TIDMGSK
RNS Number : 4906U
GlaxoSmithKline PLC
29 July 2020
Issued: Wednesday, 29 July 2020, London U.K.
GSK delivers Q2 sales of GBP7.6 billion -2% AER, -3% CER (Pro-forma
-10% CER*)
Total EPS 45.5p >100% AER; >100% CER; Adjusted EPS 19.2p -37% AER,
-38% CER
Financial and product highlights
-- Reported Group sales GBP7.6 billion -2% AER, -3% CER (Pro-forma
-10% CER * ; -8% CER excluding divestments/brands under review).
Pharmaceuticals GBP4.1 billion -5% AER, -5% CER; Vaccines GBP1.1
billion -29% AER, -29% CER; Consumer Healthcare GBP2.4 billion
+25% AER, +25% CER (Pro-forma -6% CER)
-- H1 Reported group sales GBP16.7 billion 8% AER, 8% CER (Pro-forma
flat CER*; +1% CER excluding divestments/brands under review)
-- Sales decline in Q2 2020 reflects expected disruption from COVID-19,
particularly in Vaccines as well as destocking from Q1 2020 in
Pharmaceuticals and Consumer Healthcare
-- Total Respiratory sales GBP883 million +17% AER, +16% CER. Trelegy
sales GBP194 million +62% AER, +58% CER. Nucala sales GBP241 million
+24% AER, +21% CER
-- Total HIV sales GBP1.2 billion, -2% AER, -3% CER. Dolutegravir
sales GBP1.1 billion, -1% AER, -2% CER, two-drug regimen sales
GBP181 million, >100% AER, >100% CER (Dovato sales GBP68 million,
>100% AER, >100% CER, Juluca sales GBP113 million, +35% AER, +33%
CER)
-- Shingrix sales GBP323 million, -16% AER%, -19% CER
-- Total Group operating margin 37.4%. Adjusted Group operating margin
22.9%, reflecting lower sales and growth in investment in R&D
-- Total EPS 45.5p; >100% AER, >100% CER reflecting profit on disposal
of Horlicks and other Consumer Healthcare brands
-- Adjusted EPS 19.2p -37% AER, -38% CER reflecting lower sales and
higher non-controlling interests following creation of the Consumer
Healthcare JV in 2019 and a higher tax rate
-- Q2 net cash flow from operations GBP2.76 billion. Free cash flow
GBP1.95 billion
-- 19p dividend declared for the quarter
Guidance
-- Guidance for 2020 Adjusted EPS maintained; outcome is dependent
in particular on timing of a recovery in vaccination rates
Pipeline highlights
-- Continued strengthening of the biopharma pipeline which now contains
35 medicines and 15 vaccines; over 75% of pipeline assets are focused
on immunology
-- Three approvals in Q2: Zejula in ovarian cancer, Rukobia in HIV,
Duvroq in anaemia (Japan). Expect further approval decisions for
assets in Oncology and Respiratory
-- HIV
- Cabenuva resubmitted in the US as HIV treatment; regulatory
decision anticipated Q1 2021
- Data showing superiority of long-acting cabotegravir versus Truvada
in PrEP presented at IAS
- FDA approval of Rukobia as first-in-class treatment for adults
with few treatment options available
-- Oncology
- Zejula approved by FDA for first line maintenance treatment
in ovarian cancer in all comers regardless of biomarker status
- Positive European CHMP opinion for belantamab mafodotin in multiple
myeloma; FDA AdCom voted in favour (12-0) of risk-benefit profile
with approval decision anticipated in August
-- Respiratory
- Nucala granted priority review by FDA for hypereosinophilic
syndrome (HES). Decision expected H1 2021
-- Vaccines
- New positive Phase II data received for RSV vaccine for maternal
and older adults. Data to be presented at upcoming scientific
congress. Phase III study start in maternal adults planned for
H2 2020
- Strategic collaboration announced with CureVac on mRNA technology
GSK's response to COVID-19
-- Multiple collaborations underway to develop adjuvanted COVID-19
vaccines. Phase I studies initiated by Clover Pharmaceuticals and
Medicago
-- Announced the intention to make 1 billion doses of vaccine adjuvant
available in 2021. Agreement reached with UK Government to supply
up to 60 million doses of candidate Sanofi-GSK vaccine. Discussions
underway with US and EU
-- Phase II/III study start expected in Q3 for Vir antibody for high-risk
outpatients with COVID-19. Phase IIa POC study of otilimab as potential
treatment for COVID-19 started
Q2 2020 results
Q2 2020 Growth H1 2020 Growth
------------ ------------
GBPm GBP% CER% GBPm GBP% CER%
-------- ----- ----- -------- ----- -----
Turnover 7,624 (2) (3) 16,714 8 8
Total operating profit 2,850 92 90 4,864 67 66
Total earnings per
share 45.5p >100 >100 77.0p >100 >100
Adjusted operating
profit 1,749 (19) (21) 4,424 2 2
Adjusted earnings per
share 19.2p (37) (38) 56.9p (6) (6)
Net cash from operating
activities 2,760 99 3,725 82
Free cash flow 1,949 >100 2,480 >100
The Total results are presented under 'Financial performance' on
pages 12 and 28 and Adjusted results reconciliations are presented
on pages 24, 25, 38 and 39. 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 10 and GBP% or AER% growth, CER% growth,
free cash flow and other non-IFRS measures are defined on page 67.
GSK provides guidance on an Adjusted results basis only, for the
reasons set out on page 11. All expectations, guidance and targets
regarding future performance and dividend payments should be read
together with 'Outlook, assumptions and cautionary statements' on
pages 68 and 69.
* Reported AER and CER growth rates include three and six months'
results of former Pfizer consumer healthcare business. Pro-forma
CER growth rates are calculated as if the equivalent three and
six months of Pfizer consumer healthcare business results, as reported
by Pfizer, were included in the comparative period of Q2 2019 and
H1 2019 respectively. See 'Pro-forma growth' on page 11.
Emma Walmsley, Chief Executive Officer, GSK said:
" The fundamentals of GSK's business remain strong and we are maintaining
good momentum on our strategic priorities. This quarter, we presented
promising data and had positive regulatory reviews for new speciality
pipeline medicines to treat HIV and Oncology; and made further progress
with our Consumer Healthcare integration and Future Ready programmes,
both of which will prepare the company for separation.
"We continue to believe that multiple options will be needed to prevent
and treat COVID-19 and are working at pace with our partners to develop
potential adjuvanted vaccines and therapeutics to fight the virus.
At the same time, we have made strategic investments in next-generation
vaccine and antibody technologies, most recently through our new
collaboration with CureVac.
"As expected, our performance this quarter was disrupted by COVID-19,
particularly in our Vaccines business, as visits to healthcare professionals
were limited due to lockdown measures. Overall, we are seeing good
underlying demand for our major products and are confident this will
be reflected in future performance when the impact of COVID measures
eases."
2020 guidance
At the time of announcing full-year 2019 results on 5 February 2020
we provided guidance with respect to expected full-year 2020 Adjusted
EPS, being a decline in the range of -1% to -4% at CER.
This guidance reflected our expectations for growth in key new products,
and the start of a two-year period in which we would continue to
increase investment in these products and in our R&D pipeline, alongside
implementation of our new programme which will prepare the Group
for separation.
The guidance excluded any impact in 2020 from any further material
divestments beyond those previously announced and any potential impact
on our business from the Coronavirus outbreak.
The COVID-19 pandemic has impacted Group performance during the first
half of 2020. As we anticipated, in Q2 2020 performance was disrupted,
particularly in the Vaccines business, as visits to healthcare professionals
were limited due to containment measures.
While we are maintaining our 2020 Adjusted EPS guidance, there remain
notable risks to business performance over the balance of the year.
In particular, the outcome is dependent on the timing of a recovery
in vaccination rates, particularly in the US, which we anticipate
in the third quarter. If we were to experience a delay in this recovery
we could see a significant impact in 2020. In the case of, for example,
a three month delay, the impact on adjusted EPS would be up to 5
percentage points.
All expectations, guidance and targets regarding future performance
and dividend payments should be read together with 'Outlook, assumptions
and cautionary statements' on pages 68 and 69. If exchange rates
were to hold at the closing rates on 30 June 2020 ($1.23/GBP1, EUR1.10/GBP1
and Yen 132/GBP1) for the rest of 2020, the estimated impact on 2020
Sterling turnover growth would be around flat and if exchange gains
or losses were recognised at the same level as in 2019, the estimated
impact on 2020 Sterling Adjusted EPS growth would also be around
flat.
Results presentation
A webcast of the quarterly results presentation hosted by Emma Walmsley,
GSK CEO, will be held at 2pm BST on 29 July 2020. 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 - Q2 2020
Turnover Q2 2020
------------------------------------
Pro-forma
Growth Growth growth
GBPm GBP% CER% CER%
------ ------- ------- ----------
Pharmaceuticals 4,102 (5) (5) (5)
Vaccines 1,133 (29) (29) (29)
Consumer Healthcare 2,389 25 25 (6)
------ ------- ------- ----------
7,624 (2) (3) (10)
Corporate and other unallocated
turnover -
------ ------- ------- ----------
Group turnover 7,624 (2) (3) (10)
------ ------- ------- ----------
Group turnover was GBP7,624 million in the quarter, down 2% AER,
3% CER and 10% CER on a pro-forma basis .
On a pro-forma basis, Group turnover was down 10% CER, and down
8% CER excluding the impact of divestments in Vaccines and brands
divested or under review in Consumer Healthcare. Sales decline reflects
expected disruption from COVID-19, particularly in Vaccines as well
as destocking from Q1 2020 in Pharmaceuticals and Consumer Healthcare.
Pharmaceuticals turnover in the quarter was GBP4,102 million, down
5% AER, 5% CER. HIV sales were down 2% AER, 3% CER, to GBP1,185
million, with growth in Juluca and Dovato offset by declines in
Tivicay and Triumeq including destocking. Respiratory sales were
up 17% AER, 16% CER, to GBP883 million, on growth of Trelegy and
Nucala. Sales of Established Pharmaceuticals declined 17% AER, 17%
CER, to GBP1,780 million, reflecting destocking and lower demand
for antibiotics due to COVID-19.
Vaccines turnover declined 29% AER, 29% CER to GBP1,133 million,
primarily driven by the adverse impact of the COVID-19 pandemic
on DTPa-containing, Hepatitis, Shingles and Meningitis vaccines,
together with the Rabipur and Encepur divestment.
Reported Consumer Healthcare sales grew 25% AER, 25% CER to GBP2,389
million in the quarter, largely driven by the inclusion of the Pfizer
portfolio. On a pro-forma basis, sales declined 6% CER, and were
flat at CER excluding brands divested/under review, including reversal
of stockbuilding in Q1 2020.
Operating profit
Total operating profit was GBP2,850 million in Q2 2020 compared
with GBP1,484 million in Q2 2019. The total operating margin was
37.4%. Adjusted operating profit was GBP1,749 million, down 19%
AER, 21% CER on a turnover decrease of 3% CER. The Adjusted operating
margin was 22.9%. On a pro-forma basis, Adjusted operating profit
was 27% lower at CER on a turnover decrease of 10% CER. The pro-forma
Adjusted operating margin was 22.9%.
The increase in Total operating profit reflected the profit on disposal
of the Horlicks and other Consumer Healthcare brands and resultant
sale of shares in Hindustan Unilever with increased income from
asset disposals. This was partly offset by higher re-measurement
charges on the contingent consideration liabilities. The decrease
in pro-forma Adjusted operating profit primarily reflected reduced
leverage from the reduction in sales across all three businesses,
continuing price pressures particularly in Respiratory and an increase
in R&D investment.
Earnings per share
Total EPS was 45.5p, compared with 19.5p in Q2 2019. The increase
in EPS primarily reflected the net profit on disposal of Horlicks
and other Consumer Healthcare brands as well as increased income
from asset disposals, partly offset by higher re-measurement charges
on the contingent consideration liabilities and lower operating
performance as a result of COVID-19 impact on the Vaccines business
and destocking in Pharmaceuticals and Consumer Healthcare following
a strong operating performance in Q1 2020.
Adjusted EPS was 19.2p compared with 30.5p in Q2 2019, down 37%
AER, 38% CER. This reduction primarily resulted from lower sales
and a higher non-controlling interest allocation of Consumer Healthcare
profits and a higher effective tax rate.
Cash flow
The net cash inflow from operating activities for the quarter was
GBP2,760 million (Q2 2019: GBP1,389 million) and free cash flow
was GBP1,949 million (Q2 2019: GBP370 million). The increase primarily
reflected a significant reduction in trade receivables as a result
of collections following strong sales in Q1, the beneficial timing
of payments for returns and rebates and taxes, higher disposals
of intangible assets partly offset by reduced operating profits,
increased inventory and higher dividends to non-controlling interests.
Operating performance - H1 2020
Turnover H1 2020
-------------------------------------
Pro-forma
Growth Growth growth
GBPm GBP% CER% CER%
------- ------- ------- ----------
Pharmaceuticals 8,498 - - -
Vaccines 2,938 (5) (6) (6)
Consumer Healthcare 5,251 35 36 2
------- ------- ------- ----------
16,687 8 8 -
Corporate and other unallocated
turnover 27
------- ------- ------- ----------
Group turnover 16,714 8 8 -
------- ------- ------- ----------
Group turnover was GBP16,714 million in the six months up 8% AER,
8% CER and flat on a pro-forma basis.
On a pro-forma basis, Group turnover was flat, and up 1% excluding
the impact of divestments in Vaccines and brands divested or under
review in Consumer Healthcare. Sales performance reflects disruption
from COVID-19 primarily in vaccines in Q2 2020.
Pharmaceuticals turnover in the six months was GBP8,498 million,
flat at both AER and CER. HIV sales were up 3% AER, 2% CER, to GBP2,392
million, with growth in Juluca and Dovato partly offset by declines
in Tivicay and Triumeq. Respiratory sales were up 27% AER, 26% CER,
to GBP1,754 million, on growth of Trelegy and Nucala. Sales of Established
Pharmaceuticals declined 12% AER, 11% CER to GBP3,866 million, reflecting
lower demand for antibiotics in the COVID-19 period.
Vaccines turnover declined 5% AER, 6% CER to GBP2,938 million, primarily
driven by the adverse impact of the COVID-19 pandemic on Hepatitis,
DTPa-containing, Meningitis and Shingles vaccines, partially offset
by growth in Shingrix in Q1 2020.
Reported Consumer Healthcare sales grew 35% AER, 36% CER to GBP5,251
million in the six months, largely driven by the inclusion of the
Pfizer portfolio. On a pro-forma basis, sales grew 2% CER, and 7%
CER excluding brands divested/under review.
Operating profit
Total operating profit was GBP4,864 million compared with GBP2,912
million in H1 2019. Adjusted operating profit was GBP4,424 million,
up 2% AER, 2% CER on a turnover increase of 8% CER. The Adjusted
operating margin of 26.5% was 1.5 percentage points lower at AER,
and 1.7 percentage points lower on a CER basis than in H1 2019.
The pro-forma Adjusted operating margin was 26.5%.
The reduction in pro-forma Adjusted operating profit primarily reflected
the adverse impact from the reduction in sales in Vaccines as a
result of the COVID-19 pandemic, continuing price pressure, particularly
in Respiratory, investment in R&D , and investments in promotional
product support, particularly for new launches in Vaccines, HIV
and Respiratory. This was partly offset by a favourable mix in Vaccines,
reduced promotional and variable spending across all three business
as a result of the COVID-19 lockdowns, the continuing benefit of
restructuring in Pharmaceuticals and Consumer Healthcare and the
tight control of ongoing costs, particularly in non-promotional
spending across all three businesses.
Earnings per share
Total EPS was 77.0p, compared with 36.3p in H1 2019. The increase
in EPS primarily reflected the net profit on disposal of Horlicks
and other Consumer Healthcare brands as well as increased income
from asset disposals, partly offset by higher re-measurement charges
on the contingent consideration liabilities and a one-off benefit
in H1 2019 from the increased share of after tax profits of the
associate Innoviva.
