------------ ------------ ------------ ------------ ------------
As previously reported 1,343 3,019 (6,477) 2,047 (68) 3,557 3,489
Implementation of IFRS 15 (4) (4) (4)
Implementation of IFRS 9 277 (288) (11) (11)
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2018, as adjusted 1,343 3,019 (6,204) 1,759 (83) 3,557 3,474
Profit for the period 2,408 2,408 338 2,746
Other comprehensive income/(expense) 541 258 799 (19) 780
for the period
------------ ------------ ------------ ------------ ------------
Total comprehensive income for the period 2,949 258 3,207 319 3,526
------------ ------------ ------------ ------------ ------------
Distributions to non-controlling interests (532) (532)
Contributions from non-controlling interests 21 21
Derecognition of non-controlling interests 4,056 4,056 (4,118) (62)
in Consumer Healthcare Joint Venture
Dividends to shareholders (2,993) (2,993) (2,993)
Shares issued 1 30 31 31
Realised profits on disposal of equity 54 (54) -
investments
Write-down on shares held by ESOP Trusts (201) 201 -
Share-based incentive plans 258 258 258
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 September 2018 1,344 3,049 (2,081) 2,164 4,476 (753) 3,723
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash flow statement - nine months ended 30 September 2019
9 months 2019 9 months 2018
£m £m
Profit after tax 3,751 2,746
Tax on profits 759 680
Share of after tax profits of associates and joint ventures (70) (26)
Profit on disposal of interest in associates - (3)
Net finance expense 619 532
Depreciation, amortisation and other adjusting items 2,472 1,169
Increase in working capital (1,477) (1,927)
Contingent consideration paid (577) (792)
Increase in other net liabilities (excluding contingent consideration paid) 149 2,936
Cash generated from operations 5,626 5,315
Taxation paid (1,059) (1,013)
Net cash inflow from operating activities 4,567 4,302
Cash flow from investing activities
Purchase of property, plant and equipment (785) (842)
Proceeds from sale of property, plant and equipment 86 70
Purchase of intangible assets (613) (319)
Proceeds from sale of intangible assets 88 165
Purchase of equity investments (239) (298)
Proceeds from sale of equity investments 51 87
Purchase of businesses, net of cash acquired (3,548) -
Contingent consideration paid (83) (123)
Disposal of businesses (2) 28
Proceeds from disposal of interest in associates - 3
Investment in associates and joint ventures (6) (5)
Interest received 66 55
Decrease in liquid investments 1 -
Dividends from associates and joint ventures - 39
Net cash outflow from investing activities (4,984) (1,140)
Cash flow from financing activities
Issue of share capital 41 31
Increase in short-term loans 4,350 2,050
Increase in long-term loans 4,822 10,090
Repayment of short-term loans (4,253) (2,037)
Repayment of lease liabilities (159) (17)
Purchase of non-controlling interests (7) (9,321)
Interest paid (539) (458)
Dividends paid to shareholders (3,012) (2,993)
Distributions to non-controlling interests (313) (535)
Contributions from non-controlling interests - 21
Other financing items (11) 26
Net cash inflow/(outflow) from financing activities 919 (3,143)
Increase in cash and bank overdrafts in the period 502 19
Cash and bank overdrafts at beginning of the period 4,087 3,600
Exchange adjustments 20 (32)
Increase in cash and bank overdrafts 502 19
Cash and bank overdrafts at end of the period 4,609 3,587
Cash and bank overdrafts at end of the period comprise:
Cash and cash equivalents 4,305 3,793
Cash and cash equivalents reported in assets held for sale 519 -
4,824 3,793
Overdrafts (215) (206)
4,609 3,587
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 Chief
Scientific Officer and President, R&D and is reported as a separate
segment. The operating profit of this segment excludes the ViiV Healthcare
operating profit (including R&D expenditure) that is reported within the
Pharmaceuticals 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.
Corporate and other unallocated turnover and costs include the results of
certain Consumer Healthcare products which are being held for sale in a number
of markets in order to meet anti-trust approval requirements, together with
the costs of corporate functions.
