REG - GlaxoSmithKline PLC - Half Yearly Report <Origin Href="QuoteRef">GSK.L</Origin> - Part 2
06/09/2014 20:26
- Part 2: For the preceding part double click ID:nRSW1023Na
Group's ongoing cost reduction programmes in the quarter. SG&A costs as a percentage of sales were 34.6%, 2.6 percentage points higher than Q2 2013. Excluding currency effects, the SG&A
percentage increased 2.5 percentage points reflecting continued investments in the Group's multiple new product launches only partially offset by the benefits in the quarter of the Group's restructuring programmes and ongoing cost management efforts. R&D expenditure declined 3% to £766 million (13.8% of turnover) compared with £846 million (13.3% of turnover) in Q2 2013. This reflected the completion of a number of large trials and the phasing of ongoing project spending as well as continuing cost
management benefits. Royalty income was £72 million (Q2 2013: £82 million) following the conclusion of a number of royalty agreements. Core operating profit - H1 2014Core operating profit was £2,937 million, 7% lower than in H1 2013 in CER terms on a turnover decline of 3%. The core operating margin of 26.3% was 3.4 percentage points lower than in Q2 2013. Excluding currency effects, the margin decreased 1.2 percentage points. This primarily reflected an increase in the SG&A margin as SG&A costs were
flat on a turnover decline of 3%. Cost of sales as a percentage of turnover was 27.7% compared with 27.1% in H1 2013. Net of adverse currency translation effects the cost of sales percentage decreased 0.2 percentage points. This reflected the benefit of the Group's ongoing cost reduction programmes in H1, partially offset by adverse mix movements, particularly the decline in Pharmaceuticals sales in the US, but also continuing investments in new launch capacity and in future manufacturing technology. SG&A
costs as a percentage of sales were 33.4%, 2.1 percentage points higher than H1 2013. Excluding currency effects the SG&A percentage increased 1.0 percentage points reflecting continued investments in the Group's multiple new product launches only partially offset by the benefits in H1 of the Group's restructuring programmes and ongoing cost management efforts. R&D expenditure declined 4% to £1,550 million (13.9% of turnover) compared with £1,701 million (13.5% of turnover) in H1 2013. This reflected the
phasing of ongoing project spending as well as the completion of a number of large trials and continuing cost management benefits. Royalty income was £142 million (H1 2013: £195 million) following the conclusion of a number of royalty agreements. H1 2013 also included a prior year catch-up adjustment. Core profit after tax and core earnings per share - Q2 2014Net finance expense was £156 million compared with £183 million in Q2 2013, reflecting GSK's strategy to improve the funding profile of the Group.
The share of profits of associates and joint ventures was £8 million (Q2 2013: £7million). Tax on core profit amounted to £277 million and reflected an effective core tax rate of 22.0% (Q2 2013: 24.0%). Core EPS of 19.1p decreased 12% in CER terms but declined 25% at actual exchange rates due to the impact of currencies on the translation of overseas results. Core profit after tax and core earnings per share - H1 2014Net finance expense was £317 million compared with £359 million in H1 2013, reflecting
GSK's strategy to improve the funding profile of the Group despite net debt at 30 June 2014 being £1.8 billion higher than at December 2013. The share of profits of associates and joint ventures was £9 million (H1 2013 £18 million), reflecting the reduced shareholding in the Aspen group, currency movements and a number of one-off adjustments. Tax on core profit amounted to £578 million and reflected an effective core tax rate of 22.0% (H1 2013: 23.1%). Core EPS of 40.1p decreased 5% in CER terms but
declined 22% at actual exchange rates due to the impact of currencies on the translation of overseas results and losses on intercompany transactions of £47 million (H1 2013: gain of £36 million).
Outlook for 2014 In 2014, GSK now expects to deliver full year core EPS on a CER and ex-divestment basis broadly similar to last year (from 2013 base of 108.4p adjusted for divestments completed during 2013).