Adjusted EPS was 56.9p compared with 60.6p in H1 2019, down 6% AER,
6% CER. The reduction primarily resulted from a higher non-controlling
interest allocation of Consumer Healthcare profits, reduced share
of after tax profits of associates resulting from a non-recurring
income tax benefit in Innoviva partly offset by a reduced effective
tax rate.
Cash flow
The net cash inflow from operating activities for the six months
was GBP3,725 million (H1 2019: GBP2,052 million) and free cash flow
was GBP2,480 million for the six months (H1 2019: GBP535 million).
The increase primarily reflected a reduction in trade receivables
as a result of collections following strong sales in Q1 2020, the
beneficial timing of payments for returns and rebates and taxes,
a lower seasonal increase of inventory, improved operating profits
and higher disposals of intangible assets and milestone income.
R&D pipeline news flow highlights since Q1 2020
35 medicines in development, 15 Vaccines
COVID-19
Collaborations
-- COVID-19 vaccine development collaboration with Clover Biopharmaceuticals
began clinical trials with a Phase I study using GSK's pandemic
adjuvant in combination with COVID-19 vaccine candidate SCB-2019.
-- Announced the intention to produce 1 billion doses of pandemic
vaccine adjuvant in 2021 to support COVID-19 vaccine collaborations.
-- Agreement reached with UK Government to supply up to 60 million
doses of candidate Sanofi-GSK vaccine. Discussions underway with
US and EU
-- Announced collaboration with Medicago to develop a novel adjuvanted
COVID-19 candidate vaccine. Collaboration will also explore vaccine
development opportunities for other infectious diseases.
Otilimab (aGM-CSF antibody)
-- The first patient was dosed in the Phase IIa proof of concept OSCAR
study of otilimab, an anti GM-CSF antibody, in patients with severe
pulmonary COVID-19 related disease. Data are expected in H1 2021.
Oncology
Zejula (niraparib, PARP inhibitor)
-- The US FDA approved Zejula as the only once-daily PARP inhibitor
in first-line monotherapy maintenance treatment for women with
platinum-responsive advanced ovarian cancer regardless of biomarker
status.
Belantamab mafodotin (GSK2857916, BCMA immunoconjugate)
-- The EMA's Committee for Medicinal Products for Human Use issued
a positive opinion for belantamab mafodotin in patients with relapsed/refractory
multiple myeloma.
-- An FDA Advisory Committee meeting voted 12-0 in favour of the positive
benefit/risk profile of belantamab mafodotin for patients with
relapsed/refractory multiple myeloma.
-- The first patient was dosed in the pivotal second line multiple
myeloma study, DREAMM-7, of belantamab mafodotin in combination
with bortezomib and dexamethasone.
-- The first patient was dosed in the pivotal third line multiple
myeloma study, DREAMM-3, of belantamab mafodotin monotherapy.
-- The first patient was dosed in a Phase Ib combination study evaluating
belantamab mafodotin with SpringWorks investigational gamma secretase
inhibitor, nirogacestat, in patients with relapsed/refractory multiple
myeloma. This combination is being evaluated as a sub-study in
the ongoing DREAMM-5 platform trial.
-- 16 presentations, including new analyses from the pivotal DREAMM-2
study and initial results from the DREAMM-4 study, were shared
at the European Hematology Association (EHA) Annual Congress.
-- DREAMM-2 and DREAMM-6 data reinforcing the potential of investigational
belantamab mafodotin in patients with relapsed/refractory multiple
myeloma were shared at the American Society of Clinical Oncology
(ASCO). Please note the mOS from the DREAMM-2 13-month analysis
has been corrected to 13.7 months following the identification
of discrepancies in patient data used to calculate survival.
Bintrafusp alfa (TGF beta trap/anti-PDL1)
-- Two-year follow-up data for first-in-class bifunctional immunotherapy
bintrafusp alfa targeting TGF-<BETA>/PD-L1, in second-line NSCLC,
were shared at ASCO.
GSK'609 (ICOS receptor agonist)
-- Reported findings from ongoing studies into the anti-tumour potential
of targeting the ICOS receptor through GSK'609 alone and in combination
with immune checkpoint therapies for the treatment of head and
neck squamous cell carcinoma were shared at ASCO.
IDEAYA partnership
-- A broad partnership with IDEAYA was announced in synthetic lethality,
an emerging field in precision medicine oncology covering three
IDEAYA synthetic lethality programmes - MAT2A, Pol Theta and Werner
Helicase, which are projected to reach clinical trials within the
next three years.
GSK'608 (CD96)
-- The first patient was dosed in a Phase I study of GSK'608 in monotherapy
and in combination with dostarlimab for patients with advanced
solid tumour cancers.
GSK'091 (TLR4 agonist)
-- GSK'091 for cancer was terminated due to portfolio prioritisation.
HIV/Infectious diseases
Cabenuva (cabotegravir + rilpivirine)
-- Cabenuva was resubmitted in the US as a treatment for HIV; regulatory
decision is anticipated in Q1 2021.
-- Positive data from the CUSTOMIZE trial, the first ever implementation
research study on how best to integrate an investigational once-monthly
injectable HIV treatment in US healthcare practices, were presented
at AIDS 2020.
Cabotegravir (long acting integrase inhibitor)
-- Final data from the HPTN 083 study presented at AIDS 2020 showed
investigational long acting injectable cabotegravir administered
every two months is 66% more effective than daily pills in preventing
HIV-1 acquisition.
Rukobia (fostemsavir, attachment inhibitor)
-- The US FDA approved Rukobia, a first-in-class treatment for HIV
in adults with few treatment options available.
Tivicay (dolutegravir)
-- The US FDA approved the first-ever dispersible tablet formulation
of dolutegravir, Tivicay PD, a once-daily treatment for children
living with HIV.
GSK'394 (combinectin, entry inhibitor)
-- GSK'394 for HIV was terminated due to portfolio prioritisation.
Immuno-inflammation
Benlysta (belimumab)
-- Regulatory submissions to the US FDA and EMA were made for Benlysta
in lupus nephritis.
Respiratory
Nucala (mepolizumab)
-- The US FDA granted a priority review of Nucala for patients with
hypereosinophilic syndrome (HES).
GSK'078 (SARM)
-- GSK'078 for COPD muscle weakness was terminated as data did not
support progression in this indication.
GSK'557 (nemiralisib, PI3Kd inhibitor)
-- GSK'557 for activated phosphoinositide 3-kinase delta syndrome
was terminated due to portfolio prioritisation.
Other pharmaceuticals
Duvroq (daprodustat, HIF-PHI)
-- The first regulatory approval for Duvroq was received in Japan
for patients with anaemia due to chronic kidney disease.
Vaccines
Shingrix
-- The EMA's Committee for Medicinal Products for Human Use issued
a positive opinion for Shingrix immuno compromised patients.
RSV older adults vaccine
-- A Phase I/II study of RSV older adult vaccine achieved its primary
endpoint and supports progression to Phase III.
RSV maternal vaccine
-- A Phase I/II study of RSV maternal vaccine achieved its primary
endpoint and supports progression to Phase III.
COPD vaccine
-- Initial data of the proof-of-concept study on the COPD candidate
vaccine showed it did not meet the primary endpoint. Work is ongoing
to better understand the data; no progression to Phase III is planned.
Staphylococcus aureus
-- The first patient was dosed in a Phase I study seeking to develop
a vaccine for the prevention of primary and recurrent soft-skin-tissue
infections caused by S.aureus.
CureVac
-- A strategic mRNA technology collaboration with CureVac was announced
for the research, development, manufacturing and commercialisation
of up to five mRNA-based vaccines and monoclonal antibodies (mAbs)
targeting infectious disease pathogens.
Contents Page
Total and Adjusted results 10
Financial performance - Q2 2020 12
Financial performance - H1 2020 28
Cash generation 43
Returns to shareholders 44
Income statements 46
Statement of comprehensive income - three months ended 30 June
2020 47
Statement of comprehensive income - six months ended 30 June
2020 48
Pharmaceuticals turnover - three months ended 30 June 2020 49
Pharmaceuticals turnover - six months ended 30 June 2020 50
Vaccines turnover - three months ended 30 June 2020 51
Vaccines turnover - six months ended 30 June 2020 52
Balance sheet 53
Statement of changes in equity 54
Cash flow statement - six months ended 30 June 2020 55
Segment information 56
Legal matters 58
Additional information 59
Reconciliation of cash flow to movements in net debt 65
Net debt analysis 65
Free cash flow reconciliation 65
Principal risks and uncertainties 66
Reporting definitions 67
Outlook, assumptions and cautionary statements 68
Directors' responsibility statement 70
Independent review report 71
Contacts
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healthcare companies - is committed to improving the quality of human
life by enabling people to do more, feel better and live longer.
For further information please visit www.gsk.com .
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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 67.
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.
In line with this practice, GSK expects to continue to review and
refine 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 GBP25 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
-- separation costs
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
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 24,
25, 38 and 39.
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 for Q2 2020 include
three months of results of the former Pfizer consumer healthcare
business from 1 April 2020.
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 Q2 2020, calculated
applying the exchange rates used in the comparative period, with
the results for Q2 2019 adjusted to include the equivalent three
months of results of the former Pfizer consumer healthcare business
during Q2 2019, as consolidated (in US$) and included in Pfizer's
US GAAP results. Similarly, pro-forma growth rates at CER for the
six months to 30 June 2020 are calculated comparing reported results
for the six months to 30 June 2020, calculated applying the exchange
rates used in the comparative period, with the results for the six
months to 30 June 2019, adjusted to include the equivalent six 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
proportion of sales of dolutegravir-containing products has 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
2019.
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 GBP659 million. Subsequent re-measurements are reflected within
other operating income/expense and within Adjusting items in the
income statement in each period. At 30 June 2020, the liability,
which is discounted at 8.5%, stood at GBP5,436 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 H1 2020 were GBP445 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 50 and 51 of the Annual Report
2019.
Financial performance - Q2 2020
Total results
The Total results for the Group are set out below.
Q2 2020 Q2 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Turnover 7,624 7,809 (2) (3)
Cost of sales (2,449) (2,637) (7) (7)
-------- -------- ------- -------
Gross profit 5,175 5,172 - (1)
Selling, general and administration (2,709) (2,590) 5 5
Research and development (1,301) (1,113) 17 15
Royalty income 75 78 (4) (10)
Other operating income/(expense) 1,610 (63)
-------- -------- ------- -------
Operating profit 2,850 1,484 92 90
Finance income 1 21
Finance expense (229) (237)
Share of after tax profits/(losses)
of
associates and joint ventures 19 (4)
-------- -------- ------- -------
Profit before taxation 2,641 1,264 >100 >100
Taxation (201) (214)
Tax rate % 7.6% 16.9%
-------- -------- ------- -------
Profit after taxation 2,440 1,050 >100 >100
-------- -------- ------- -------
Profit attributable to non-controlling
interests 177 86
Profit attributable to shareholders 2,263 964
-------- -------- ------- -------
2,440 1,050 >100 >100
-------- -------- ------- -------
Earnings per share 45.5p 19.5p >100 >100
-------- -------- ------- -------
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for Q2 2020 and Q2 2019
are set out on pages 24 and 25.
Q2 2020
----------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
-------- ---------- ------- --------- ----------
Turnover 7,624 100 (2) (3) (10)
Cost of sales (2,249) (29.5) - - (8)
Selling, general and
administration (2,530) (33.2) 4 4 (5)
Research and development (1,171) (15.4) 13 11 9
Royalty income 75 1.0 (4) (10) (10)
-------- ---------- ------- --------- ----------
Adjusted operating
profit 1,749 22.9 (19) (21) (27)
-------- ---------- ------- --------- ----------
Adjusted profit before
tax 1,541 (21) (22)
Adjusted profit after
tax 1,225 (26) (27)
Adjusted profit attributable
to
shareholders 958 (37) (37)
-------- ------- ---------
Adjusted earnings
per share 19.2p (37) (38)
-------- ------- ---------
Operating profit by
business Q2 2020
--------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
------ ---------- ------- --------- ----------
Pharmaceuticals 1,886 46.0 (9) (10) (10)
Pharmaceuticals R&D* (910) 11 9 9
------ ---------- ------- --------- ----------
Total Pharmaceuticals 976 23.8 (22) (23) (23)
Vaccines 265 23.4 (57) (58) (58)
Consumer Healthcare 521 21.8 33 33 (11)
------ ---------- ------- --------- ----------
1,762 23.1 (22) (23) (29)
Corporate & other
unallocated
costs (13)
----------
Adjusted operating
profit 1,749 22.9 (19) (21) (27)
------ ---------- ------- --------- ----------
* 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
Q2 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Respiratory 883 17 16
HIV 1,185 (2) (3)
Immuno-inflammation 177 17 15
Oncology 77 35 33
Established Pharmaceuticals 1,780 (17) (17)
------
4,102 (5) (5)
------
US 1,801 1 (1)
Europe 931 (10) (11)
International 1,370 (8) (7)
------ ------- -------
4,102 (5) (5)
------ ------- -------
Pharmaceuticals turnover in the quarter was GBP4,102 million, down
5% AER, 5% CER. HIV sales were down 2% AER, 3% CER, to GBP1,185 million,
with growth in Juluca and Dovato offset by declines in Tivicay and
Triumeq. Respiratory sales were up 17% AER, 16% CER, to GBP883 million,
on growth of Trelegy and Nucala. Sales of Established Pharmaceuticals
declined 17% AER, 17% CER, to GBP1,780 million.
In the quarter, as expected, the COVID-19 related first quarter customer
stockbuilding, which predominantly impacted Europe and the US, broadly
reversed with only a minor dolutegravir impact in Europe and the
US remaining. The quarter also saw lower levels of new patient prescriptions
in the US and Europe, reduced market demand for allergy and antibiotic
products in International and pressure on net prices in the US.
In the US, sales grew 1% AER but declined 1% CER. Continued growth
of Nucala, Trelegy, Benlysta and the HIV two-drug regimens was more
than offset by the decline and COVID-19 destocking in Tivicay, Triumeq
and Established Pharmaceuticals, including the impact of generic
albuterol substitutes.
In Europe, sales declined 10% AER, 11% CER, reflecting the impact
of destocking and generic competition and almost fully offsetting
the additional demand experienced in the first quarter related to
COVID-19.
International declined 8% AER, 7% CER, with Respiratory growth offset
by lower Established Pharmaceutical sales including the impact of
a weaker allergy season in Japan, lower Augmentin sales across the
region and lower sales in China.
Respiratory
Total Respiratory sales were up 17% AER, 16% CER, with strong growth
from Trelegy and Nucala in all regions. International Respiratory
sales grew 17% AER, 17% CER, including Nucala, up 42% AER, 31% CER,
and Relvar/Breo up 8% AER, 12% CER to GBP81 million. In Europe, Respiratory
sales grew 13% AER, 13% CER despite the impact of the reversal of
the customer stockbuilding in Q1 2020 related to the COVID-19 pandemic.
In the US, Trelegy and Nucala growth continued while Relvar/Breo
sales were down 11% AER, 12% CER, impacted by competitive pricing
pressures and the impact of generic Advair on the US ICS/LABA market.
Sales of Nucala were GBP241 million in the quarter and grew 24% AER,
21% CER, with US sales up 28% AER, 26% CER to GBP150 million. Europe
sales of GBP54 million grew 4% AER, 6% CER and International sales
of GBP37 million grew 42% AER, 31% CER including growth of the at-home
use application.
Trelegy sales were up 62% AER, 58% CER to GBP194 million with strong
growth in all regions. In the US, sales grew 65% AER, 60% CER, reflecting
continued market share growth. In Europe, sales grew 64% AER, 59%
CER and in International sales grew 38% AER, 46% CER.