Turnover by segment
Q3 2019 Q3 2018 Growth Growth
£m £m £% CER%
Pharmaceuticals 4,531 4,221 7 3
Vaccines 2,308 1,924 20 15
Consumer Healthcare 2,526 1,947 30 25
9,365 8,092 16 11
Corporate and other unallocated turnover 20 -
Total turnover 9,385 8,092 16 11
Operating profit by segment
Q3 2019 Q3 2018 Growth Growth
£m £m £% CER%
Pharmaceuticals 1,986 2,028 (2) (7)
Pharmaceuticals R&D (893) (667) 34 28
Pharmaceuticals including R&D 1,093 1,361 (20) (24)
Vaccines 1,162 827 41 30
Consumer Healthcare 613 429 43 34
Segment profit 2,868 2,617 10 3
Corporate and other unallocated costs (82) (93)
Adjusted operating profit 2,786 2,524 10 3
Adjusting items (639) (614)
Total operating profit 2,147 1,910 12 3
Finance income 32 10
Finance costs (245) (233)
Profit on disposal of associates - 3
Share of after tax profits of 17 15
associates and joint ventures
Profit before taxation 1,951 1,705 14 4
Turnover by segment
9 months 9 months Growth Growth
2019 2018 £% CER%
£m £m
Pharmaceuticals 12,996 12,459 4 1
Vaccines 5,415 4,415 23 19
Consumer Healthcare 6,424 5,750 12 10
24,835 22,624 10 7
Corporate and other unallocated turnover 20 -
Total turnover 24,855 22,624 10 7
Operating profit by segment
9 months 9 months Growth Growth
2019 2018 £% CER%
£m £m
Pharmaceuticals 6,029 6,080 (1) (5)
Pharmaceuticals R&D (2,442) (1,898) 29 24
Pharmaceuticals including R&D 3,587 4,182 (14) (17)
Vaccines 2,388 1,523 57 47
Consumer Healthcare 1,434 1,165 23 19
Segment profit 7,409 6,870 8 3
Corporate and other unallocated costs (289) (321)
Adjusted operating profit 7,120 6,549 9 3
Adjusting items (2,061) (2,620)
Total operating profit 5,059 3,929 29 20
Finance income 87 57
Finance costs (706) (589)
Profit on disposal of associates - 3
Share of after tax profits of associates 70 26
and joint ventures
Profit before taxation 4,510 3,426 32 22
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
2018.
At 30 September 2019, the Group's aggregate provision for legal and other
disputes (not including tax matters described on page 32) was £0.4 billion
(31 December 2018: £0.2 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.
A significant matter since the date of the Annual Report 2018 is as follows: a
trial date of 12 November 2019 has been set in the US federal courts with
respect to claims by 38 health insurance companies against the Group, relating
to reimbursements the insurers made for 17 medicines manufactured at the
Group's former Cidra plant in Puerto Rico.
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.
Additional information
Accounting policies and basis of preparation
This unaudited Results Announcement contains condensed financial information
for the three and nine months ended 30 September 2019, and should be read in
conjunction with the Annual Report 2018, 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 2018,
except for the implementation of IFRS 16 'Leases' from 1 January 2019.
IFRS 16 'Leases' was implemented by the Group from 1 January 2019. The new
standard replaces IAS 17 'Leases' and requires lease liabilities and right of
use assets to be recognised on the balance sheet for almost all leases. GSK
has applied the modified transition approach on adoption with no restatement
of comparative information. The adjustment made on the transition date of 1
January 2019 to each balance sheet line item is as follows:
31 December 2018 IFRS 16 1 January 2019
as previously adjustments as adjusted
reported £m £m
£m
Property, plant and equipment 11,058 (98) 10,960
Right of use assets - 1,071 1,071
Other non-current assets 1,576 (11) 1,565
Trade and other receivables 6,423 3 6,426
Deferred tax assets 3,887 39 3,926
Short-term borrowings (5,793) (229) (6,022)
Long-term borrowings (20,271) (1,074) (21,345)
Trade and other payables (14,037) 10 (14,027)
Current and non-current provisions (1,423) 35 (1,388)
Other non-current liabilities (938) 160 (778)
Deferred tax liabilities (1,156) 1 (1,155)
Total effect on net assets 3,672 (93) 3,579
Retained earnings (2,137) (93) (2,230)
Total effect on equity 3,672 (93) 3,579
The new Standard has not had a material impact on the Group's Income statement
or Cash flow statement.