Currency impactThe Q2 2014 results are based on average exchange rates, principally £1/$1.68, £1/E1.23 and £1/Yen 173. Comparative exchange rates are given on page 39. The period-end exchange rates were £1/$1.71, £1/E1.25 and £1/Yen 173. In the quarter, turnover declined 4% CER and declined 13% at actual exchange rates. Core EPS for the quarter of 19.1p was down 12% in CER terms and down 25% at actual rates. The negative currency impact reflected the strengthening of Sterling against the US Dollar, the
Euro, Japanese Yen and a range of Emerging Markets currencies. The relatively lower proportion of the cost base in Emerging Markets contributed to the greater adverse currency impact on EPS compared with that on turnover. In H1 2014, turnover declined 3% CER and declined 12% at actual exchange rates. Core EPS for the quarter of 40.1p was down 5% in CER terms and down 22% at actual rates. The negative currency impact reflected the strengthening of Sterling against the US Dollar, the Euro, Japanese Yen and
a range of Emerging Markets currencies. The relatively lower proportion of the cost base in Emerging Markets contributed to the greater adverse currency impact on EPS compared with that on turnover. In addition, losses on settled intercompany transactions were £47 million in H1 2014 compared with a gain of £36 million in H1 2013, the movement representing 2 percentage points of the negative currency impact of 17% on core EPS. If exchange rates were to hold at the Q2 2014 period-end rates for the rest of
2014, the estimated adverse impact on 2014 sterling turnover would be around 7%, and if there were no further exchange gains or losses, the estimated adverse impact on 2014 sterling core EPS would be around 12%.
Core adjustmentsThe adjustments that reconcile core operating profit, profit after tax and earnings per share to total results are as follows:
Q2 2014 Q2 2013
------------------------------------------------------------ ------------------------------------------------------------
Operating Profit EPS Operating Profit EPS
profit after tax p profit after tax p
£m £m £m £m
------------ ------------ ------------ ------------ ------------ ------------
Core results before divestments 1,407 982 19.1 1,878 1,294 25.3
Divestments 65 49 1.0
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Core results including divestments 1,407 982 19.1 1,943 1,343 26.3
Intangible asset amortisation (152) (115) (2.3) (133) (97) (2.0)
Intangible asset impairment (1) (1) - (135) (100) (2.1)
Major restructuring costs (101) (79) (1.6) (173) (39) (0.8)
Legal costs (47) (42) (0.9) (24) (24) (0.5)
Acquisition accounting and other 31 (43) (0.7) (40) 1 0.6
------------ ------------ ------------ ------------ ------------ ------------
(270) (280) (5.5) (505) (259) (4.8)
------------ ------------ ------------ ------------ ------------ ------------
Total results 1,137 702 13.6 1,438 1,084 21.5
------------ ------------ ------------ ------------ ------------ ------------
H1 2014 H1 2013
------------------------------------------------------------ ------------------------------------------------------------
Operating Profit EPS Operating Profit EPS
profit after tax p profit after tax p
£m £m £m £m
------------ ------------ ------------ ------------ ------------ ------------
Core results before divestments 2,937 2,051 40.1 3,754 2,623 51.4
Divestments 114 86 1.8
------------ ------------ ------------ ------------ ------------ ------------
Core results including divestments 2,937 2,051 40.1 3,868 2,709 53.2
Intangible asset amortisation (322) (241) (5.0) (267) (194) (4.0)
Intangible asset impairment (49) (40) (0.8) (134) (99) (2.0)
Major restructuring costs (180) (140) (2.9) (259) (184) (3.8)
Legal costs (155) (128) (2.7) (90) (78) (1.6)
Acquisition accounting and other (28) (81) (1.2) (100) (41) (0.4)
------------ ------------ ------------ ------------ ------------ ------------
(734) (630) (12.6) (850) (596) (11.8)
------------ ------------ ------------ ------------ ------------ ------------
Total results 2,203 1,421 27.5 3,018 2,113 41.4
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Full reconciliations between core results and total results are set out on pages 45 to 48 and the definition of core results is set out on page 25.
Total operating profit and total earnings per share - Q2 2014Total operating profit was £1,137 million compared with £1,438 million in Q2 2013. The non-core items resulted in total net charges of £270 million in the quarter (Q2 2013: £505 million, excluding divestments). The intangible asset amortisation increased to £152 million (Q2 2013: £133 million) reflecting the acceleration of amortisation of Lovaza. Major restructuring charges of £101 million (Q2 2013: £173 million) included £21 million under the
Operational Excellence programme and £76 million under the Major Change programme. Legal charges of £47 million (Q2 2013: £24 million) principally related to higher litigation costs. Acquisition accounting and other adjustments resulted in net income of £31 million (Q2 2013: charge of £40 million) and included a gain of £106 million arising from the termination in Europe of the commercialisation agreement for Prolia with Amgen. Other adjustments included charges related to major acquisitions, equity
investment and asset disposals, one-off required regulatory charges in R&D and certain other adjusting items. The charge for taxation on total profits amounted to £284 million and represented a total effective tax rate of 28.8% (Q2 2013: 15.8%), reflecting the differing tax effects of the various non-core items. See 'Taxation' on page 38. Total EPS was 13.6p, compared with 21.5p in Q2 2013 a decrease of 7.9p, of which 2.9p was due to currency. Non-core net charges totalled 5.5p per share compared with
4.8p in Q2 2013, excluding divestments.