Relvar/Breo sales were up 2% AER, 2% CER to GBP242 million in the
quarter. In the US, Relvar/Breo declined 11% AER, 12% CER, reflecting
competitive pricing pressures and the impact of generic Advair on
the US ICS/LABA market. In Europe and International, Relvar/Breo
continued to grow, up 11% AER, 9% CER and 8% AER, 12% CER, respectively.
HIV
HIV sales were GBP1,185 million, down 2% AER, 3% CER in the quarter.
The dolutegravir franchise declined 1% AER, 2% CER, delivering sales
of GBP1,140 million. The remaining portfolio, with sales of GBP45
million and 4% of total HIV sales, declined 27% AER, 32% CER and
reduced the overall growth of total HIV by one percentage point.
Sales of dolutegravir products were GBP1,140 million in the quarter.
Sales were impacted by customer destocking following the customer
stockbuilding in Q1 2020 due to COVID-19, mainly on Tivicay and Triumeq.
Tivicay delivered sales of GBP373 million and declined 9% AER, 10%
CER. Triumeq delivered sales of GBP586 million and declined 9% AER,
11% CER. The two-drug regimens, Juluca and Dovato delivered sales
of GBP181 million in the quarter, with combined growth more than
offsetting the decline of the three-drug regimen Triumeq.
In the US, dolutegravir sales grew 1% AER, but declined 2% CER and
in Europe sales declined 4% AER, 5% CER impacted by customer destocking
following the customer stockbuilding in Q1 2020 due to COVID-19.
Following recent launches of Dovato, combined sales of the two-drug
regimens were GBP139 million in the US and GBP38 million in Europe,
with growth more than offsetting the decline in Triumeq. International
was flat at AER, but grew 4% CER, driven by Tivicay.
Oncology
Sales of Zejula, the PARP inhibitor asset acquired from Tesaro in
Q1 2019 were GBP77 million in the quarter, up 35% AER, 32% CER. Sales
comprised GBP47 million in the US and GBP30 million in Europe.
Immuno-inflammation
Sales of Benlysta in the quarter were up 18% AER, 15% CER to GBP177
million, including sales of the sub-cutaneous formulation of GBP89
million. In the US, Benlysta grew 16% AER, 14% CER to GBP153 million.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the quarter were GBP1,780
million, down 17% AER, 17% CER.
Established Respiratory products declined 12% AER, 12% CER to GBP805
million. This reflected the impact of generic albuterol substitutes
on Ventolin in the US, the impact of COVID-19 pandemic related destocking
in Europe and allergy market contraction in Japan. In the US, sales
of Advair/Seretide grew 36% AER, 34% CER to GBP143 million, reflecting
a spike in the ICS/LABA class during April and May. In Europe and
International, Seretide sales were down 12% AER, 13% CER and 7% AER,
6% CER, respectively, impacted by generic competition in Europe,
COVID-19 related destocking.
The remainder of the Established Pharmaceuticals portfolio declined
20% AER, 20% CER to GBP975 million on lower demand for Dermatology
products and Antibiotics during the COVID-19 pandemic period, the
impact of government mandated changes increasing the use of generics
in China, and comparison with a strong Q2 2019, which included a
European Relenza contract.
Vaccines turnover
Q2 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Meningitis 167 (29) (29)
Influenza 15 (12) (6)
Shingles 323 (16) (19)
Established Vaccines 628 (34) (34)
------
1,133 (29) (29)
------
US 448 (42) (45)
Europe 288 (29) (29)
International 397 (2) -
------ ------- -------
1,133 (29) (29)
------ ------- -------
Vaccines turnover declined 29% AER, 29% CER to GBP1,133 million,
primarily driven by the adverse impact of the COVID-19 pandemic on
DTPa-containing, Hepatitis, Shingles and Meningitis vaccines, together
with the Rabipur and Encepur divestment.
Vaccines performance in the second quarter across all regions was
affected by lower demand due to limited visits to healthcare practitioners
and points of vaccination during the pandemic and government stay-at-home
directives. In areas where government restrictions were lifted, wellness
visits and vaccination rates have started to recover, with paediatric
vaccinations returning to near pre-COVID-19 levels by the end of
the quarter, while adolescent and adult immunisations improved at
a slower pace.
Meningitis
Meningitis sales declined 29% AER, 29% CER to GBP167 million. Bexsero
and Menveo sales decreased 31% AER, 30% CER to GBP108 million and
39% AER, 39% CER to GBP38 million respectively, reflecting lower
demand across all regions due to de-prioritisation of vaccination
during the COVID-19 pandemic. In the US, Bexsero maintained and Menveo
grew market share.
Influenza
Fluarix/FluLaval sales were GBP15 million, down 12% AER, 6% CER.
Shingles
Shingrix sales declined 16% AER, 19% CER to GBP323 million, primarily
driven by lower adult wellness visits and vaccination rates related
to the COVID-19 pandemic stay-at-home directives in the US, partly
offset by favourable return and rebate movements in the US. Total
US prescriptions for Shingrix reflected partial recovery of demand
by the end of the quarter. In Europe, a strong performance was recorded
in Germany due to robust underlying demand in post-lockdown conditions.
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix)
declined 42% AER, 43% CER. Infanrix/Pediarix sales declined 39% AER,
40% CER to GBP119 million, reflecting lower demand due to the COVID-19
pandemic conditions in the US, unfavourable year-on-year US CDC stockpile
movements and supply constraints in Europe.
Boostrix sales were down 47% AER, 47% CER to GBP76 million primarily
due to the negative impact of COVID-19 restrictions on vaccination
rates across all regions.
Hepatitis vaccines declined 62% AER, 62% CER to GBP86 million, adversely
impacted in the US and Europe by the COVID-19 pandemic and related
travel restrictions, together with competition returning to market
in the US.
Synflorix sales declined by 4% AER, 5% CER to GBP103 million, primarily
due to lower tender volume demand in Europe.
Rotarix sales were up 10% AER, 9% CER to GBP128 million, reflecting
favourable phasing in Emerging Markets and in International, partly
offset by lower demand in the US due to COVID-19 confinement measures.
MMRV vaccines sales grew 8% AER, 8% CER to GBP54 million, largely
driven by improved supply in Europe.
Consumer Healthcare turnover
Q2 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Oral health 639 (2) (1)
Pain relief 529 38 38
Vitamins, minerals and supplements 404 >100 >100
Respiratory health 214 9 8
Digestive health and other 487 22 22
------ ------- -------
2,273 37 37
Brands divested/under review 116 (55) (54)
------ ------- -------
2,389 25 25
------ ------- -------
US 829 75 70
Europe 602 4 4
International 958 11 15
------ ------- -------
2,389 25 25
------ ------- -------
Pro-forma growth (6)
-------
On a reported basis, sales grew 25% AER, 25% CER to GBP2,389 million
in the quarter, largely driven by the inclusion of the Pfizer portfolio.
On a pro-forma basis, sales declined 6% CER and were flat at CER
excluding brands divested/under review.
At a regional level, China returned to growth as the mandated retailer
shutdowns were lifted, but weaker performance resulted due to the
expected unwinding of accelerated purchases seen in the previous
quarter, particularly in Europe and to a lesser extent in the US.
Quarterly sales growth also benefited by approximately two percentage
points, largely in the Digestive health and Pain relief categories,
from increased retailer stocking ahead of a systems cutover in North
America which is expected to reverse in the third quarter. The majority
of the benefit from the accelerated purchasing related to COVID-19
seen in the first quarter has now reversed, although Vitamins, minerals
and supplements continued to benefit from an increased consumer focus
on health and wellness.
Oral health
Oral health sales declined 2% AER, 1% CER to GBP639 million. Sensodyne
grew in low single-digits but continued to gain share, with growth
negatively impacted by the unwind of prior quarter accelerated purchases
which also affected Denture care and Gum health, and which has now
largely reversed. Overall growth was also impacted by a decline in
non-strategic brands.
Pain relief
Pain relief grew 38% AER, 38% CER to GBP529 million. On a pro-forma
basis, sales declined in low single digits. Continued strong performance
of Panadol, and the successful Rx to OTC switch and launch of Voltaren
OTC in the US, were partly offset by a weaker performance of Voltaren
in Europe. Overall performance was also impacted by the unwinding
of accelerated purchases seen in the prior quarter.
Vitamins, minerals and supplements
Vitamins, minerals and supplements more than doubled at AER and CER
to GBP404 million. On a pro-forma basis, sales grew in the high-teens
per cent, with strong performances from Centrum and Emergen-C, reflecting
continued strong consumer demand for the category, particularly in
the US and China.
Respiratory health
Respiratory health sales grew 9% AER, 8% CER to GBP214 million. On
a pro-forma basis, sales declined in low double-digits. Continued
growth of Theraflu was offset by the unwinding of accelerated purchases
seen in the previous quarter and reduced demand for seasonal nasal
spray products.
Digestive health and other
Digestive health and other brands grew 22% AER, 22% CER to GBP487
million. On a pro-forma basis, sales declined in low single digits,
reflecting continued weaker Skin health performance, the expected
unwinding of accelerated purchases of Digestive health and other
products, and also the impact of lower footfall, reducing impulse
purchases in retail stores due to the ongoing pandemic.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 32.1%, 1.6 percentage
points lower at AER and 1.5 percentage points lower in CER terms
compared with Q2 2019. This reflected a reduction in the costs of
Major restructuring programmes, primarily as a result of lower write
downs in a number of manufacturing sites.
Excluding these and other Adjusting items, Adjusted cost of sales
as a percentage of turnover was 29.5%, 0.8 percentage points higher
at AER and 1.0 percentage points higher at CER compared with Q2 2019.
On a pro-forma basis, Adjusted cost of sales as a percentage of turnover
was 29.5%, 0.7 percentage points higher at CER, compared with Q2
2019. This reflected unfavourable product mix in Vaccines, primarily
due to the decline of Shingrix in the US and in Consumer Healthcare
and continued adverse pricing pressure in Pharmaceuticals, particularly
in Respiratory, partly offset by lower 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 35.5%, 2.4 percentage
points higher at AER and 2.5 percentage points higher at CER compared
with Q2 2019. This included increased major restructuring costs partly
offset by lower significant legal and transaction costs.
Excluding these and other Adjusting items, Adjusted SG&A costs as
a percentage of turnover were 33.2%, 2.0 percentage points higher
at AER than in Q2 2019 and 2.2 percentage points higher on a CER
basis. On a pro-forma basis, Adjusted SG&A costs as a percentage
of turnover were 33.2%, 1.9 percentage points higher at CER, compared
with Q2 2019.
Adjusted SG&A costs grew 4% AER, 4% CER but declined 5% CER on a
pro-forma basis, which reflected reduced promotional and variable
spending across all three business as a result of the COVID-19 lockdowns
as well as the continuing benefit of restructuring in Pharmaceuticals
and Consumer Healthcare and the tight control of ongoing costs, partly
offset by increased investment for new launches in Respiratory and
HIV and an adverse comparison to income from favourable settlements
in Vaccines in Q2 2019.
Research and development
Total R&D expenditure was GBP1,301 million (17.1% of turnover), up
17% AER, 15% CER, including an increase in impairment charges. Adjusted
R&D expenditure was GBP1,171 million (15.4% of turnover), 13% higher
at AER, 11% higher at CER than in Q2 2019. On a pro-forma basis,
Adjusted R&D expenditure grew 9% CER compared with Q2 2019.
Pharmaceuticals R&D expenditure was GBP922 million, up 15% AER, 13%
CER, reflecting a continued significant increase in Oncology investment
across multiple mid and late-stage assets including the legacy Tesaro
portfolio and a number of other programmes including belantamab mafodotin,
ICOS and bintrafusp alfa. In addition to the Oncology investment
there has also been increased spending on the progression of key
assets in the Specialty and primary care portfolio such as otilimab
for RA, the initiation of several COVID-19 programmes as well as
on daprodustat which recently received approval in Japan. These increases
in investment were partly offset by reduced spending in HIV and the
ongoing benefits of the R&D portfolio re-prioritisation decisions
in 2019. R&D expenditure in Vaccines and Consumer Healthcare was
GBP175 million and GBP74 million, respectively.
Royalty income
Royalty income was GBP75 million (Q2 2019: GBP78 million), down 4%
AER, 10% CER, primarily reflecting adverse movements in Consumer
Healthcare.
Other operating income/(expense)
Net other operating income of GBP1,610 million (Q2 2019: GBP63 million
expense) primarily reflected the net profit on disposal in the quarter
of the Horlicks and other Consumer Healthcare brands of GBP2,304
million in Q2 2020, which was after reversal of GBP776 million of
embedded derivative gains on the value of the shares taken in prior
years and Q1 2020. This was partly offset by the related loss on
sale of the shares in Hindustan Unilever in Q2 2020 of GBP476 million.
Other operating income also included an increase in profit and milestone
income from a number of asset disposals.
The gains were partly offset by accounting charges of GBP368 million
(Q2 2019: GBP188 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 GBP343 million (Q2 2019:
GBP226 million) for the contingent consideration liability due to
Shionogi, primarily arising from changes in sales forecasts and exchange
rate assumptions as well as the unwind of the discounting.
Operating profit
Total operating profit was GBP2,850 million in Q2 2020 compared with
GBP1,484 million in Q2 2019. This reflected the profit on disposal
of the Horlicks and other Consumer Healthcare brands and resultant
sale of shares in Hindustan Unilever as well as increased income
from asset disposals. This was partly offset by higher re-measurement
charges on the contingent consideration liabilities.
Excluding these and other Adjusting items, Adjusted operating profit
was GBP1,749 million, 19% lower than Q2 2019 at AER and 21% lower
at CER on a turnover decrease of 3% CER. The Adjusted operating margin
of 22.9% was 4.9 percentage points lower at AER, and 5.1 percentage
points lower on a CER basis than in Q2 2019. On a pro-forma basis,
Adjusted operating profit was 27% lower at CER on a turnover decrease
of 10% CER. The Adjusted pro-forma operating margin of 22.9% was
5.3 percentage points lower on a CER basis than in Q2 2019.
The reduction in pro-forma Adjusted operating profit primarily reflected
the adverse impact from reduction in sales across all three businesses
as a result of the COVID-19 pandemic, including a reduction in customer
demand primarily in Vaccines and destocking in the quarter in Pharmaceuticals
and Consumer Healthcare and increased investment in R&D including
a significant increase in Oncology investments and initiation of
several COVID-19 programmes. In addition, there was adverse mix in
Vaccines and Consumer Healthcare, continuing price pressure, particularly
in Respiratory and increased investment for new launches in Respiratory
and HIV. This was partly offset by reduced promotional and variable
spending overall across all three businesses as a result of the COVID-19
lockdowns and the continued benefit of restructuring and 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 Q2 2020 amounted to GBP240 million (Q2 2019: GBP226
million). This included cash payments made to Shionogi of GBP232
million (Q2 2019: GBP220 million).
Operating profit by business
Pharmaceuticals operating profit was GBP976 million, down 22% AER,
23% CER on a turnover decrease of 5% CER. The operating margin of
23.8% was 5.4 percentage points lower at AER than in Q2 2019 and
5.4 percentage points lower on a CER basis. This primarily reflected
the negative operating leverage from the COVID-19 related sales decline,
a significant increase in Oncology R&D and initiation of several
COVID-19 programmes, increase in cost of sales percentage due to
the continued impact of lower prices, particularly in Respiratory,
and investment in new product support and targeted priority markets.
This was partly offset by reduced promotional and variable spending
as a result of the COVID-19 lockdowns and tight control of ongoing
costs.
Vaccines operating profit was GBP265 million, down 57% AER, 58% CER
on a turnover decrease of 29% CER. The operating margin of 23.4%
was 15.2 percentage points lower at AER than in Q2 2019 and 15.7
percentage points lower on a CER basis. This was primarily driven
by the negative operating leverage from the significant COVID-19-related
sales decline, as well as adverse mix and an adverse comparison to
income from one-off settlements in Q2 2019, partly offset by lower
inventory adjustments.