The Group assesses whether a contract is or contains a lease at inception of
the contract. The Group recognises a right of use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee, except for short‑term leases (defined as leases with a lease term of
12 months or less) and leases of low value assets. For these leases, the
Group recognises the lease payments as an operating expense on a
straight‑line basis over the term of the lease. The lease liability is
initially measured at the present value of the lease payments that are not
paid at the commencement date. The discount rate applied is the rate
implicit in the lease. If this rate cannot be readily determined, the Group
uses its incremental borrowing rate.
The lease liability is subsequently measured by increasing the carrying amount
to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments
made.
The right of use assets primarily comprise property and reflect the initial
measurement of the corresponding lease liability, lease payments made at or
before the commencement day and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment
losses.
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 2018 were published in the Annual Report 2018,
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:
Q3 2019 Q3 2018 9 months 2019 9 months 2018 2018
Average rates:
US$/£ 1.23 1.31 1.27 1.35 1.33
Euro/£ 1.11 1.11 1.13 1.13 1.13
Yen/£ 133 146 139 148 147
Period-end rates:
US$/£ 1.23 1.30 1.23 1.30 1.27
Euro/£ 1.13 1.12 1.13 1.12 1.11
Yen/£ 133 148 133 148 140
During Q3 2019 average Sterling exchange rates were weaker against the US
Dollar and Yen and flat against the Euro compared with the same period in
2018. Similarly, during the nine months ended 30 September 2019, average
Sterling exchange rates were weaker against the US Dollar and the Yen and flat
against the Euro. Period-end Sterling exchange rates were weaker against the
US Dollar and Yen but stronger against the Euro compared with the 2018
period-end rates.
Net assets
The book value of net assets increased by £14,388 million from £3,672
million at 31 December 2018 to £18,060 million at 30 September 2019. This
primarily reflected the acquisition of the Pfizer consumer healthcare business
partly offset by the re-measurement losses on defined benefit plans during the
period.
The carrying value of investments in associates and joint ventures at 30
September 2019 was £334 million (31 December 2018: £236 million), with a
market value of £348 million (31 December 2018: £487 million).
At 30 September 2019, the net deficit on the Group's pension plans was £2,110
million compared with £995 million at 31 December 2018. The increase in the
net deficit primarily arose from decreases in the rates used to discount UK
pension liabilities from 2.9% to 1.8%, and US pension liabilities from 4.2% to
3.1%, partly offset by higher UK assets and a reduction in the UK inflation
rate from 3.2% to 3.1%.
The estimated present value of the potential redemption amount of the Pfizer
put option related to ViiV Healthcare, recorded in Other payables in Current
liabilities, was £1,157 million (31 December 2018: £1,240 million).
Contingent consideration amounted to £6,126 million at 30 September 2019 (31
December 2018: £6,286 million), of which £5,713 million (31 December 2018:
£5,937 million) represented the estimated present value of amounts payable to
Shionogi relating to ViiV Healthcare and £359 million (31 December 2018:
£296 million) represented the estimated present value of contingent
consideration payable to Novartis related to the Vaccines acquisition.
Of the contingent consideration payable (on a post-tax basis) to Shionogi at
30 September 2019, £805 million (31 December 2018: £815 million) is expected
to be paid within one year.