Total operating profit and total earnings per share - H1 2014Total operating profit was £2,203 million compared with £3,018 million in H1 2013. The non-core items resulted in total net charges of £734 million in the six months (H1 2013: £850 million, excluding divestments). The intangible asset amortisation increased to £322 million (H1 2013: £267 million) reflecting the acceleration of amortisation of Lovaza. Major restructuring charges of £180 million (H1 2013: £ 259 million) included £53 million under
the Operational Excellence programme and £122 million under the Major Change programme. The Major Change programme focuses on opportunities to simplify our supply chain processes, build the Group's capabilities in manufacturing and R&D, and restructure our European Pharmaceuticals business. The programme is expected to cost £1.5 billion, of which the non-cash charge will be £350 million. It has delivered approximately £0.3 billion of incremental savings and remains on track to deliver annual pre-tax
savings of at least £1.0 billion by 2016. Legal charges of £155 million (H1 2013: £90 million) principally related to settlement of existing anti-trust matters and higher litigation costs. Acquisition accounting and other adjustments resulted in a net charge of £28 million (H1 2013: £100 million) and included a gain of £106 million arising from the termination in Europe of the commercialisation agreement for Prolia with Amgen. Other items also included charges related to major acquisitions, business,
equity investment and asset disposals, one-off required regulatory charges in R&D and certain other adjusting items. The charge for taxation on total profits amounted to £468 million and represented a total effective tax rate of 24.8% (H1 2013: 21.7%), reflecting the differing tax effects of the various non-core items. See 'Taxation' on page 38. Total EPS was 27.5p, compared with 41.4p in H1 2013 a decrease of 13.9p, of which 8.1p was due to currency. Non-core net charges totalled 12.6p per share compared
with 11.8p in H1 2013, excluding divestments.
Cash generation and conversion
Cash flow and net debt
Q2 2014 H1 2014 H1 2013
------------ ------------ ------------
Net cash inflow from operating activities (£m) 766 1,693 2,958
Adjusted net cash inflow from operating activities* (£m) 971 1,939 3,059
Free cash flow* (£m) 40 507 1,712
Adjusted free cash flow* (£m) 245 753 1,813
Free cash flow growth (%) (96)% (70)% 2%
Free cash flow conversion* (%) 35% 52% 87%
Net debt (£m) 14,423 14,423 15,720
------------ ------------ ------------
* Adjusted net cash inflow from operating activities, free cash flow, adjusted free cash flow and free cash flow conversion are defined on page 25.
The net cash inflow from operating activities for the quarter was £766 million (Q2 2013: £1,711 million). Excluding legal (£205 million outflow; Q2 2013: £37 million inflow), the adjusted net cash inflow from operating activities was £971 million (Q2 2013: £1,674 million), a 42% decrease compared with 2013. This primarily reflected the impact of the strength of Sterling on profits and lower profits, including the impact of divestments. The net cash inflow from operating activities for the six months was
£1,693 million (H1 2013: £2,958 million). Excluding legal settlements of £246 million (H1 2013: £101 million), the adjusted net cash inflow from operating activities was £1,939 million (H1 2013: £3,059 million), a 37% decrease compared with 2013. This primarily reflected the impact of the strength of Sterling on profits and lower profits, including the impact of divestments. Free cash flow was £507 million for the six months. Excluding legal payments, adjusted free cash flow was £753 million (H1 2013:
£1,813 million). The decrease primarily reflected the impact of lower sterling profits and the impact of divestments. The Group paid dividends to shareholders of £2,009 million and spent £237 million on repurchasing shares. At 30 June 2014, net debt was £14.4 billion, compared with £12.6 billion at 31 December 2013, comprising gross debt of £17.6 billion and cash and liquid investments of £3.2 billion. The increase in net debt reflected the consideration of £0.7 billion paid to increase the shareholding
in the Group's Indian pharmaceutical subsidiary from 50.7% to 75% and the acquisition of the remaining 30% of GSK's Indonesian Consumer Healthcare business held by a third party. At 30 June 2014, GSK had short-term borrowings (including overdrafts) repayable within 12 months of £3,143 million with loans of £2,007 million repayable in the subsequent year.