Consumer Healthcare operating profit was GBP521 million, up 33% AER,
33% CER on a turnover increase of 25% CER. On a pro-forma basis,
operating profit was GBP521 million, 11% CER lower on a turnover
decrease of 6% CER. The operating margin of 21.8% was 1.4 percentage
points higher at AER and 1.3 percentage points higher on a CER basis
than in Q2 2019. The pro-forma operating margin of 21.8% was 1.2
percentage points lower on a CER basis. This was primarily driven
by reduced leverage from a decline in sales growth in the quarter
due to COVID-19 customer destocking and lower customer footfall.
This decline was partly offset by synergy benefits from the Pfizer
integration and targeted areas of lower promotional investment.
Net finance costs
Total net finance costs were GBP228 million compared with GBP216
million in Q2 2019. Adjusted net finance costs were GBP227 million
compared with GBP220 million in Q2 2019. The increase primarily reflected
reduced swap interest income on foreign currency hedges and lower
interest income on reduced overseas cash following the divestment
of Horlicks and other Consumer Healthcare nutrition products in India
and a number of other countries. The increase was partly offset by
favourable refinancing of term debt.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates and joint ventures was
GBP19 million (Q2 2019: GBP4 million losses).
Taxation
The charge of GBP201 million represented an effective tax rate on
Total results of 7.6% (Q2 2019: 16.9%) and reflected the different
tax effects of the various Adjusting items, including the disposal
of Horlicks and other Consumer Healthcare brands to Unilever and
the subsequent disposal of shares received in Hindustan Unilever.
Tax on Adjusted profit amounted to GBP316 million and represented
an effective Adjusted tax rate of 20.5% (Q2 2019: 15.4%), reflecting
delays in settlement of open periods and an updated forecast profit
mix for the year.
Issues related to taxation are described in Note 14, 'Taxation' in
the Annual Report 2019. 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 GBP177 million (Q2 2019: GBP86 million). The increase was primarily
due to the allocation of Consumer Healthcare profits of GBP137 million
(Q2 2019: GBPnil) following the completion of the new Consumer Healthcare
Joint Venture with Pfizer on 31 July 2019, partly offset by reduced
allocation of ViiV Healthcare profits of GBP24 million (Q2 2019:
GBP75 million), including increased charges for re-measurement of
contingent consideration liabilities.
The allocation of Adjusted earnings to non-controlling interests
amounted to GBP267 million (Q2 2019: GBP138 million). The increase
in allocation primarily reflected an increased allocation of Consumer
Healthcare profits of GBP138 million (Q2 2019: GBPnil) following
the completion of the new Consumer Healthcare Joint Venture with
Pfizer on 31 July 2019 partly offset by a reduced allocation of ViiV
Healthcare profits of GBP113 million (Q2 2019: GBP127 million).
Earnings per share
Total EPS was 45.5p, compared with 19.5p in Q2 2019. The increase
in EPS primarily reflected the net profit on disposal of Horlicks
and other Consumer Healthcare brands as well as increased income
from asset disposals, partly offset by higher re-measurement charges
on the contingent consideration liabilities and lower operating performance
as a result of the COVID-19 impact on the Vaccines business and destocking
in Pharmaceuticals and Consumer Healthcare following a strong operating
performance in Q1 2020.
Adjusted EPS was 19.2p compared with 30.5p in Q2 2019, down 37% AER,
38% CER, on a 21% CER decrease in Adjusted operating profit. This
reduction primarily resulted from a higher effective tax rate and
a higher non-controlling interest allocation of Consumer Healthcare
profits.
Currency impact on Q2 2020 results
The results for Q2 2020 are based on average exchange rates, principally
GBP1/$1.25, GBP1/EUR1.13 and GBP1/Yen 134. Comparative exchange rates
are given on page 59. The period-end exchange rates were GBP1/$1.23,
GBP1/EUR1.10 and GBP1/Yen 132.
In the quarter, turnover decreased 2% AER, 3% CER. Total EPS was
45.5p compared with 19.5p in Q2 2019. Adjusted EPS was 19.2p compared
with 30.5p in Q2 2019, down 37% AER, 38% CER. The marginally positive
currency impact primarily reflected the weakness in Sterling, particularly
against the US$ and Yen, partly offset by weakness in emerging market
currencies relative to Q2 2019. Exchange gains or losses on the settlement
of intercompany transactions had a negligible impact on the positive
currency impact of one percentage point on Adjusted EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for
Q2 2020 and Q2 2019 are set out below.
Three months ended 30 June 2020
Divestments,
significant
legal
Intangible Intangible Major and Adjusted
Total amort- impair- restruct- Transaction- other Separation results
results isation ment uring related items costs GBPm
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 7,624 7,624
Cost of sales (2,449) 180 (2) 12 10 (2,249)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 5,175 180 (2) 12 10 5,375
Selling, general
and
administration (2,709) 3 182 (20) (4) 18 (2,530)
Research and
development (1,301) 17 116 (2) (1) (1,171)
Royalty income 75 75
Other operating
income/
(expense) 1,610 1 359 (1,970) -
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 2,850 197 117 193 349 (1,975) 18 1,749
Net finance
costs (228) 1 (227)
Share of after
tax profits
of associates
and joint
ventures 19 19
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 2,641 197 117 193 349 (1,974) 18 1,541
Taxation (201) (34) (22) (47) (56) 47 (3) (316)
Tax rate % 7.6% 20.5%
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 2,440 163 95 146 293 (1,927) 15 1,225
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 177 90 267
Profit
attributable
to
shareholders 2,263 163 95 146 203 (1,927) 15 958
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 45.5p 3.2p 1.9p 2.9p 4.1p (38.7)p 0.3p 19.2p
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of shares
(millions) 4,977 4,977
------------ ------------
Three months ended 30 June 2019
Divestments,
significant
legal
Intangible Intangible Major and
Total amort- impair- restruct- Transaction- other Adjusted
results isation ment uring related items results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 7,809 7,809
Cost of sales (2,637) 188 4 198 4 (2,243)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 5,172 188 4 198 4 5,566
Selling, general
and
administration (2,590) 2 67 41 47 (2,433)
Research and
development (1,113) 17 11 44 1 (1,040)
Royalty income 78 78
Other operating
(expense)/income (63) 202 (139) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,484 205 17 309 247 (91) 2,171
Net finance costs (216) (4) (220)
Share of after
tax
losses of
associates and
joint
ventures (4) (4)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,264 205 17 309 247 (95) 1,947
Taxation (214) (39) (2) (59) (61) 75 (300)
Tax rate % 16.9% 15.4%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 1,050 166 15 250 186 (20) 1,647
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 86 52 138
Profit
attributable
to
shareholders 964 166 15 250 134 (20) 1,509
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 19.5p 3.3p 0.3p 5.1p 2.7p (0.4)p 30.5p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of
shares
(millions) 4,947 4,947
------------ ------------
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.
Total Major restructuring charges incurred in Q2 2020 were GBP193
million (Q2 2019: GBP309 million), analysed as follows:
Q2 2020 Q2 2019
------------------------- -----------------------------
Cash Non-cash Total Cash Non-cash Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ --------- ------ ------ --------- ------
2018 major restructuring
programme (incl. Tesaro) 30 15 45 87 192 279
Consumer Healthcare
Joint
Venture integration
programme 82 15 97 21 - - 21
Separation Preparation
restructuring programme 42 3 45 - - -
Combined restructuring
and
integration programme (3) 9 6 - 9 9
151 42 193 108 201 309
------ --------- ------ ------ --------- ------
Cash charges primarily arose from restructuring of Vaccines Manufacturing
and R&D functions as well as commercial pharmaceuticals restructuring
under the Separation Preparation programme, integration costs under
the Consumer Healthcare Joint Venture integration programme and restructuring
of the manufacturing organisation, R&D and some administrative functions
as well as the integration of Tesaro under the 2018 major restructuring
programme. Non-cash charges under the 2018 major restructuring programme
primarily related to write down of sites on disposal of sites as
part of plans to restructure the manufacturing network.
Total cash payments made in Q2 2020 were GBP163 million (Q2 2019:
GBP111 million), GBP31 million for the existing Combined restructuring
and integration programme (Q2 2019: GBP63 million), GBP47 million
(Q2 2019: GBP28 million) under the 2018 major restructuring programme
including the settlement of certain charges accrued in previous quarters,
a further GBP65 million (Q2 2019: GBP20 million) relating to the
Consumer Healthcare Joint Venture integration programme and GBP20
million relating to the Separation Preparation restructuring programme.
The analysis of Major restructuring charges by business was as follows:
Q2 2020 Q2 2019
GBPm GBPm
-------- --------
Pharmaceuticals 44 232
Vaccines (14) 17
Consumer Healthcare 105 41
-------- --------
135 290
Corporate & central functions 58 19
-------- --------
Total Major restructuring costs 193 309
-------- --------
The analysis of Major restructuring charges by Income statement line
was as follows:
Q2 2020 Q2 2019
GBPm GBPm
-------- --------
Cost of sales 12 198
Selling, general and administration 182 67
Research and development (2) 44
Other operating expense 1 -
-------- --------
Total Major restructuring costs 193 309
-------- --------
The benefit in the quarter from the 2018 major restructuring programme
was GBP0.1 billion and the benefit from the Consumer Healthcare Joint
Venture integration was GBP0.1 billion. Given its early stage the
benefit from the Separation Preparation restructuring programme was
less than GBP0.1 billion.
Transaction-related adjustments
Transaction-related adjustments resulted in a net charge of GBP349
million (Q2 2019: GBP247 million). This included a net GBP368 million
accounting charge 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.
Q2 2020 Q2 2019
Charge/(credit) GBPm GBPm
-------- --------
Contingent consideration on former Shionogi-ViiV
Healthcare joint venture
(including Shionogi preferential dividends) 343 226
ViiV Healthcare put options and Pfizer preferential
dividends 10 (47)
Contingent consideration on former Novartis Vaccines
business 15 9
Other adjustments (19) 59
-------- --------
Total transaction-related charges 349 247
-------- --------
The GBP343 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 GBP99 million unwind of the
discount and a GBP244 million charge primarily from adjustments to
sales forecasts as well as updated exchange rate assumptions.
The ViiV Healthcare contingent consideration liability is valued
on a long-term basis. The potential impact of the COVID-19 pandemic
remains uncertain and at 30 June 2020, it has been assumed that there
will be no significant impact on the long-term value of the liability.
This position remains under review and the amount of the liability
will be updated in future quarters as further information on the
impact of the pandemic becomes available. An explanation of the accounting
for the non-controlling interests in ViiV Healthcare is set out on
page 11.
Divestments, significant legal charges and other items
Divestments and other items included a gain in the period of GBP1,828
million arising from the net profit on disposal in the quarter of
the Horlicks and other Consumer Healthcare brands of GBP2,304 million
in Q2 2020, partly offset by the related loss on sale of the shares
in Hindustan Unilever in Q2 2020 of GBP476 million. The net profit
on disposal in the quarter was net of reversal of GBP776 million
of embedded derivative gains on the value of the shares taken in
prior years and Q1 2020. Divestments and other items also included
a gain from a number of asset disposals and certain other Adjusting
items. A charge of GBP1 million (Q2 2019: GBP47 million) for significant
legal matters included the settlement of existing matters as well
as provisions for ongoing litigation. Significant legal cash payments
were GBP1 million (Q2 2019: GBP4 million).
Separation costs
From Q2 2020, the Group has started to report additional one-time
costs to prepare for Consumer Healthcare separation.
Financial performance - H1 2020
Total results
The Total results for the Group are set out below.
H1 2020 H1 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Turnover 16,714 15,470 8 8
Cost of sales (5,648) (5,370) 5 6
-------- -------- ------- -------
Gross profit 11,066 10,100 10 10
Selling, general and administration (5,625) (5,067) 11 12
Research and development (2,488) (2,119) 17 16
Royalty income 142 151 (6) (8)
Other operating income/(expense) 1,769 (153)
-------- -------- ------- -------
Operating profit 4,864 2,912 67 66
Finance income 42 55
Finance expense (458) (461)
Share of after tax profits
of
associates and joint ventures 28 53
-------- -------- ------- -------
Profit before taxation 4,476 2,559 75 74
Taxation (357) (524)
Tax rate % 8.0% 20.5%
-------- -------- ------- -------
Profit after taxation 4,119 2,035 >100 >100
-------- -------- ------- -------
Profit attributable to non-controlling
interests 291 241
Profit attributable to shareholders 3,828 1,794
-------- -------- ------- -------
4,119 2,035 >100 >100
-------- -------- ------- -------
Earnings per share 77.0p 36.3p >100 >100
-------- -------- ------- -------
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for H1 2020 and H1 2019
are set out on pages 38 and 39.
H1 2020
----------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
-------- ---------- ------- --------- ----------
Turnover 16,714 100 8 8 -
Cost of sales (4,859) (29.1) 9 10 -
Selling, general and
administration (5,316) (31.8) 10 11 1
Research and development (2,257) (13.5) 12 11 9
Royalty income 142 0.9 (6) (8) (8)
-------- ---------- ------- --------- ----------
Adjusted operating
profit 4,424 26.5 2 2 (7)
-------- ---------- ------- --------- ----------
Adjusted profit before
tax 4,038 1 1
Adjusted profit after
tax 3,380 3 3
Adjusted profit attributable
to
shareholders 2,831 (5) (6)
-------- ------- ---------
Adjusted earnings
per share 56.9p (6) (6)
-------- ------- ---------
Operating profit by
business H1 2020
----------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
-------- ---------- ------- --------- ----------
Pharmaceuticals 3,904 45.9 (3) (4) (4)
Pharmaceuticals R&D* (1,745) 13 11 11
-------- ---------- ------- --------- ----------
Total Pharmaceuticals 2,159 25.4 (13) (14) (14)
Vaccines 1,123 38.2 (8) (10) (10)
Consumer Healthcare 1,287 24.5 57 59 8
-------- ---------- ------- --------- ----------
4,569 27.3 1 - (8)
Corporate & other
unallocated
costs (145)
----------
Adjusted operating
profit 4,424 26.5 2 2 (7)
-------- ---------- ------- --------- ----------
* 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
H1 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Respiratory 1,754 27 26
HIV 2,392 3 2
Immuno-inflammation 328 21 19
Oncology 158 58 57
Established Pharmaceuticals 3,866 (12) (11)
------
8,498 - -
------
US 3,559 3 1
Europe 2,073 2 2
International 2,866 (3) (2)
------ ------- -------
8,498 - -
------ ------- -------
Pharmaceuticals turnover in the six months was GBP8,498 million,
flat at both AER and CER. HIV sales were up 3% AER, 2% CER, to GBP2,392
million, with growth in Juluca and Dovato partly offset by Tivicay
and Triumeq. Respiratory sales were up 27% AER, 26% CER, to GBP1,754
million, on growth of Trelegy and Nucala. Sales of Established Pharmaceuticals
declined 12% AER, 11% CER to GBP3,866 million.
Towards the end of the first quarter, additional demand related to
the COVID-19 pandemic had a positive impact on growth of HIV and
Respiratory products. As expected, this effect has broadly reversed
in the second quarter, with only a minor dolutegravir impact in Europe
and US remaining. The second quarter also saw lower levels of new
patient prescriptions in the US and Europe, reduced market demand
for allergy and antibiotic products in International and pressure
on net prices in the US.
In the US, sales grew 3% AER, 1% CER. Continued growth of Nucala,
Trelegy, Benlysta and the HIV two-drug regimens was partly offset
by the decline and COVID-19 destocking in Tivicay, Triumeq and Established
Products, including the impact of generic albuterol substitutes.
In Europe, sales grew 2% AER, 2% CER, with strong growth from Respiratory,
HIV, Oncology and Benlysta partly offset by the decline of Established
Pharmaceutical sales, with the net impact of COVID-19 broadly neutral
over the six months.
International declined 3% AER, 2% CER, with Respiratory, HIV and
Benlysta growth more than offset by lower Established Pharmaceutical
sales including the impact of a weaker allergy season in Japan and
lower sales in China including the impact of government mandated
changes increasing the use of generics.