Movements in contingent consideration were as follows:
9 months 2019 ViiV Healthcare Group
£m £m
Contingent consideration at beginning of the period 5,937 6,286
Re-measurement through income statement 421 500
Cash payments: operating cash flows (572) (577)
Cash payments: investing activities (73) (83)
Contingent consideration at end of the period 5,713 6,126
9 months 2018 ViiV Healthcare Group
£m £m
Contingent consideration at beginning of the period 5,542 6,172
Re-measurement through income statement 927 975
Cash payments: operating cash flows (517) (792)
Cash payments: investing activities (67) (123)
Contingent consideration at end of the period 5,885 6,232
Contingent liabilities
There were contingent liabilities at 30 September 2019 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 disputes to which the Group is a party
are set out on page 53.
Business acquisition
The acquisition of the Pfizer consumer healthcare business completed on 31
July 2019.
GSK and Pfizer have contributed their respective Consumer Healthcare
businesses into a new Consumer Healthcare Joint Venture in a non-cash
transaction, whereby GSK has acquired Pfizer's consumer healthcare business in
return for shares in the Joint Venture. GSK has an equity interest of 68%
and majority control of the Joint Venture and Pfizer has an equity interest of
32%.
The non-controlling interest in the Consumer Healthcare Joint Venture,
calculated applying the partial goodwill method, represents Pfizer's share of
the net assets of the Joint Venture.
The goodwill in the business acquired from Pfizer represents the potential for
further synergies arising from combining the acquired business with GSK's
existing business together with the value of the workforce acquired. The
goodwill recognised is not expected to be deductible for tax purposes.
Since acquisition on 31 July 2019, turnover of £0.5 billion arising from the
Pfizer consumer healthcare business has been included in Group turnover and
there has been no material impact on Group operating profit.
The fair values of the net assets acquired, including goodwill, are as
follows:
£bn
Net assets acquired:
Intangible assets 12.5
Inventory 1.0
Other net assets 0.2
Deferred tax liabilities (2.7)
11.0
Non-controlling interest (3.5)
Goodwill 3.9
Total consideration 11.4
These amounts are provisional and subject to change.
Reconciliation of cash flow to movements in net debt
9 months 2019 9 months 2018
£m £m
Net debt, as previously reported (21,621) (13,178)
Implementation of IFRS 16 (1,303) -
Net debt at beginning of the period, as adjusted (22,924) (13,178)
Increase in cash and bank overdrafts 502 19
Decrease in liquid investments (1) -
Net increase in short-term loans (97) (13)
Increase in long-term loans (4,822) (10,090)
Repayment of lease liabilities 159 17
Debt of subsidiary undertakings acquired (518) -
Exchange adjustments (406) (590)
Other non-cash movements (32) (2)
Increase in net debt (5,215) (10,659)
Net debt at end of the period (28,139) (23,837)
Net debt analysis
30 September 30 September 31 December
2019 2018 2018
£m £m £m
Liquid investments 86 80 84
Cash and cash equivalents 4,305 3,793 3,874
Cash and cash equivalents reported in assets 519 - 485
held for sale
Short-term borrowings (8,216) (2,902) (5,793)
Long-term borrowings (24,833) (24,808) (20,271)
Net debt at end of the period (28,139) (23,837) (21,621)
Free cash flow reconciliation
Q3 2019 9 months 2019 9 months 2018
£m £m £m
Net cash inflow from operating activities 2,515 4,567 4,302
Purchase of property, plant and equipment (284) (785) (842)
Proceeds from sale of property, plant and equipment 16 86 70
Purchase of intangible assets (175) (613) (319)
Proceeds from disposals of intangible assets 76 88 165
Net finance costs (60) (473) (403)
Dividends from joint ventures and associates - - 39
Contingent consideration paid (reported in investing (32) (83) (123)
activities)
Distributions to non-controlling interests (117) (313) (535)
Contributions from non-controlling interests - - 21
Free cash flow 1,939 2,474 2,375
Reporting definitions
Total and Adjusted results
Total reported results represent the Group's overall performance.
GSK also uses a number of adjusted, non-IFRS, measures to report the
performance of its business. Adjusted results and other non-IFRS measures
may be considered in addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS. Adjusted results are defined
on page 9 and other non-IFRS measures are defined below.