Working capital
30 June 31 March 31 December 30 September 30 June
2014 2014 2013 2013 2013
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Working capital conversion cycle* (days) 208 205 176 201 198
Working capital percentage of turnover (%) 22 22 19 22 22
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* Working capital conversion cycle is defined on page 25.
The reported working capital conversion cycle days are distorted by divestments made in 2013 and the intangible asset impairments included in the denominator used in the conversion cycle computation. The 30 June 2014 and year-end 2013 conversion cycles adjusted for these factors were around 218 days and 190 days respectively. The increase of 28 days is predominantly due to the expected stock building behind new launches and seasonal phasing of a number of products particularly Vaccines and a reduction in
the denominator arising from the translation of overseas revenue and costs due to the strengthening of Sterling. On a similar adjusted basis, the 30 June 2014 cycle of 218 days compares with 204 days at 30 June 2013, an increase of 14 days, which was predominantly due to stock building.
Returns to shareholders
GSK's commitment is to use free cash flow to support increasing dividends, undertake share repurchases or, where returns are more attractive, reinvest in the business, including bolt-on acquisitions. In determining specific share repurchase levels, the company also considers the development of free cash flow during the year. Given the impact of the recent sustained strength of Sterling on free cash flow in the year-to-date it is likely that share repurchases over the balance of 2014 will be immaterial.
Quarterly dividendsThe Board has declared a second interim dividend of 19 pence per share (Q2 2013: 18 pence per share). Payment of dividendsThe equivalent interim dividend receivable by ADR holders is 64.8204 cents per ADS based on an exchange rate of £1/$1.7058. One ADS represents two ordinary shares. The ex-dividend date will be 6 August 2014, with a record date of 8 August 2014 and a payment date of 2 October 2014.
Paid/ Pence per £m
payable share
------------ ------------ ------------
2014
First interim 10 July 2014 19 913
Second interim 2 October 2014 19 913
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2013
First interim 11 July 2013 18 878
Second interim 3 October 2013 18 864
Third interim 9 January 2014 19 910
Fourth interim 10 April 2014 23 1,099
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78 3,751
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Share repurchasesDuring the quarter, GSK repurchased 13.0 million shares at a cost of £210 million (Q2 2013: £367 million), bringing the total for the six months to 14.7 million shares (£238 million), including a quarter-end settlement accrual of £1 million. The company issued 2.6 million shares under employee share schemes amounting to £32 million (Q2 2013: £307 million). The weighted average number of shares for Q2 2014 was 4,812 million, compared with 4,855 million in Q2 2013, a reduction of 1%.
Divisional performance
Pharmaceuticals
Q2 2014 H1 2014
------------------------------------ ------------------------------------
£m CER% £m CER%
------------ ------------ ------------ ------------
Respiratory 1,559 (8) 3,113 (9)
Oncology 295 39 556 33
Cardiovascular, metabolic and urology 233 (7) 474 (2)
Immuno-inflammation 42 21 88 42
Other pharmaceuticals 596 2 1,197 4
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Innovative Pharmaceuticals 2,725 (2) 5,428 (2)
ViiV Healthcare (HIV) 352 13 663 9
------------ ------------ ------------ ------------
3,077 - 6,091 (1)
Established Products 696 (24) 1,510 (18)
------------ ------------ ------------ ------------
3,773 (6) 7,601 (5)
------------ ------------ ------------ ------------
Respiratory Q2 2014 (£1,559million; down 8%)Respiratory sales in the quarter declined 8% to £1,559 million. Seretide/Advair sales were down 12% to £1,095 million, Flixotide/Flovent sales decreased 6% to £172 million and Ventolin sales grew 8% to £155 million. Xyzal sales, almost exclusively made in Japan, grew 42% to £30 million. In the US, Respiratory sales fell 14%, primarily reflecting the continued price and contracting pressures, including for new products, which affected the ICS/LABA combination