Respiratory
Total Respiratory sales were up 27% AER, 26% CER, with strong growth
in all regions. International Respiratory sales grew 26% AER, 26%
CER including Nucala, up 46% AER, 42% CER, and Relvar/Breo, up 13%
AER, 14% CER to GBP164 million. In Europe, Respiratory sales were
GBP466 million up 26% AER, 27% CER. In the US, Trelegy and Nucala
growth continued and Relvar/Breo benefited from the impact of a prior
period RAR adjustment in the first quarter.
Sales of Nucala were GBP451 million in the six months and grew 30%
AER, 28% CER, with US sales up 31% AER, 29% CER to GBP265 million.
Europe sales of GBP116 million grew 20% AER, 21% CER and International
sales of GBP70 million grew 46% AER, 42% CER including growth of
the at-home use application.
Trelegy sales were up 87% AER, 85% CER to GBP387 million driven by
growth in all regions. In the US, sales grew 81% AER, 77% CER, reflecting
continued market share growth. In Europe, sales grew 90% AER, 90%
CER and in International sales were GBP35 million in the six months.
Relvar/Breo sales were up 16% AER, 16% CER to GBP527 million in the
six months. In the US, Relvar/Breo grew 16% AER, 14% CER, benefiting
from the impact of a prior period RAR adjustment in the first quarter.
In Europe and International, Relvar/Breo also continued to grow,
up 20% AER, 20% CER and 13% AER, 14% CER respectively.
HIV
HIV sales were GBP2,392 million up 3% AER, 2% CER in the six months.
The dolutegravir franchise grew 4% AER, 3% CER, delivering sales
of GBP2,301 million. The remaining portfolio, with sales of GBP91
million and 4% of total HIV sales, declined 22% AER, 23% CER and
reduced the overall growth of total HIV by one percentage point.
Sales of dolutegravir products were GBP2,301 million in the six months.
Sales benefited from customer stock building due to COVID-19, mainly
on Tivicay and Triumeq that has not yet fully reversed. Tivicay delivered
sales of GBP785 million, down 1% AER, 2% CER and Triumeq sales were
GBP1,149 million, down 9% AER, 10% CER. The two-drug regimens, Juluca
and Dovato delivered sales of GBP367 million in the six months, with
combined growth more than offsetting decline in the three-drug regimen,
Triumeq.
In the US, dolutegravir sales grew 2% AER, but were flat at CER,
and in Europe sales grew 6% AER, 6% CER. The growth was driven by
two-drug regimen share growth and benefited from customer stocking
due to COVID-19 not fully reversed in the six months. Following recent
launches of Dovato, combined sales of the two-drug regimens were
GBP278 million in the US and GBP81 million in Europe, with growth
offsetting the decline in Triumeq. International continued to grow
strongly with total dolutegravir sales growth of 10% AER, 14% CER,
driven by Tivicay tender business.
Oncology
Sales of Zejula, the PARP inhibitor asset acquired from Tesaro in
Q1 2019 were GBP158 million in the six months, up 60% AER, 58% CER
benefiting from a favourable comparison with H1 2019. Sales comprised
GBP95 million in the US and GBP63 million in Europe.
Immuno-inflammation
Sales of Benlysta in the six months were up 21% AER, 19% CER to GBP328
million, including sales of the sub-cutaneous formulation of GBP156
million. In the US, Benlysta grew 18% AER, 16% CER to GBP279 million.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the six months were GBP3,866
million, down 12% AER, 11% CER.
Established Respiratory products declined 11% AER, 11% CER to GBP1,770
million. Advair/Seretide and Ventolin were impacted by generic substitutes
in the US and Europe, and in the International region allergy sales
were impacted by market contraction in Japan.
The remainder of the Established Pharmaceuticals portfolio declined
12% AER, 11% CER to GBP2,096 million, including the impact of lower
demand for antibiotics and Dermatology products during the COVID-19
pandemic period, the impact of government mandated changes increasing
the use of generics in China, and a strong comparator, including
the European Relenza contract.
Vaccines turnover
H1 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Meningitis 392 (12) (10)
Influenza 36 13 22
Shingles 970 31 28
Established Vaccines 1,540 (18) (18)
------
2,938 (5) (6)
------
US 1,461 (6) (8)
Europe 636 (14) (14)
International 841 4 6
------ ------- -------
2,938 (5) (6)
------ ------- -------
Vaccines turnover declined 5% AER, 6% CER to GBP2,938 million, primarily
driven by the adverse impact of the COVID-19 pandemic on Hepatitis,
DTPa-containing, Meningitis and Shingles vaccines, partially offset
by growth in Shingrix in Q1 2020.
Vaccines performance across all regions was affected by lower demand
due to limited visits to healthcare practitioners and points of vaccination
during the pandemic and government stay-at-home directives. In areas
where lockdowns were lifted, wellness visits and vaccination rates
have started to recover, with paediatric vaccination near pre-COVID
levels by the end of the period, while adolescent and adult immunisations
improved at a slower pace.
Meningitis
Meningitis sales declined 12% AER, 10% CER to GBP392 million. Bexsero
sales declined 13% AER, 11% CER to GBP272 million, reflecting lower
demand across all regions due to the COVID-19 pandemic. Menveo sales
declined 18% AER, 17% CER to GBP78 million, primarily driven by the
negative impact of COVID-19 lockdowns on vaccination rates partly
offset by higher demand in Europe. In the US, Bexsero and Menveo
grew market share.
Influenza
Fluarix/FluLaval sales were GBP36 million, up 13% AER, 22% CER,
reflecting favourable phasing and higher demand in the International
region.
Shingles
Shingrix sales grew 31% AER, 28% CER to GBP970 million, primarily
driven by strong uptake in Q1 2020 and favourable returns and rebates,
partly offset by a decline in demand in Q2 2020 due to lower adult
wellness visits and vaccination rates related to COVID-19 pandemic
stay-at-home directives in the US. In Europe, a strong performance
was recorded in Germany due to robust underlying demand in post-lockdown
conditions
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix)
declined by 24% AER, 25% CER. Infanrix/Pediarix sales declined 21%
AER, 21% CER to GBP299 million, reflecting lower demand due to the
COVID-19 pandemic in the US, unfavourable year-on-year US CDC stockpile
movements and supply constraints in Europe.
Hepatitis vaccines declined 35% AER, 36% CER to GBP299 million, impacted
in the US and Europe by the COVID-19 pandemic and related travel
restrictions, together with competition returning to market in the
US.
Synflorix sales were GBP226 million, down 1% AER, but flat at CER,
primarily due to lower tender volume demand in Europe partly offset
by higher demand in International.
Rotarix sales were up 12% AER, 12% CER to GBP279 million, reflecting
favourable phasing in Emerging Markets and in International, partly
offset by lower demand in the US due to COVID-19 confinement measures.
MMRV vaccines sales grew 6% AER, 8% CER to GBP111 million, largely
driven by improved supply in Europe.
Consumer Healthcare turnover
H1 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Oral health 1,372 4 6
Pain relief 1,140 51 53
Vitamins, minerals and supplements 767 >100 >100
Respiratory health 653 34 34
Digestive health and other 939 26 26
------ ------- -------
4,871 45 46
Brands divested/under review 380 (30) (28)
------ ------- -------
5,251 35 36
------ ------- -------
US 1,798 87 83
Europe 1,348 15 15
International 2,105 20 24
------ ------- -------
5,251 35 36
------ ------- -------
Pro-forma growth 2
-------
On a reported basis, sales grew 35% AER, 36% CER to GBP5,251 million
in the six months, largely driven by the inclusion of the Pfizer
portfolio. On a pro-forma basis, sales grew 2% CER, and 7% CER excluding
brands divested/under review. This reflected the strong performance
in the first quarter, continued strong demand of Vitamins, minerals
and supplements products and increased retailer stocking ahead of
a systems cutover in North America which benefited sales by one percentage
point in the six months. The remaining small stocking benefit from
COVID-19 is expected to fully unwind in the second half of the year,
and the sales cutover benefit to reverse in the third quarter.
Oral health
Oral health sales grew 4% AER, 6% CER to GBP1,372 million. Sensodyne
continued to perform strongly, reporting low double-digit growth,
reflecting underlying strength of the brand, supported by recent
innovations including Sensodyne Sensitivity & Gum. Gum health grew
in double digits, while Denture care was flat. Growth in Oral health
was impacted by a decline in the non-strategic brands.
Pain relief
Pain relief grew 51% AER, 53% CER to GBP1,140 million. On a pro-forma
basis, sales grew in mid-single digits, with significant growth of
Panadol and Advil reflecting accelerated purchases and increased
consumption due to the COVID-19 pandemic, particularly in Q1 2020.
The successful launch of Voltaren OTC in the US contributed to overall
growth for the brand, although performance was impacted by a weaker
performance in Europe.
Vitamins, minerals and supplements
Vitamins, minerals and supplements growth more than doubled to GBP767
million. On a pro-forma basis, sales grew in the high teens per cent,
with strong performance from Centrum and Emergen-C driven by increased
consumer demand for the category, particularly in the US and China.
Respiratory health
Respiratory health sales grew 34% AER, 34% CER to GBP653 million.
On a pro-forma basis, sales grew in low double-digits, with broad-based
growth across the category, although the accelerated purchases and
increased consumption in response to the COVID-19 pandemic seen in
the first quarter largely unwound in the second quarter.
Digestive health and other
Digestive health and other brands grew 26% AER, 26% CER to GBP939
million. On a pro-forma basis, sales declined in low single-digits,
with growth in Smokers' health and Digestive health products offset
by a low double digit decline in Skin health products and a decline
in other non-strategic brands.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 33.8%, 0.9 percentage
points lower at AER and 0.8 percentage points lower in CER terms
compared with H1 2019. This reflected a reduction in the costs of
Major restructuring programmes, primarily as a result of lower write
downs in a number of manufacturing sites, partly offset by the unwinding
of the fair market value uplift on inventory arising on completion
of the Consumer Healthcare Joint Venture with Pfizer.
Excluding these and other Adjusting items, Adjusted cost of sales
as a percentage of turnover was 29.1%, 0.3 percentage points higher
at AER, 0.5 percentage points higher at CER compared with H1 2019.
On a pro-forma basis, Adjusted cost of sales as a percentage of turnover
was 29.1%, 0.1 percentage points higher at CER, compared with H1
2019. This reflected continued adverse pricing pressure in Pharmaceuticals,
particularly in Respiratory and unfavourable product mix in Consumer
Healthcare, partly offset by a more favourable product mix in Vaccines,
and a further contribution from integration savings in Consumer Healthcare.
Selling, general and administration
Total SG&A costs as a percentage of turnover were 33.7%, 0.9 percentage
points higher at AER and 1.1 percentage points higher at CER compared
with H1 2019. This reflected increased Major restructuring costs
partly offset by lower significant legal and transaction costs.
Excluding these and other Adjusting items, Adjusted SG&A costs as
a percentage of turnover were 31.8%, 0.6 percentage points higher
at AER than in H1 2019 and 0.8 percentage points higher on a CER
basis. On a pro-forma basis, Adjusted SG&A costs as a percentage
of turnover were 31.8%, 0.5 percentage points higher at CER, compared
with H1 2019.
The growth in Adjusted SG&A costs of 10% AER, 11% CER and 1% 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. This was partly offset by
reduced promotional and variable spending across all three business
as a result of the COVID-19 lockdowns, the continuing benefit of
restructuring in Pharmaceuticals and Consumer Healthcare and the
tight control of ongoing costs, particularly in non-promotional spending
across all three businesses.
Research and development
Total R&D expenditure was GBP2,488 million (14.9% of turnover), up
17% AER, 16% CER, including an increase in Major restructuring costs.
Adjusted R&D expenditure was GBP2,257 million (13.5% of turnover),
12% higher at AER, 11% higher at CER than in H1 2019. On a pro-forma
basis, Adjusted R&D expenditure grew 9% CER compared with H1 2019.
Pharmaceuticals R&D expenditure was GBP1,775 million, up 15% AER,
13% CER, primarily driven by a continued significant increase in
investment in Oncology reflecting the assets from the Tesaro acquisition
(primarily Zejula and dostarlimab) and progression of a number of
other programmes including belantamab mafodotin, ICOS and bintrafusp
alfa as well as the initiation of several programmes focused on COVID-19.
This increased investment has been partly offset by a reduction in
investment in Research due to the early phase portfolio reprioritisation
in 2019. R&D expenditure in Vaccines and Consumer Healthcare was
GBP333 million and GBP149 million, respectively.
Royalty income
Royalty income was GBP142 million (H1 2019: GBP151 million), down
6% AER, 8% CER, primarily reflecting adverse movements in Consumer
Healthcare.
Other operating income/(expense)
Net other operating income of GBP1,769 million (H1 2019: GBP153 million
expense) primarily reflected the net profit on disposal of the Horlicks
and other Consumer Healthcare brands of GBP2,815 million in Q2 2020,
which was after reversal of GBP240 million of embedded derivative
gains on the value of the shares taken in prior years. This was partly
offset by the related loss on sale of the shares in Hindustan Unilever
in Q2 2020 of GBP476 million. Other operating income also included
an increase in profit and milestone income from a number of asset
disposals.
This was partly offset by accounting charges of GBP841 million (H1
2019: GBP103 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 GBP778 million (H1 2019: GBP166 million)
for the contingent consideration liability due to Shionogi, primarily
arising from changes in exchange rate assumptions as well as sales
forecasts and the unwind of the discounting.
Operating profit
Total operating profit was GBP4,864 million in H1 2020 compared with
GBP2,912 million in H1 2019. This reflected the profit on disposal
of the Horlicks and other Consumer Healthcare brands and resultant
sale of shares in Hindustan Unilever as well as increased income
from asset disposals. This was partly offset by higher re-measurement
charges on the contingent consideration liabilities.
Excluding these and other Adjusting items, Adjusted operating profit
was GBP4,424 million, 2% higher than H1 2019 at AER and 2% higher
at CER on a turnover increase of 8% CER. The Adjusted operating margin
of 26.5% was 1.5 percentage points lower at AER, and 1.7 percentage
points lower on a CER basis than in H1 2019. On a pro-forma basis,
Adjusted operating profit was 7% lower at CER on a turnover which
was flat at CER. The Adjusted pro-forma operating margin of 26.5%
was 1.9 percentage points lower on a CER basis than in H1 2019.
The reduction in pro-forma Adjusted operating profit primarily reflected
the adverse impact from the reduction in sales in Vaccines as a result
of the COVID-19 pandemic, investment in R&D including a significant
increase in Oncology investment, partly on the assets from the Tesaro
acquisition and initiation of several COVID-19 programmes, continuing
price pressure, particularly in Respiratory, including the impact
of the launch of a generic version of Advair in the US in February
2019 and investments in promotional product support, particularly
for new launches in Vaccines, HIV and Respiratory. This was partly
offset by a favourable mix in Vaccines, reduced promotional and variable
spending across all three business as a result of the COVID-19 lockdowns,
the continuing benefit of restructuring in Pharmaceuticals and Consumer
Healthcare and the tight control of ongoing costs, particularly in
non-promotional spending 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 H1 2020 amounted to GBP455 million (H1 2019: GBP443
million). This included cash payments made to Shionogi of GBP445
million (H1 2019: GBP439 million).
Operating profit by business
Pharmaceuticals operating profit was GBP2,159 million, down 13% AER,
14% CER on turnover that was flat at CER. The operating margin of
25.4% was 4.1 percentage points lower at AER than in H1 2019 and
4.2 percentage points lower on a CER basis. This primarily reflected
a significant increase in Oncology R&D, 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, and investment in new product
support and targeted priority markets, together with higher provisions
for legal settlements and costs in the six months. This was partly
offset by the reduced promotional and variable spending as a result
of the COVID-19 lockdowns, the continued benefit of restructuring
and tight control of ongoing costs.