Free cash flow
Free cash flow is defined as the net cash inflow from operating activities
less capital expenditure on property, plant and equipment and intangible
assets, contingent consideration payments, net interest, and dividends paid to
non-controlling interests plus proceeds from the sale of property, plant and
equipment and intangible assets, and dividends received from joint ventures
and associates. 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. A
reconciliation of net cash inflow from operations to free cash flow is set out
on page 57.
Free cash flow conversion
Free cash flow conversion is free cash flow as a percentage of earnings.
Working capital
Working capital represents inventory and trade receivables less trade
payables.
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. £% or AER% represents growth at actual exchange rates.
Pro-forma growth
The acquisition of the Pfizer consumer healthcare business completed on 31
July 2019 and so GSK's reported results include two months of results of the
former Pfizer consumer healthcare business from 1 August 2019.
The Group has presented pro-forma growth rates at CER for turnover, Adjusted
operating profit and operating profit by business taking account of this
transaction. Pro-forma growth rates for the quarter are calculated comparing
reported results for Q3 2019, calculated applying the exchange rates used in
the comparative period, with the results for Q3 2018 adjusted to include the
equivalent two months of results of the former Pfizer consumer healthcare
business during Q3 2018, as consolidated (in US$) and included in Pfizer's US
GAAP results. Similarly, pro-forma growth rates at CER for the nine months
to 30 September 2019 are calculated comparing reported results for the nine
months to 30 September 2019, calculated applying the exchange rates used in
the comparative period, with the results for the nine months to 30 September
2018, adjusted to include the equivalent two months of results of the former
Pfizer consumer healthcare business, as consolidated (in US$) and included in
Pfizer's US GAAP results.
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. Gardasil is
a trademark of Merck Sharp & Dohme Corp.
Outlook, assumptions and cautionary statements
2016-2020 outlook
In May 2015, GSK announced that it expected Group sales to grow at CER at a
low-to-mid single digits percentage CAGR and Adjusted EPS to grow at CER at a
mid-to-high single digit percentage CAGR for the period 2016-2020. On 3
December 2018, GSK announced that it continued to expect to deliver on its
previously published Group outlooks to 2020, but, following the acquisition of
Tesaro, expected Adjusted EPS growth at CER for the period 2016-2020 to be at
the bottom end of the mid-to-high single digit percentage CAGR range. These
outlooks are based on 2015 exchange rates.
Assumptions related to 2019 guidance and 2016-2020 outlook
In outlining the expectations for 2019 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 assumptions for the Group's revenue, earnings and dividend expectations
assume no material interruptions to supply of the Group's products, no
material mergers, acquisitions or disposals, except for the acquisition of
Tesaro, the proposed divestment of Horlicks and other Consumer Healthcare
products to Unilever and the formation of a new Consumer Healthcare Joint
Venture with Pfizer, all announced in December 2018, no material litigation or
investigation costs for the Company (save for those that are already
recognised or for which provisions have been made), no share repurchases by
the Company, and no change in the Group's shareholdings in ViiV Healthcare.
The assumptions also assume no material changes in the macro-economic and
healthcare environment. The 2019 guidance and 2016-2020 outlook have
factored in all divestments and product exits since 2015, including the
divestment and exit of more than 130 non-core tail brands (£0.5 billion in
annual sales) as announced on 26 July 2017 and the product divestments planned
in connection with the proposed Consumer Healthcare transaction with Pfizer.
The Group's expectations assume successful delivery of the Group's integration
and restructuring plans over the period 2016-2020, including the extension and
enhancement to the combined programme announced on 26 July 2017 as well as the
new major restructuring plan announced on 25 July 2018. They also assume
that the proposed divestment of Horlicks and other Consumer Healthcare
products to Unilever closes in Q1 2020 and that the integration and investment
programmes following the Tesaro acquisition and the Consumer Healthcare Joint
Venture with Pfizer over this period are delivered successfully. Material
costs for investment in new product launches and R&D have been factored
into the expectations given. Given the potential development options in the
Group's pipeline, the outlook may be affected by additional data-driven
R&D investment decisions. The expectations are given on a constant
currency basis (2016-2020 outlook at 2015 CER).