market, where Advair and Breo Ellipta compete, and also the LABA/LAMA combination market, where Anoro Ellipta has recently been introduced. Underlying US respiratory sales, excluding wholesaler and retailer stocking patterns, were down an estimated 17%, with price down 6% and volume down 11%. Advair sales were down 19% to £528 million, with an estimated underlying reduction of 21% for the quarter (14% volume decline and a 7% negative impact of price and mix). Flovent sales were down 6% to £106 million,
compared with an estimated underlying reduction of 5% for the quarter (4% volume decrease and a 1% negative impact of price and mix) and Ventolin grew 14% to £73 million. The estimated underlying growth of Ventolin was 3%, with the reported sales benefiting from net favourable adjustments to accruals for returns and rebates. The two new products for COPD, Breo Ellipta launched in Q4 2013, and Anoro Ellipta launched in Q2 2014, sold £5 million each. European Respiratory sales were down 3%, primarily
reflecting increasing competition. Seretide sales declined 4% to £348 million, primarily due to price. Relvar Ellipta, approved in Europe for both COPD and asthma, was launched in Q1 2014, and recorded sales of £3 million in the quarter. Respiratory sales in Emerging Markets fell 3%, but sales excluding China were flat. Seretide fell 4% to £98 million, in part due to the phasing of shipments and the impact of generic copies in some markets. Sales growth of Ventolin, up 7% to £40 million, and Veramyst,
up 18% to £18 million, was offset by declines in the rest of the Respiratory portfolio. In Japan, Respiratory sales overall fell 4% to £95 million despite strong growth in Xyzal, up 58% to £26 million. This growth was more than offset by lower sales for Adoair, down 26% to £45 million, in part due to destocking following local tax changes but also increasing competitive pressures. Relvar Ellipta recorded sales of £2 million in the quarter, but were limited by the "Ryotan" restrictions, which limit
prescriptions to two weeks' supply in the first year after launch of a new product. H1 2014 (£3,113million; down9%)Respiratory sales in H1 2014 declined 9% to £3,113 million. Seretide/Advair sales were down 14% to £2,134 million, Flixotide/Flovent sales decreased 4% to £365 million and Ventolin sales grew 11% to £328 million. Xyzal sales, almost exclusively made in Japan, grew 4% to £68 million. In the US, Respiratory sales fell 17%, primarily reflecting the continued price and contracting pressures in
the market. Underlying US respiratory sales, excluding wholesaler and retailer stocking patterns, were down an estimated 14%, with price, after net favourable adjustments to accruals for returns and rebates, down 2% and volume down 12%. US Advair sales were down 24% to £983 million, with an estimated underlying reduction of 21% for the six months (14% volume decline and a 7% negative impact of price and mix). Flovent sales were down 2% to £229 million, with an estimated underlying reduction of 6% (7%
volume decrease and a 1% positive impact of price and mix). Ventolin sales grew 22% to £165 million, but the estimated underlying decline was 3%. Breo Ellipta recorded sales of £6 million and Anoro Ellipta sold £5 million in H1 2014. European Respiratory sales were down 3%, primarily reflecting increasing competition. Seretide sales declined 4% to £700 million, primarily due to price reductions. Relvar Ellipta recorded sales of £5 million in the six months. Respiratory sales in Emerging Markets were
flat, but grew 3% excluding China. Seretide was flat at £195 million (down 1% excluding China). Sales growth of Ventolin, up 7% to £78 million, and Veramyst, up 21% to £35 million, was offset by declines in the rest of the Respiratory portfolio. In Japan, Respiratory sales overall fell 4% to £243 million, as sales growth of Xyzal, up 4% to £60 million, and the launch of Relvar Ellipta, which sold £3 million in the six months, were more than offset by lower sales for the rest of the Respiratory portfolio.