Vaccines operating profit was GBP1,123 million, down 8% AER, 10%
CER on a turnover decrease of 6% CER. The operating margin of 38.2%
was 1.2 percentage points lower at AER than in H1 2019 and 1.6 percentage
points lower on a CER basis. This was primarily driven by negative
operating leverage from the COVID-19 related decline in sales, investment
behind key brands and income from one-off settlements in 2019, partly
offset by positive product mix.
Consumer Healthcare operating profit was GBP1,287 million, up 57%
AER, 59% CER on a turnover increase of 36% CER. On a pro-forma basis,
operating profit was GBP1,287 million, 8% CER higher on a turnover
increase of 2% CER. The operating margin of 24.5% was 3.4 percentage
points higher at AER and 3.5 percentage points higher on a CER basis
than in Q2 2019. The pro-forma operating margin of 24.5% was 1.2
percentage points higher on a CER basis. The higher margin was driven
by higher than normal sales growth in Q1 2020, partly offset by a
decline and unwind in Q2 2020, primarily due to COVID-19 buying patterns.
Margin growth was also supported by synergy delivery from the Pfizer
integration and targeted areas of lower promotional investment due
to lockdown impacts.
Net finance costs
Total net finance costs were GBP416 million compared with GBP406
million in H1 2019. Adjusted net finance costs were GBP414 million
compared with GBP407 million in H1 2019. The increase primarily reflected
reduced interest income on overseas cash following the divestment
of Horlicks and other Consumer Healthcare nutrition products in India
and a number of other countries plus reduced swap interest income
on foreign currency hedges. The increase was partly offset by favourable
refinancing of term debt.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was GBP28 million (H1
2019: GBP53 million). H1 2019 included a one-off adjustment of GBP51
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 GBP357 million represented an effective tax rate on
Total results of 8.0% (H1 2019: 20.5%) and reflected the different
tax effects of the various Adjusting items, including the disposal
of Horlicks and other Consumer Healthcare brands to Unilever and
subsequent disposal of shares received in Hindustan Unilever. Tax
on Adjusted profit amounted to GBP658 million and represented an
effective Adjusted tax rate of 16.3% (H1 2019: 17.6%), reflecting
cancellation by the UK Government of a reduction in the UK corporation
tax rate from 19% to 17% resulting in an increase in the value of
balance sheet deferred tax assets.
Issues related to taxation are described in Note 14, 'Taxation' in
the Annual Report 2019. 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 GBP291 million (H1 2019: GBP241 million). The increase was primarily
due to an increased allocation of Consumer Healthcare profits of
GBP196 million (H1 2019: GBPnil) following the completion of the
new Consumer Healthcare Joint Venture with Pfizer on 31 July 2019,
and which included the unwind of the fair value uplift on acquired
inventory and major restructuring costs. This was partly offset by
a reduced allocation of ViiV Healthcare profits of GBP64 million
(H1 2019: GBP204 million), including increased charges for re-measurement
of contingent consideration liabilities.
The allocation of Adjusted earnings to non-controlling interests
amounted to GBP549 million (H1 2019: GBP287 million). The increase
in allocation primarily reflected an increased allocation of Consumer
Healthcare profits of GBP277 million (H1 2019: GBPnil) following
the completion of the new Consumer Healthcare Joint Venture with
Pfizer on 31 July 2019 partly offset by a reduced allocation of ViiV
Healthcare profits of GBP241 million (H1 2019: GBP250 million), and
lower net profits in some of the Group's other entities with non-controlling
interests, primarily Consumer Healthcare India following the Horlicks
and other Consumer brands disposal.
Earnings per share
Total EPS was 77.0p, compared with 36.3p in H1 2019. The increase
in EPS primarily reflected the net profit on disposal of Horlicks
and other Consumer Healthcare brands as well as increased income
from asset disposals, partly offset by higher re-measurement charges
on the contingent consideration liabilities and a one-off benefit
in H1 2019 from increased share of after tax profits of the associate
Innoviva.
Adjusted EPS was 56.9p compared with 60.6p in H1 2019, down 6% AER,
6% CER, on a 2% CER increase in Adjusted operating profit. The reduction
primarily resulted from a higher non-controlling interest allocation
of Consumer Healthcare profits, reduced share of after tax profits
of associates resulting from a non-recurring income tax benefit in
Innoviva and partly offset by a reduced effective tax rate.
Currency impact on H1 2020 results
The results for H1 2020 are based on average exchange rates, principally
GBP1/$1.27, GBP1/EUR1.15 and GBP1/Yen 137. Comparative exchange rates
are given on page 59. The period-end exchange rates were GBP1/$1.23,
GBP1/EUR1.10 and GBP1/Yen 132.
In the six months, turnover increased 8% AER, 8% CER. Total EPS was
77.0p compared with 36.3p in H1 2019. Adjusted EPS was 56.9p compared
with 60.6p in H1 2019, down 6% AER, 6% CER. The flat currency impact
primarily reflected the weakness of Sterling, particularly against
the US$ and Yen, offset by weakness in emerging market currencies
relative to H1 2019. Exchange gains or losses on the settlement of
intercompany transactions had a negligible impact on the flat currency
impact on Adjusted EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for
H1 2020 and H1 2019 are set out below.
Six months ended 30 June 2020
Divest-
ments,
significant
legal Adjusted
Intangible Intangible Major Trans- and results
Total amort- impair- restruct- action- other Separation GBPm
results isation ment uring related items costs
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 16,714 16,714
Cost of sales (5,648) 351 27 305 106 (4,859)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 11,066 351 27 305 106 11,855
Selling, general
and
administration (5,625) 17 288 (20) 6 18 (5,316)
Research and
development (2,488) 34 116 82 (1) (2,257)
Royalty income 142 142
Other operating
income/
(expense) 1,769 1 832 (2,602) -
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 4,864 385 160 676 918 (2,597) 18 4,424
Net finance
costs (416) 1 1 (414)
Share of after
tax profits
of associates
and joint
ventures 28 28
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 4,476 385 160 677 918 (2,596) 18 4,038
Taxation (357) (73) (28) (152) (114) 69 (3) (658)
Tax rate % 8.0% 16.3%
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 4,119 312 132 525 804 (2,527) 15 3,380
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 291 258 549
Profit
attributable
to
shareholders 3,828 312 132 525 546 (2,527) 15 2,831
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 77.0p 6.3p 2.6p 10.5p 11.0p (50.8)p 0.3p 56.9p
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of shares
(millions) 4,971 4,971
------------ ------------
Six months ended 30 June 2019
Divestments,
significant
legal
Intangible Intangible Major and
Total amort- impair- restruct- Transaction- other Adjusted
results isation ment uring related items results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
Turnover 15,470 15,470
Cost of sales (5,370) 359 17 539 9 (4,446)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 10,100 359 17 539 9 11,024
Selling, general
and
administration (5,067) 6 92 70 69 (4,830)
Research and
development (2,119) 34 13 59 2 (2,011)
Royalty income 151 151
Other operating
(expense)/income (153) (1) 115 39 -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 2,912 393 36 689 194 110 4,334
Net finance costs (406) 1 (2) (407)
Share of after
tax
profits of
associates and
joint
ventures 53 53
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 2,559 393 36 690 194 108 3,980
Taxation (524) (76) (5) (117) (53) 75 (700)
Tax rate % 20.5% 17.6%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 2,035 317 31 573 141 183 3,280
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 241 46 287
Profit
attributable
to
shareholders 1,794 317 31 573 95 183 2,993
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 36.3p 6.4p 0.7p 11.6p 1.9p 3.7p 60.6p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of
shares
(millions) 4,942 4,942
------------ ------------
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.
Total Major restructuring charges incurred in H1 2020 were GBP676
million (H1 2019: GBP689 million), analysed as follows:
H1 2020 H1 2019
------------------------- -------------------------
Cash Non-cash Total Cash Non-cash Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ --------- ------ ------ --------- ------
2018 major restructuring
programme (incl. Tesaro) 56 170 226 111 504 615
Consumer Healthcare
Joint
Venture integration
programme 139 17 156 31 - 31
Separation Preparation
restructuring programme 279 3 282 - - -
Combined restructuring
and
integration programme - 12 12 22 21 43
474 202 676 164 525 689
------ --------- ------ ------ --------- ------
Cash charges primarily arose from restructuring of Vaccines Manufacturing
and R&D functions as well as commercial pharmaceuticals and some
administrative functions restructuring under the Separation Preparation
programme, integration costs under the Consumer Healthcare Joint
Venture integration programme and restructuring of the manufacturing
organisation, R&D and some administrative functions as well as the
integration of Tesaro under the 2018 major restructuring programme.
Non-cash charges under the 2018 major restructuring programme primarily
related to write down of sites on disposal of sites as part of plans
to restructure the manufacturing network.
Total cash payments made in H1 2020 were GBP331 million (H1 2019:
GBP285 million), GBP65 million for the existing Combined restructuring
and integration programme (H1 2019: GBP219 million), GBP100 million
(H1 2019: GBP46 million) under the 2018 major restructuring programme
including the settlement of certain charges accrued in previous quarters,
a further GBP135 million (H1 2019: GBP20 million) relating to the
Consumer Healthcare Joint Venture integration programme and GBP31
million relating to the Separation Preparation restructuring programme.
The analysis of Major restructuring charges by business was as follows:
H1 2020 H1 2019
GBPm GBPm
-------- --------
Pharmaceuticals 216 568
Vaccines 196 17
Consumer Healthcare 179 62
-------- --------
591 647
Corporate & central functions 85 42
-------- --------
Total Major restructuring costs 676 689
-------- --------
The analysis of Major restructuring charges by Income statement line
was as follows:
H1 2020 H1 2019
GBPm GBPm
-------- --------
Cost of sales 305 539
Selling, general and administration 288 92
Research and development 82 59
Other operating expense 1 (1)
-------- --------
Total Major restructuring costs 676 689
-------- --------
The benefit in the six months from the 2018 major restructuring programme
was GBP0.2 billion and the benefit from the Consumer Healthcare Joint
Venture integration was GBP0.1 billion. Given its early stage the
benefit from the Separation Preparation restructuring programme was
less than GBP0.1 billion.
The 2018 major restructuring programme, including Tesaro, is expected
to cost GBP1.75 billion over the period to 2021, with cash costs
of GBP0.85 billion and non-cash costs of GBP0.9 billion, and is expected
to deliver annual savings of around GBP450 million by 2021 (at 2019
rates). These savings are intended to be fully re-invested to help
fund targeted increases in R&D and commercial support of new products.
The completion of the new Consumer Healthcare Joint Venture with
Pfizer is expected to realise substantial cost synergies, generating
total annual cost savings of GBP0.5 billion by 2022 for expected
cash costs of GBP0.7 billion and non-cash charges of GBP0.3 billion,
plus additional capital expenditure of GBP0.2 billion. Up to 25%
of the cost savings are intended to be reinvested in the business
to support innovation and other growth opportunities.
The Group initiated in Q1 2020 a two-year Separation Preparation
programme to prepare for the separation of GSK into two companies:
New GSK, a biopharma company with an R&D approach focused on science
related to the immune system, the use of genetics and new technologies,
and a new leader in Consumer Healthcare. The programme aims to:
-- Drive a common approach to R&D with improved capital allocation
-- Align and improve the capabilities and efficiency of global support
functions to support New GSK
-- Further optimise the supply chain and product portfolio, including
the divestment of non-core assets. A strategic review of prescription
dermatology is underway
-- Prepare Consumer Healthcare to operate as a standalone company
The programme will target delivery of GBP0.7 billion of annual savings
by 2022 and GBP0.8 billion by 2023, with total costs estimated at
GBP2.4 billion, of which GBP1.6 billion is expected to be cash costs.
The proceeds of anticipated divestments are largely expected to cover
the cash costs of the programme.
Transaction-related adjustments
Transaction-related adjustments resulted in a net charge of GBP918
million (H1 2019: GBP194 million). This included a net GBP841 million
accounting charge 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.
H1 2020 H1 2019
Charge/(credit) GBPm GBPm
-------- --------
Contingent consideration on former Shionogi-ViiV
Healthcare joint venture
(including Shionogi preferential dividends) 778 166
ViiV Healthcare put options and Pfizer preferential
dividends 59 (71)
Contingent consideration on former Novartis Vaccines
business 4 8
Release of fair value uplift on acquired Pfizer
inventory 91 -
Other adjustments (14) 91
-------- --------
Total transaction-related charges 918 194
-------- --------
The GBP778 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, as a result of a GBP193 million unwind of the discount
and GBP585 million primarily from updated exchange rate assumptions
as well as adjustments to sales forecasts. The GBP59 million charge
relating to the ViiV Healthcare put options and Pfizer preferential
dividends represented an increase in the valuation of the put option
as a result of updated exchange rate assumptions as well as adjustments
to multiples and sales forecasts.
The ViiV Healthcare contingent consideration liability is valued
on a long-term basis. The potential impact of the COVID-19 pandemic
remains uncertain and at 30 June 2020, it has been assumed that there
will be no significant impact on the long-term value of the liability.
This position remains under review and the amount of the liability
will be updated in future quarters as further information on the
impact of the pandemic becomes available. An explanation of the accounting
for the non-controlling interests in ViiV Healthcare is set out on
page 11.
Divestments, significant legal charges and other items
Divestments and other items included a gain in the period of GBP2,339
million arising from the net profit on disposal of the Horlicks and
other Consumer Healthcare brands of GBP2,815 million in Q2 2020,
after reversal of GBP240 million of embedded derivative gains on
the value of the shares taken in prior years. This was partly offset
by the related loss on sale of the shares in Hindustan Unilever in
Q2 2020 of GBP476 million. Divestments and other items also included
a gain from a number of asset disposals and certain other Adjusting
items. A charge of GBP6 million (H1 2019: GBP69 million) for significant
legal matters included the settlement of existing matters as well
as provisions for ongoing litigation. Significant legal cash payments
were GBP6 million (H1 2019: GBP8 million).
Separation costs
From Q2 2020, the Group has started to report additional one-time
costs to prepare Consumer Healthcare for separation. These are estimated
at GBP600-700 million, excluding transaction costs.
Cash generation
Cash flow
Q2 2020 H1 2020 H1 2019
-------- -------- --------
Net cash inflow from operating activities
(GBPm) 2,760 3,725 2,052
Free cash flow* (GBPm) 1,949 2,480 535
Free cash flow growth (%) >100% >100% (35)%
Free cash flow conversion* (%) 86% 65% 30%
Net debt** (GBPm) 23,435 23,435 28,721
-------- -------- --------
* Free cash flow and free cash flow conversion are defined on page
67 .
** Net debt is analysed on page 65.
Q2 2020
The net cash inflow from operating activities for the quarter was
GBP2,760 million (Q2 2019: GBP1,389 million). The increase primarily
reflected a significant reduction in trade receivables as a result
of collections following strong sales in Q1 and beneficial timing
of payments for returns and rebates and taxes partly offset by reduced
operating profits and increased inventory.
Total cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were GBP232 million
(Q2 2019: GBP220 million), of which GBP203 million was recognised
in cash flows from operating activities and GBP29 million was recognised
in contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
Free cash flow was GBP1,949 million for the quarter (Q2 2019: GBP370
million). The increase primarily reflected a significant reduction
in trade receivables as a result of collections following strong
sales in Q1 2020, beneficial timing of payments for returns and rebates
and taxes and higher disposals of intangible assets partly offset
by increased inventory and higher dividends to non-controlling interests.
H1 2020
The net cash inflow from operating activities for the six months
was GBP3,725 million (H1 2019: GBP2,052 million). The increase primarily
reflected a reduction in trade receivables as a result of collections
following strong sales in Q1, beneficial timing of payments for returns
and rebates and taxes, a lower seasonal increase of inventory and
improved operating profits.
Total cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the six months were GBP445
million (H1 2019: GBP439 million), of which GBP388 million was recognised
in cash flows from operating activities and GBP57 million was recognised
in contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
Free cash flow was GBP2,480 million for the six months (H1 2019:
GBP535 million). The increase primarily reflected a reduction in
trade receivables as a result of collections following strong sales
in Q1 2020, beneficial timing of payments for returns and rebates
and taxes, a lower seasonal increase of inventory and higher disposals
of intangible assets and milestone income, partly offset by higher
dividends to non-controlling interests.