Due to the progress made in settling historic disputes together with the
changing product mix we expect the effective tax rate for the year to be 17%.
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,
macro-economic 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, dividend
payments and financial results. Other than in accordance with its legal or
regulatory obligations (including under the Market Abuse Regulation, 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 Item 3.D 'Risk Factors' in the Group's Annual Report on
Form 20-F for 2018. 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.
Cautionary statement regarding pro-forma growth rates
The pro-forma growth rates at CER in this Results Announcement have been
provided to illustrate the position in Q3 2019 relative to the position in Q3
2018 as if, for the purposes of the Q3 2018 results, the acquisition of the
Pfizer consumer healthcare business had taken place as at 31 July 2018 and
that, accordingly, two months of results of the former Pfizer consumer
healthcare business were included in Q3 2018. Similarly, pro-forma growth
rates have been provided to illustrate the position for the nine months to 30
September 2019 relative to the position for the nine months to 30 September
2018 as if, for the purposes of the nine months to 30 September 2018 results,
the acquisition of the Pfizer consumer healthcare business had taken place as
at 31 July 2018 and that, accordingly, two months of results of the former
Pfizer consumer healthcare business were included in the nine months to 30
September 2018. The results of the former Pfizer consumer healthcare
business included for Q3 2018 and the nine months to 30 September 2018 are as
consolidated (in US$) and included in Pfizer's US GAAP results. The results
for Q3 2019 and the nine months to 30 September 2019 used to calculate the
pro-forma growth rates are as reported at CER.
The pro-forma growth rates have been provided for illustrative purposes only
and, by their nature, address a hypothetical situation and therefore do not
represent the Group's actual growth rates. The pro-forma growth rates do not
purport to represent what the Group's results of operations actually would
have been if the Pfizer acquisition had been completed on the date indicated,
nor do they purport to represent the results of operations at any future
date. In addition, the pro-forma growth rates do not reflect the effect of
anticipated synergies and efficiencies or accounting and reporting differences
associated with the acquisition of the Pfizer consumer healthcare business.
Independent review report to GlaxoSmithKline plc
We have been engaged by GlaxoSmithKline plc ("the Company") to review the
condensed financial information in the Results Announcement for the three and
nine months ended 30 September 2019.
What we have reviewed
The condensed financial information comprises:
· the income statement and statement of comprehensive income for the three and
nine month periods ended 30 September 2019 on pages 41 to 43;
· the balance sheet as at 30 September 2019 on page 48;
· the statement of changes in equity for the nine month period then ended on
page 49;
· the cash flow statement for the nine month period then ended on page 50 and;
· the accounting policies and basis of preparation and the explanatory notes to
the condensed financial information on pages 51 to 57 that have been prepared
applying consistent accounting policies to those applied by the Group in the
Annual Report 2018, which was prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European Union,
except for the implementation of IFRS 16 "Leases" and IFRIC 23 "Uncertainty
over Income Tax Treatments" from 1 January 2019.
We have read the other information contained in the Results Announcement,
including the non-IFRS measures contained on pages 51 to 57,and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
This report is made solely to the Company 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. Our work has been undertaken so that
we might state to the Company those matters we are required to state to it in
an independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The Results Announcement of GlaxoSmithKline plc, 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 by applying consistent accounting policies to those applied by
the Group in the Annual Report 2018, which was prepared in accordance with
IFRS as adopted by the European Union, except for the implementation of IFRS
16 "Leases" and IFRIC 23 "Uncertainty over Income Tax Treatments" from 1
January 2019.
Our responsibility
Our responsibility is to express to the Company a conclusion on the interim
financial information in the Results Announcement based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, 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 consequently
does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed interim financial information in the Results
Announcement for the three and nine months ended 30 September 2019 are 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
54.
Deloitte LLP
Statutory Auditor
London, United Kingdom
30 October 2019
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
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