Sales of Adoair were flat. Oncology Q2 2014 (£295million; up39%)Oncology sales in the quarter grew 39% to £295 million. Votrient sales grew 41% to £101 million and Promacta sales grew 36% to £55 million. Arzerra sales fell 18% to £12 million and Tykerb/Tyverb sales fell 6% to £45 million. Generic competition to both Hycamtin and Argatroban was more than offset by new launches as Tafinlar and Mekinist recorded sales of £33 million and £16 million, respectively. In the US, Oncology grew 42% to £119
million. Votrient sales grew 28% to £42 million and sales of Promacta grew 21% to £21 million. Mekinist and Tafinlar sales were £15 million and £14 million, respectively. Both were launched in late Q2 2013. In Europe, Oncology grew 39% to £106 million, led by sales of Votrient, which increased by 37% to £39 million in the period. Promacta grew 46% to £18 million and sales of Tafinlar, which was launched in Q3 2013, were £16 million. In Emerging Markets and Japan, Oncology sales in the quarter grew 47%
to £44 million and 6% to £15 million, respectively. H1 2014 (£556million; up33%)Oncology sales in the six months grew 33% to £556 million. Votrient sales grew 36% to £188 million and Promacta sales grew 33% to £103 million. Arzerra sales fell 21% to £28 million and Tykerb/Tyverb sales fell 10% to £87 million. Generic competition to both Hycamtin and Argatroban was more than offset by new launches as Tafinlar and Mekinist recorded sales of £55 million and £29 million, respectively. In the US, Oncology
grew 36% to £227 million. Votrient sales grew 23% to £79 million and sales of Promacta grew 20% to £39 million. Mekinist and Tafinlar sales were £28 million and £25 million, respectively. In Europe, Oncology grew 31% to £201 million, led by sales of Votrient, which increased by 39% to £76 million in the period. Promacta grew 46% to £34 million and sales of Tafinlar, were £26 million. In Emerging Market and Japan, Oncology sales in H1 2014 grew 42% to £80 million and 10% to £29 million, respectively.
Cardiovascular, metabolic and urology Q2 2014 (£233 million;down 7%)Sales in the category fell 7% to £233 million. The Avodart franchise fell 2% to £199 million, with 9% growth in sales of Duodart/Jalyn and a 5% decline in sales of Avodart, and Levitra fell 33% to £24 million in the quarter. Sales of Prolia decreased 25% to £7 million, in part due to the agreement with Amgen to terminate the joint commercialisation in a number of European markets, Mexico and Russia, which was announced in April. On a
regional basis, sales in the US were down 20% to £90 million, Europe down 5% to £71 million and Japan, down 14% to £22 million, but sales in Emerging Markets were up 11% to £35 million. H1 2014 (£474 million;down 2%)Sales in the category fell 2% to £474 million. The Avodart franchise grew 2% to £398 million, with 15% growth in sales of Duodart/Jalyn and a 2% decline in sales of Avodart. Levitra fell 30% to £48 million in the period. Sales of Prolia grew 18% to £23 million, prior to the termination in
Europe of the joint commercialisation agreement with Amgen. On a regional basis, sales in the US, down 19% to £173 million, were partly offset by Europe, up 4% to £152 million, Emerging Markets, up 20% to £68 million, and Japan, up 17% to £53 million. Immuno-inflammation Q2 2014 (£42 million;up 21%)Immuno-inflammation sales grew 21% to £42 million. Benlysta turnover in the quarter was £41 million, up 21%. In the US, Benlysta sales were £37 million, up 17%. H1 2014 (£88 million;up 42%)Immuno-inflammation
sales grew 42% to £88 million. Benlysta turnover in the six months was £79 million, up 28%. In the US, Benlysta sales were £71 million, up 24%. Other pharmaceuticals Q2 2014 (£596million;up 2%)Other therapy areas grew 2% to £596 million, and included £36 million of Theravance milestone income received in the quarter (Q2 2013: £19 million). This growth was partially offset by generic competition to Dermatology products, which primarily affected sales of Soriatane in the US, and by a decline in sales of
Mepron, down 68% to £7 million, following the start of generic competition in March 2014. H1 2014 (£1,197million;up 4%)Other therapy areas grew 4% to £1,197 million, principally reflecting government stockpiling of Relenza in Japan, which more than doubled to £45 million and included Theravance milestone income of £45 million (H1 2013: £19 million). This growth was partially offset by generic competition to Dermatology products, which primarily affected sales of Soriatane in the US, and by a decline in
sales of Mepron. ViiV Healthcare (HIV) Q2 2014 (£352 million;up 13%)ViiV Healthcare sales increased 13%, with the US up 38%, Emerging Markets down 22%, Japan up 8%, and Europe flat. Epzicom/Kivexa sales increased 6% to £188 million, Selzentry sales increased 14% to £38 million and Tivicay, which was launched in the US in Q3 2013 and in Europe in Q1 2014, recorded sales of £64 million. This growth was partially offset by declines in the mature portfolio, mainly driven by generic competition to both
Combivir, down 33% to £16 million, and Trizivir, down 65% to £7 million. H1 2014 (£663 million;up 9%)ViiV Healthcare sales increased 9%, with the US up 20%, Emerging Markets down 6%, Japan up 17%, and Europe down 1%. Epzicom/Kivexa sales increased 9% to £365 million, Selzentry sales increased 4% to £71 million and Tivicay recorded sales of £95 million. This growth was partially offset by declines in the mature portfolio, mainly driven by generic competition to both Combivir, down 42% to £32 million, and
Trizivir, down 60% to £18 million. Established Products Q2 2014 (£696million; down 24%)Established Products turnover fell 24% to £696 million with declines in all regions. Sales in the US were down 40% to £183 million, Europe was down 10% to £151 million, Emerging Markets was down 14% to £243 million and Japan was down 21% to £106 million. Generic competition to Lovaza in the US, down 81% to £27 million, Seroxat/Paxil, down 29% to £49 million, Valtrex, down 24% to £37 million, and Zeffix, down 20% to £40
million, all contributed to the decline in the category. H1 2014 (£1,510million; down 18%)Established Products turnover fell 18% to £1,510 million with declines in all regions. Sales in the US were down 29% to £439 million, Europe was down 12% to £318 million, Emerging Markets was down 11% to £507 million and Japan was down 12% to £222 million. Generic competition to Lovaza down 54% to £132 million, Seroxat/Paxil, down 22% to £104 million, Valtrex, down 24% to £74 million, and Zeffix, down 18% to £85
million, all contributed to the decline in the category.