Net debt
At 30 June 2020, net debt was GBP23.4 billion, compared with GBP25.2
billion at 31 December 2019, comprising gross debt of GBP31.7 billion
and cash and liquid investments of GBP8.3 billion. Net debt decreased
due to the GBP3.3 billion proceeds from the Horlicks and other Consumer
brands disposal including shares in Hindustan Unilever of GBP2.7
billion and GBP0.6 billion of other assets, GBP0.3 billion of other
business and asset disposals together with GBP2.5 billion free cash
flow, partly offset by cash divested of GBP0.5 billion, dividends
paid to shareholders of GBP2.1 billion, GBP1.5 billion of unfavourable
exchange impacts from the translation of non-Sterling denominated
debt and exchange on other financing items and GBP0.2 billion in
additional investments.
At 30 June 2020, GSK had short-term borrowings (including overdrafts
and lease liabilities) repayable within 12 months of GBP6.0 billion
with loans of GBP4.7 billion repayable in the subsequent year.
Returns to shareholders
Quarterly dividends
The Board has declared a second interim dividend for 2020 of 19 pence
per share (Q2 2019: 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 currently intends to maintain the dividend for 2020 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 6 October 2020. An annual
fee of $0.03 per ADS (or $0.0075 per ADS per quarter) is charged
by the Depositary.
The ex-dividend date will be 13 August 2020, with a record date of
14 August 2020 and a payment date of 8 October 2020.
Paid/ Pence per
payable share GBPm
------------- ---------- -----
2020
First interim 9 July 2020 19 946
8 October
Second interim 2020 19 946
2019
First interim 11 July 2019 19 940
10 October
Second interim 2019 19 941
9 January
Third interim 2020 19 941
Fourth interim 9 April 2020 23 1,144
--- ------
80 3,966
--- ------
Weighted average number of shares
Q2 2020 Q2 2019
millions millions
---------- ----------
Weighted average number of shares
- basic 4,977 4,947
Dilutive effect of share options
and share awards 46 44
---------- ----------
Weighted average number of shares
- diluted 5,023 4,991
---------- ----------
Weighted average number of shares
H1 2020 H1 2019
millions millions
---------- ----------
Weighted average number of shares
- basic 4,971 4,942
Dilutive effect of share options
and share awards 46 43
---------- ----------
Weighted average number of shares
- diluted 5,017 4,985
---------- ----------
At 30 June 2020, 4,977 million shares (30 June 2019: 4,948 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 0.2 million shares under employee share schemes
in the quarter for proceeds of GBP3 million (Q2 2019: GBP6 million).
At 30 June 2020, the ESOP Trust held 39.7 million GSK shares against
the future exercise of share options and share awards. The carrying
value of GBP330 million has been deducted from other reserves. The
market value of these shares was GBP656 million.
At 30 June 2020, the company held 367.7 million Treasury shares at
a cost of GBP5,144 million, which has been deducted from retained
earnings.
Financial information
Income statements
Q2 2020 Q2 2019 H1 2020 H1 2019
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
TURNOVER 7,624 7,809 16,714 15,470
Cost of sales (2,449) (2,637) (5,648) (5,370)
-------- -------- -------- --------
Gross profit 5,175 5,172 11,066 10,100
Selling, general and administration (2,709) (2,590) (5,625) (5,067)
Research and development (1,301) (1,113) (2,488) (2,119)
Royalty income 75 78 142 151
Other operating income/(expense) 1,610 (63) 1,769 (153)
-------- -------- -------- --------
OPERATING PROFIT 2,850 1,484 4,864 2,912
Finance income 1 21 42 55
Finance expense (229) (237) (458) (461)
Share of after tax profits/(losses)
of
associates and joint ventures 19 (4) 28 53
-------- -------- -------- --------
PROFIT BEFORE TAXATION 2,641 1,264 4,476 2,559
Taxation (201) (214) (357) (524)
Tax rate % 7.6% 16.9% 8.0% 20.5%
-------- -------- -------- --------
PROFIT AFTER TAXATION 2,440 1,050 4,119 2,035
-------- -------- -------- --------
Profit attributable to non-controlling
interests 177 86 291 241
Profit attributable to shareholders 2,263 964 3,828 1,794
-------- -------- -------- --------
2,440 1,050 4,119 2,035
-------- -------- -------- --------
EARNINGS PER SHARE 45.5p 19.5p 77.0p 36.3p
-------- -------- -------- --------
Diluted earnings per share 45.0 p 19.3p 76.3p 36.0p
-------- -------- -------- --------
Statement of comprehensive income
Q2 2020 Q2 2019
GBPm GBPm
-------- --------
Profit for the period 2,440 1,050
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges 182 (120)
Reclassification of exchange movements on liquidation
or disposal of
overseas subsidiaries 36 -
Fair value movements on cash flow hedges (5) (73)
Reclassification of cash flow hedges to income statement 51 -
Deferred tax on fair value movements on cash flow
hedges (3) 1
261 (192)
-------- --------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests 42 8
Fair value movements on equity investments 224 6
Deferred tax on fair value movements on equity investments (24) (20)
Re-measurement losses on defined benefit plans (1,445) (131)
Tax on re-measurement losses on defined benefit
plans 279 27
-------- --------
(924) (110)
-------- --------
Other comprehensive expense for the period (663) (302)
-------- --------
Total comprehensive income for the period 1,777 748
-------- --------
Total comprehensive income for the period attributable
to:
Shareholders 1,558 654
Non-controlling interests 219 94
-------- --------
1,777 748
-------- --------
Statement of comprehensive income
H1 2020 H1 2019
GBPm GBPm
-------- --------
Profit for the period 4,119 2,035
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges 360 (45)
Reclassification of exchange movements on liquidation
or disposal of
overseas subsidiaries 36 -
Fair value movements on cash flow hedges (23) (73)
Reclassification of cash flow hedges to income statement 52 1
Deferred tax on fair value movements on cash flow
hedges (3) -
422 (117)
-------- --------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests 95 (10)
Fair value movements on equity investments 185 44
Deferred tax on fair value movements on equity investments (14) (30)
Re-measurement losses on defined benefit plans (445) (573)
Tax on re-measurement losses on defined benefit
plans 92 102
-------- --------
(87) (467)
-------- --------
Other comprehensive income/(expense) for the period 335 (584)
-------- --------
Total comprehensive income for the period 4,454 1,451
-------- --------
Total comprehensive income for the period attributable
to:
Shareholders 4,068 1,220
Non-controlling interests 386 231
-------- --------
4,454 1,451
-------- --------
Pharmaceuticals turnover - three months ended 30 June 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Respiratory 883 17 16 500 19 16 219 13 13 164 17 17
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ellipta products 642 15 14 350 16 13 165 17 16 127 11 14
Anoro Ellipta 139 9 6 88 9 5 32 7 10 19 12 6
Arnuity Ellipta 8 (43) (50) 6 (50) (50) - - - 2 - (50)
Incruse Ellipta 59 4 2 33 6 - 19 - - 7 - 14
Relvar/Breo
Ellipta 242 2 2 83 (11) (12) 78 11 9 81 8 12
Trelegy Ellipta 194 62 58 140 65 60 36 64 59 18 38 46
Nucala 241 24 21 150 28 26 54 4 6 37 42 31
HIV 1,185 (2) (3) 740 1 (2) 270 (7) (7) 175 (5) (2)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dolutegravir
products 1,140 (1) (2) 725 1 (2) 259 (4) (5) 156 - 4
Tivicay 373 (9) (10) 208 (14) (16) 87 (12) (14) 78 10 15
Triumeq 586 (9) (11) 378 (6) (9) 134 (16) (16) 74 (12) (10)
Juluca 113 35 33 90 29 27 21 62 62 2 100 >100
Dovato 68 >100 >100 49 >100 >100 17 - - 2 >100 >100
Epzicom/Kivexa 9 (59) (64) - - - 2 (67) (67) 7 (53) (60)
Selzentry 21 (19) (15) 12 (8) (8) 6 (25) (25) 3 (40) (20)
Other 15 7 (14) 3 50 (50) 3 (25) (25) 9 13 -
Immuno-
inflammation 177 17 15 153 16 14 12 9 - 12 50 50
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Benlysta 177 18 15 153 16 14 12 9 - 12 71 71
Oncology 77 35 33 47 42 39 30 25 21 - - -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Zejula 77 35 32 47 42 39 30 25 21 - - -
Established
Pharmaceuticals 1,780 (17) (17) 361 (22) (24) 400 (23) (23) 1,019 (12) (11)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Established
Respiratory 805 (12) (12) 255 (18) (20) 179 (14) (14) 371 (6) (5)
Seretide/Advair 421 2 2 143 36 34 113 (12) (13) 165 (7) (6)
Flixotide/Flovent 117 (7) (7) 54 (17) (18) 17 (23) (18) 46 18 18
Ventolin 144 (39) (39) 58 (59) (60) 24 (17) (21) 62 (6) (2)
Avamys/Veramyst 62 (13) (10) - - - 19 (5) (10) 43 (16) (10)
Other Respiratory 61 (10) (16) - - - 6 (25) (12) 55 (10) (16)
Dermatology 95 (11) (9) 1 - - 30 (27) (24) 64 (2) -
Augmentin 100 (25) (23) - - - 21 (45) (45) 79 (17) (15)
Avodart 134 (5) (6) 2 100 100 39 (26) (28) 93 7 7
Imigran/Imitrex 27 (25) (28) 10 (41) (41) 12 (8) (15) 5 (17) (17)
Lamictal 135 (5) (6) 66 (8) (10) 28 - (4) 41 (2) (2)
Seroxat/Paxil 36 (10) (10) - - - 8 (11) (11) 28 (10) (10)
Valtrex 25 - - 3 >100 >100 7 - - 15 (12) (12)
Other 423 (30) (29) 24 (61) (62) 76 (37) (36) 323 (23) (22)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pharmaceuticals 4,102 (5) (5) 1,801 1 (1) 931 (10) (11) 1,370 (8) (7)
-------- -------- -------- -------- ---------- -------- -------- --------- -------- -------- --------- --------
Pharmaceuticals turnover - six months ended 30 June 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Respiratory 1,754 27 26 964 28 25 466 26 27 324 26 26
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ellipta products 1,303 26 25 699 26 24 350 29 29 254 21 22
Anoro Ellipta 256 11 10 151 9 6 68 19 21 37 9 9
Arnuity Ellipta 17 (19) (24) 13 (28) (28) - - - 4 33 -
Incruse Ellipta 116 (7) (8) 63 (16) (19) 39 5 5 14 8 15
Relvar/Breo
Ellipta 527 16 16 198 16 14 165 20 20 164 13 14
Trelegy Ellipta 387 87 85 274 81 77 78 90 90 35 >100 >100
Nucala 451 30 28 265 31 29 116 20 21 70 46 42
HIV 2,392 3 2 1,445 1 (1) 590 4 4 357 6 9
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dolutegravir
products 2,301 4 3 1,416 2 - 564 6 6 321 10 14
Tivicay 785 (1) (2) 422 (9) (11) 193 - - 170 24 28
Triumeq 1,149 (9) (10) 716 (9) (11) 290 (9) (9) 143 (6) (3)
Juluca 233 51 49 184 40 38 45 >100 >100 4 100 100
Dovato 134 >100 >100 94 >100 >100 36 - - 4 >100 >100
Epzicom/Kivexa 18 (56) (56) 1 (50) (50) 5 (58) (58) 12 (56) (56)
Selzentry 47 (4) (2) 23 (12) (12) 14 (7) (7) 10 25 38
Other 26 - (12) 5 (29) (57) 7 - - 14 17 8
Immuno-
inflammation 328 21 19 279 18 16 26 18 18 23 77 77
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Benlysta 328 21 19 279 18 16 26 18 18 23 92 92
Oncology 158 58 57 95 61 58 63 54 54 - - -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Zejula 158 60 58 95 61 58 63 57 57 - - -
Established
Pharmaceuticals 3,866 (12) (11) 776 (22) (23) 928 (11) (10) 2,162 (8) (6)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Established
Respiratory 1,770 (11) (11) 558 (21) (23) 399 (6) (6) 813 (5) (4)
Seretide/Advair 816 (9) (9) 249 (11) (12) 240 (8) (8) 327 (8) (6)
Flixotide/Flovent 240 (12) (12) 104 (27) (29) 45 (6) (4) 91 12 14
Ventolin 397 (17) (17) 205 (29) (30) 62 - - 130 (2) 2
Avamys/Veramyst 171 (8) (7) - - - 38 (3) (3) 133 (10) (8)
Other Respiratory 146 (8) (11) - - - 14 (7) (7) 132 (9) (12)
Dermatology 206 (4) (2) 1 (67) (67) 68 (14) (13) 137 3 6
Augmentin 269 (8) (6) - - - 78 (10) (9) 191 (7) (5)
Avodart 275 (3) (3) 3 50 50 88 (19) (19) 184 6 7
Imigran/Imitrex 61 (9) (9) 25 (14) (14) 25 (4) (4) 11 (8) (8)
Lamictal 272 (1) (1) 135 (1) (3) 60 13 13 77 (8) (7)
Seroxat/Paxil 72 (10) (10) - - - 18 - - 54 (13) (13)
Valtrex 53 2 2 7 17 17 16 14 14 30 (6) (6)
Other 888 (21) (20) 47 (56) (57) 176 (23) (22) 665 (15) (14)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pharmaceuticals 8,498 - - 3,559 3 1 2,073 2 2 2,866 (3) (2)
-------- -------- -------- -------- ---------- -------- -------- --------- -------- -------- --------- --------
Vaccines turnover - three months ended 30 June 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Meningitis 167 (29) (29) 46 (54) (55) 77 (11) (13) 44 (8) (4)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Bexsero 108 (31) (30) 27 (51) (53) 71 (13) (15) 10 (47) (32)
Menveo 38 (39) (39) 19 (58) (58) 5 25 25 14 8 8
Other 21 24 18 - - - 1 - - 20 25 19
Influenza 15 (12) (6) - - - - - - 15 (6) -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Fluarix,
FluLaval 15 (12) (6) - - - - - - 15 (6) -
Shingles 323 (16) (19) 268 (24) (26) 44 >100 >100 11 (48) (52)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Shingrix 323 (16) (19) 268 (24) (26) 44 >100 >100 11 (48) (52)
Established
Vaccines 628 (34) (34) 134 (59) (61) 167 (45) (46) 327 3 4
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Infanrix,
Pediarix 119 (39) (40) 41 (51) (53) 42 (37) (37) 36 (20) (20)
Boostrix 76 (47) (47) 34 (52) (55) 27 (37) (37) 15 (50) (43)
Hepatitis 86 (62) (62) 41 (68) (69) 25 (65) (66) 20 (13) (9)
Rotarix 128 10 9 17 (32) (36) 28 4 - 83 30 31
Synflorix 103 (4) (5) - - - 10 (33) (40) 93 1 1
Priorix,
Priorix
Tetra,
Varilrix 54 8 8 - - - 27 13 13 27 4 4
Cervarix 34 21 25 - - - 5 (17) (17) 29 32 36
Other 28 (66) (65) 1 (94) (94) 3 (94) (92) 24 (41) (41)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines 1,133 (29) (29) 448 (42) (45) 288 (29) (29) 397 (2) -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines turnover - six months ended 30 June 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Meningitis 392 (12) (10) 126 (26) (27) 172 1 2 94 (9) (2)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Bexsero 272 (13) (11) 81 (21) (22) 155 (3) (2) 36 (28) (18)
Menveo 78 (18) (17) 45 (34) (35) 14 75 75 19 - 11
Other 42 14 14 - - - 3 - - 39 15 15
Influenza 36 13 22 2 - - - - - 34 13 23
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Fluarix,
FluLaval 36 13 22 2 - - - - - 34 13 23
Shingles 970 31 28 868 28 25 64 >100 >100 38 (16) (16)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Shingrix 970 31 28 868 28 25 64 >100 >100 38 (16) (16)
Established
Vaccines 1,540 (18) (18) 465 (34) (35) 400 (28) (27) 675 7 8
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Infanrix,
Pediarix 299 (21) (21) 129 (31) (32) 96 (16) (16) 74 (5) (3)
Boostrix 188 (30) (30) 92 (30) (32) 62 (22) (21) 34 (38) (36)
Hepatitis 299 (35) (36) 169 (41) (42) 80 (34) (34) 50 (9) (7)
Rotarix 279 12 12 58 (17) (19) 59 5 5 162 31 31
Synflorix 226 (1) - - - - 29 (12) (12) 197 1 2
Priorix,
Priorix
Tetra,
Varilrix 111 6 8 - - - 56 10 10 55 2 6
Cervarix 46 (4) (2) - - - 9 (18) (18) 37 - 3
Other 92 (38) (38) 17 (39) (46) 9 (90) (89) 66 94 97
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines 2,938 (5) (6) 1,461 (6) (8) 636 (14) (14) 841 4 6
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Balance sheet
31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
------------- ------------- ------------
ASSETS
Non-current assets
Property, plant and equipment 10,490 10,385 10,348
Right of use assets 941 1,023 966
Goodwill 10,998 7,026 10,562
Other intangible assets 31,263 20,134 30,955
Investments in associates and
joint ventures 390 309 314
Other investments 2,174 1,380 1,837
Deferred tax assets 4,455 3,668 4,096
Derivative financial instruments 5 86 103
Other non-current assets 946 1,393 1,020