Vaccines
Q2 2014 H1 2014
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£m CER% £m CER%
------------ ------------ ------------ ------------
Boostrix 94 47 154 45
Cervarix 22 (48) 56 (28)
Fluarix, FluLaval 6 (14) 15 (23)
Hepatitis 142 (10) 262 (9)
Infanrix, Pediarix 202 - 404 9
Rotarix 103 31 189 24
Synflorix 105 51 167 7
Other 92 (13) 177 (9)
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766 5 1,424 4
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Q2 2014 (£766 million;up 5%)Vaccines sales grew 5% to £766 million with the US down 2%, Europe down 5% and Japan down 9%, more than offset by a strong performance in Emerging Markets, up 26%, which benefited from a favourable comparison with Q2 2013 as a result of phasing effects of tenders, principally of Synflorix and Rotarix. Boostrix sales increased 47% to £94 million, reflecting growth in all regions, benefiting from phasing of tenders in Emerging Markets and a strong performance in Germany. Cervarix
sales declined 48% to £22 million in the quarter, largely reflecting declines in Emerging Markets. Sales of hepatitis vaccines fell 10% to £142 million, in part reflecting the phasing of shipments in the US and Europe. Infanrix/Pediarix was flat at £202 million as growth from Emerging Markets was offset by a decline in Europe. Rotarix sales were up 31% to £103 million, with growth driven by tender shipments in Emerging Markets. Synflorix sales grew 51% to £105 million, also reflecting the phasing of tenders
in Emerging Markets. H1 2014 (£1,424 million;up 4%)Vaccines sales grew 4% to £1,424 million with the US up 9% and Emerging Markets up 10%, partly offset by declines in Europe, down 1%, and Japan, down 27%. The US performance benefited from a favourable comparison with H1 2013, as a result of CDC stockpile movements whilst the Emerging Markets performance primarily reflected the phasing of sales of Boostrix and Rotarix. Boostrix sales increased 45% to £154 million, reflecting growth in all regions. Sales
in the US benefited in part from competitor supply issues, and in Emerging Markets as a result of the phasing of tenders. Cervarix sales declined 28% to £56 million in H1, largely reflecting declines in Japan. Sales of hepatitis vaccines fell 9% to £262 million, in part reflecting the phasing of shipments in the US and Emerging Markets. Infanrix/Pediarix grew 9% to £404 million. Most of the growth came from the US, which benefited from a favourable comparison with the same period last year as a result of
product withdrawal from the CDC stockpile. Rotarix sales were up 24% to £189 million, with growth driven by tender shipments in Europe and Emerging Markets. Synflorix sales grew 7% to £167 million, reflecting the phasing of tenders in Emerging Markets.
Consumer Healthcare
Q2 2014 H1 2014
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Turnover £m CER% £m CER%
------------ ------------ ------------ ------------
Wellness 366 (9) 782 (8)
Oral health 434 - 891 2
Nutrition 151 7 321 10
Skin health 71 (19) 155 (11)
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Total 1,022 (4) 2,149 (2)
------------ ------------ ------------ ------------
Total including divestments 1,022 (14) 2,149 (11)
------------ ------------ ------------ ------------
Q2 2014 H1 2014
---------------------------------------- ----------------------------------------
Turnover £m CER% £m CER%
------------ ------------ ------------ ------------
USA 195 (11) 397 (10)
Europe 291 (10) 619 (7)
Rest of World 536 3 1,133 4
------------ ------------ ------------ ------------
Total 1,022 (4) 2,149 (2)
------------ ------------ ------------ ------------
Q2 2014 (£1,022 million; down 4%)Consumer Healthcare turnover was down 4% in the quarter, adversely impacted by a number of supply issues and slowing in some Rest of World markets. Excluding the impact of supply interruptions, sales grew 4% in the quarter, compared with estimated market growth for the relevant categories of approximately 3%. Actions to restore supply are underway but supply will be affected for the remainder of 2014. Sales in Europe and the US were down 10% and 11%, respectively, both
reflecting supply issues. Growth in Rest of World markets of 3% reflected growth across most categories and markets, although supply issues contributed to a 7% reduction of sales in China and a 44% decline in sales of Smokers Health products. Wellness sales were £366 million, down 9%, primarily due to supply issues that significantly impacted sales of products for Smokers Health, down 28%, and alli, down 92%. Oral health sales were flat at £434 million. The continued growth of Sensodyne, up 6%, was offset
by a 19% decline in sales of Aquafresh due in part to supply issues related to the transition to a new manufacturing site in the US. Nutrition sales grew 7% to £151 million. Horlicks, led by growth in India, was up 5%, and Boost was up 11%. Sales of products for Skin health were down 19% to £71 million, primarily due to supply interruptions to Bactroban in China.
H1 2014 (£2,149 million; down 2%)Consumer Healthcare turnover was down 2% in H1 2014, reflecting the impact of supply issues, comparison to a strong cold and flu season in Q1 2013 and slowing in some Rest of World markets in part due to economic pressures. Estimated market growth was approximately 2%. Sales in Europe and the US were down 7% and 10%, respectively, both reflecting supply issues and product recalls, primarily on products for Smokers Health and alli. Growth in Rest of World markets of 4%
reflected growth across most categories and markets, partly offset by a 6% reduction of sales in China and a 43% decline in sales of Smokers Health products primarily due to supply issues. Wellness sales were £782 million, down 8%, primarily due to the supply issues and product recalls that significantly impacted sales of products for Smokers Health, down 31%, and alli. Oral health sales were up 2% to £891 million. The continued growth of Sensodyne, up 10%, was offset by a 17% decline in sales of Aquafresh
which was impacted by supply issues in both Europe and the US together with competitive pressures to the brand. Nutrition sales grew 10% to £321 million. Horlicks was up 9%, reflecting strong growth in India, and Boost was up 12%. Sales of products for Skin health were down 11% to £155 million, primarily due to lower sales of Bactroban in China.
Sales from new pharmaceutical and vaccine launches
Q2 2014 H1 2014
------------------------------------ ------------------------------------
£m CER% £m CER%
------------ ------------ ------------ ------------
Pharmaceuticals
Respiratory: Relvar/Breo Ellipta 11 - 14 -
Anoro Ellipta 5 - 5 -
Oncology: Tafinlar 33 >100 55 >100
Mekinist 16 - 29 -
CVMU: Duodart/Jalyn 56 9 110 15
Immuno-inflammation: Benlysta 41 21 79 28
Other pharmaceuticals 2 (50) 4 (53)
ViiV Healthcare: Tivicay 64 - 95 -
Vaccines
Nimenrix 4 58 7 >100
Synflorix 105 51 167 7
------------ ------------ ------------ ------------
337 >100 565 73
------------ ------------ ------------ ------------
New products are those launched in the last five years (2010 to 2014 inclusive). Sales of new products were £337 million, which more than doubled in the quarter and represented 7% of Pharmaceuticals and Vaccines turnover. In the six months, sales of new products were £565 million, grew 73% and represented 6% of Pharmaceuticals and Vaccines turnover. In Q4 2013, Breo Ellipta was launched in the US for COPD, and Relvar Ellipta was launched in Europe for COPD and asthma in Q1 2014. In addition, Anoro
Ellipta was launched in the US in April 2014 for the treatment of COPD.
Research and development
GSK remains focused on delivering an improved return on its investment in R&D. Sales contribution, reduced attrition and cost reduction are all important drivers of an improving internal rate of return. R&D expenditure is not determined as a percentage of sales but instead capital is allocated using strict returns based criteria depending on the pipeline opportunities available. The operations of Pharmaceuticals R&D are broadly split
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