------------- ------------- ------------
Total non-current assets 61,662 45,404 60,201
------------- ------------- ------------
Current assets
Inventories 6,396 5,959 5,947
Current tax recoverable 328 186 262
Trade and other receivables 7,168 6,875 7,202
Derivative financial instruments 421 211 421
Liquid investments 87 84 79
Cash and cash equivalents 8,166 4,123 4,707
Assets held for sale 412 790 873
------------- ------------- ------------
Total current assets 22,978 18,228 19,491
------------- ------------- ------------
TOTAL ASSETS 84,640 63,632 79,692
------------- ------------- ------------
LIABILITIES
Current liabilities
Short-term borrowings (5,964) (10,147) (6,918)
Contingent consideration liabilities (804) (816) (755)
Trade and other payables (15,450) (13,385) (14,939)
Derivative financial instruments (245) (255) (188)
Current tax payable (685) (502) (629)
Short-term provisions (776) (674) (621)
------------- ------------- ------------
Total current liabilities (23,924) (25,779) (24,050)
------------- ------------- ------------
Non-current liabilities
Long-term borrowings (25,726) (23,313) (23,590)
Corporation tax payable (195) (273) (189)
Deferred tax liabilities (3,967) (1,233) (3,810)
Pensions and other post-employment
benefits (3,999) (3,352) (3,457)
Other provisions (814) (625) (670)
Derivative financial instruments (24) - (1)
Contingent consideration liabilities (5,026) (5,212) (4,724)
Other non-current liabilities (828) (878) (844)
------------- ------------- ------------
Total non-current liabilities (40,579) (34,886) (37,285)
------------- ------------- ------------
TOTAL LIABILITIES (64,503) (60,665) (61,335)
------------- ------------- ------------
NET ASSETS 20,137 2,967 18,357
------------- ------------- ------------
EQUITY
Share capital 1,346 1,345 1,346
Share premium account 3,278 3,157 3,174
Retained earnings 6,622 (2,804) 4,530
Other reserves 2,347 1,916 2,355
------------- ------------- ------------
Shareholders' equity 13,593 3,614 11,405
Non-controlling interests 6,544 (647) 6,952
------------- ------------- ------------
TOTAL EQUITY 20,137 2,967 18,357
------------- ------------- ------------
Statement of changes in equity
Share- Non-
Share Share Retained Other holder's controlling Total
capital premium earnings reserves equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January 2020 1,346 3,174 4,530 2,355 11,405 6,952 18,357
Profit for the
period 3,828 3,828 291 4,119
Other
comprehensive
income
for the
period 41 199 240 95 335
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income
for the period 3,869 199 4,068 386 4,454
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (652) (652)
Contributions
from
non-controlling
interests 3 3
Changes to
non-controlling
interests (145) (145)
Dividends to
shareholders (2,085) (2,085) (2,085)
Shares issued - 26 26 26
Realised after
tax profits
on disposal of
equity
investments 36 (36) - -
Shares acquired
by ESOP
Trusts 78 361 (439) - -
Write-down on
shares held
by ESOP Trusts (268) 268 - -
Share-based
incentive plans 179 179 179
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 June 2020 1,346 3,278 6,622 2,347 13,593 6,544 20,137
------------ ------------ ------------ ------------ ------------ ------------ ------------
As previously
reported 1,345 3,091 (2,137) 2,061 4,360 (688) 3,672
Adjustment to
non-controlling
interest (579) (579) 579 -
------------ ------------ ------------ ------------ ------------ ------------ ------------
As revised 1,345 3,091 (2,716) 2,061 3,781 (109) 3,672
Implementation of
IFRS16 (93) (93) (93)
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 1 January
2019, as
adjusted 1,345 3,091 (2,809) 2,061 3,688 (109) 3,579
Profit for the
period 1,794 1,794 241 2,035
Other
comprehensive
expense
for the period (519) (55) (574) (10) (584)
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income/(expense)
for the period 1,275 (55) 1,220 231 1,451
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (196) (196)
Changes in
non-controlling
interests 6 6
Contributions
from
non-controlling
interests
Dividends to
shareholders (2,072) (2,072) (2,072)
Shares issued - 33 33 33
Realised profits
on disposal
of equity
investments 6 (6) - -
Shares acquired
by ESOP
Trusts 33 295 (328) - -
Write-down on
shares held
by ESOP Trusts (244) 244 - -
Share-based
incentive plans 166 166 166
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 June 2019 1,345 3,157 (3,383) 1,916 3,035 (68) 2,967
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash flow statement - six months ended 30 June 2020
H1 2020 H1 2019
GBPm GBPm
-------- --------
Profit after tax 4,119 2,035
Tax on profits 357 524
Share of after tax profits of associates and
joint ventures (28) (53)
Net finance expense 416 406
Depreciation, amortisation and other adjusting
items (971) 1,959
Increase in working capital (476) (990)
Contingent consideration paid (393) (392)
Increase/(decrease) in other net liabilities
(excluding contingent
consideration paid) 1,251 (603)
-------- --------
Cash generated from operations 4,275 2,886
Taxation paid (550) (834)
-------- --------
Net cash inflow from operating activities 3,725 2,052
-------- --------
Cash flow from investing activities
Purchase of property, plant and equipment (420) (501)
Proceeds from sale of property, plant and equipment 12 70
Purchase of intangible assets (326) (438)
Proceeds from sale of intangible assets 636 12
Purchase of equity investments (208) (49)
Proceeds from sale of equity investments 2,871 39
Purchase of businesses, net of cash acquired (6) (3,641)
Contingent consideration paid (62) (51)
Disposal of businesses 237 12
Investment in associates and joint ventures (1) (5)
Interest received 26 36
Dividends from associates and joint ventures 14 -
-------- --------
Net cash inflow/(outflow) from investing activities 2,773 (4,516)
-------- --------
Cash flow from financing activities
Issue of share capital 26 33
Increase in short-term loans - 7,255
Increase in long-term loans 2,354 2,603
Repayment of short-term loans (3,018) (4,246)
Net repayment of obligations under lease liabilities (111) (104)
Interest paid (476) (449)
Dividends paid to shareholders (2,085) (2,072)
Distributions to non-controlling interests (652) (196)
Contributions from non-controlling interests 3 -
Other financing items 278 (55)
-------- --------
Net cash (outflow)/inflow from financing activities (3,681) 2,769
-------- --------
Increase in cash and bank overdrafts in the
period 2,817 305
-------- --------
Cash and bank overdrafts at beginning of the
period 4,831 4,087
Exchange adjustments 28 14
Increase in cash and bank overdrafts 2,817 305
-------- --------
Cash and bank overdrafts at end of the period 7,676 4,406
-------- --------
Cash and bank overdrafts at end of the period
comprise:
Cash and cash equivalents 8,166 4,123
Cash and cash equivalents reported in assets
held for sale 2 532
-------- --------
8,168 4,655
Overdrafts (492) (249)
-------- --------
7,676 4,406
-------- --------
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
Q2 2020 Q2 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 4,102 4,307 (5) (5)
Vaccines 1,133 1,585 (29) (29)
Consumer Healthcare 2,389 1,917 25 25
-------- -------- ------- -------
Total turnover 7,624 7,809 (2) (3)
-------- -------- ------- -------
Operating profit by segment
Q2 2020 Q2 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 1,886 2,075 (9) (10)
Pharmaceuticals R&D (910) (819) 11 9
-------- -------- ------- -------
Pharmaceuticals including R&D 976 1,256 (22) (23)
Vaccines 265 612 (57) (58)
Consumer Healthcare 521 391 33 33
-------- -------- ------- -------
Segment profit 1,762 2,259 (22) (23)
Corporate and other unallocated
costs (13) (88)
-------- -------- ------- -------
Adjusted operating profit 1,749 2,171 (19) (21)
Adjusting items 1,101 (687)
-------- -------- ------- -------
Total operating profit 2,850 1,484 92 90
Finance income 1 21
Finance costs (229) (237)
Share of after tax profits/(losses)
of
associates and joint ventures 19 (4)
-------- -------- ------- -------
Profit before taxation 2,641 1,264 >100 >100
-------- -------- ------- -------
Turnover by segment
H1 2020 H1 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 8,498 8,465 - -
Vaccines 2,938 3,107 (5) (6)
Consumer Healthcare 5,251 3,898 35 36
-------- -------- ------- -------
16,687 15,470 8 8
Corporate and other unallocated
turnover 27 -
-------- -------- ------- -------
Total turnover 16,714 15,470 8 8
-------- -------- ------- -------
Operating profit by segment
H1 2020 H1 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 3,904 4,043 (3) (4)
Pharmaceuticals R&D (1,745) (1,549) 13 11
-------- -------- ------- -------
Pharmaceuticals including R&D 2,159 2,494 (13) (14)
Vaccines 1,123 1,226 (8) (10)
Consumer Healthcare 1,287 821 57 59
-------- -------- ------- -------
Segment profit 4,569 4,541 1 -
Corporate and other unallocated
costs (145) (207)
-------- -------- ------- -------
Adjusted operating profit 4,424 4,334 2 2
Adjusting items 440 (1,422)
-------- -------- ------- -------
Total operating profit 4,864 2,912 67 66
Finance income 42 55
Finance costs (458) (461)
Share of after tax profits of
associates
and joint ventures 28 53
-------- -------- ------- -------
Profit before taxation 4,476 2,559 75 74
-------- -------- ------- -------
Legal matters
The Group is involved in significant legal and administrative proceedings,
principally product liability, intellectual property, tax, anti-trust,
consumer fraud and governmental investigations, which are more fully
described in the 'Legal Proceedings' note in the Annual Report 2019.
At 30 June 2020, the Group's aggregate provision for legal and other
disputes (not including tax matters described on page 22) was GBP0.3
billion (31 December 2019: GBP0.2 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.
Significant developments since the date of the Annual Report 2019
are as follows:
On 4 May 2020, the US Department of Justice informed the Group that
it would be closing its investigation without a recommendation of
further action with respect to the Group's use of third-party advisers
in China. This followed the US Securities and Exchange Commission's
notification to the Group on 8 March 2020 that the SEC similarly
was terminating its investigation into these matters. Accordingly,
this matter is now concluded.
On 18 June 2020, the Group received a Civil Investigative Demand
(CID) from the US Department of Justice (DOJ) seeking information
related to Zantac pursuant to the False Claims Act. The Group is
co-operating with the DOJ to provide this information. Additionally,
on 18 June 2020, the New Mexico Attorney General filed a lawsuit
against multiple defendants, including GSK, relating to Zantac and
other products containing ranitidine.
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 six months ended 30 June 2020, is prepared
in accordance with the Disclosure and Transparency Rules (DTR) of
the Financial Conduct Authority and IAS 34 'Interim financial reporting'
and should be read in conjunction with the Annual Report 2019, 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 2019.
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 2019 were published
in the Annual Report 2019, which has been delivered to the Registrar
of Companies and on which the report of the independent auditor was
unqualified and did not contain a statement under section 498 of
the Companies Act 2006.
Exchange rates
GSK operates in many countries, and earns revenues and incurs costs
in many currencies. The results of the Group, as reported in Sterling,
are affected by movements in exchange rates between Sterling and
other currencies. Average exchange rates, as modified by specific
transaction rates for large transactions, prevailing during the period,
are used to translate the results and cash flows of overseas subsidiaries,
associates and joint ventures into Sterling. Period-end rates are
used to translate the net assets of those entities. The currencies
which most influenced these translations and the relevant exchange
rates were:
Q2 2020 Q2 2019 H1 2020 H1 2019 2019
-------- -------- -------- -------- -----
Average rates:
US$/GBP 1.25 1.28 1.27 1.29 1.28
Euro/GBP 1.13 1.14 1.15 1.14 1.14
Yen/GBP 134 140 137 142 139
Period-end rates:
US$/GBP 1.23 1.27 1.23 1.27 1.32
Euro/GBP 1.10 1.12 1.10 1.12 1.18
Yen/GBP 132 137 132 137 143
During Q2 2020 average Sterling exchange rates were weaker against
the US Dollar, the Euro and Yen compared with the same period in
2019. During the six months ended 30 June 2020, average Sterling
exchange rates were weaker against the US Dollar and the Yen but
stronger against the Euro. Period-end Sterling exchange rates were
weaker against the US Dollar, the Euro and Yen compared with the
2019 period-end rates.
Net assets
The book value of net assets increased by GBP1,780 million from GBP18,357
million at 31 December 2019 to GBP20,137 million at 30 June 2020.
This primarily reflected the Total profit for the period exceeding
the re-measurement losses on defined benefit plans and the dividends
paid during the period.
The carrying value of investments in associates and joint ventures
at 30 June 2020 was GBP390 million (31 December 2019: GBP314 million),
with a market value of GBP445 million (31 December 2019: GBP396 million).
At 30 June 2020, the net deficit on the Group's pension plans was
GBP2,447 million compared with GBP1,921 million at 31 December 2019.
The increase in the net deficit primarily arose from decreases in
the rates used to discount UK pension liabilities from 2.0% to 1.5%,
and US pension liabilities from 3.2% to 2.6%, partly offset by higher
UK assets and a decrease in the UK inflation rate from 3.0% to 2.9%.
The Group continues to monitor and review the pension asset portfolios
in response to the pandemic given the elevated uncertainty inherent
for valuations particularly for the property asset class.
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 GBP1,069 million (31 December
2019: GBP1,011 million).
During the quarter, the Group issued an exchangeable bond giving
the investors the right to exchange their notes into underlying shares
in Theravance Biopharma, Inc. The par value of the exchangeable bond
was $280 million and the net proceeds received were $300 million
(GBP242 million).
Contingent consideration amounted to GBP5,830 million at 30 June
2020 (31 December 2019: GBP5,479 million), of which GBP5,436 million
(31 December 2019: GBP5,103 million) represented the estimated present
value of amounts payable to Shionogi relating to ViiV Healthcare
and GBP349 million (31 December 2019: GBP339 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 June 2020, GBP768 million (31 December 2019: GBP730
million) is expected to be paid within one year.
Movements in contingent consideration are as follows :
ViiV Healthcare Group
H1 2020 GBPm GBPm
---------------- ------
Contingent consideration at beginning of the
period 5,103 5,479
Re-measurement through income statement 778 806
Cash payments: operating cash flows (388) (393)
Cash payments: investing activities (57) (62)
Contingent consideration at end of the period 5,436 5,830
---------------- ------
ViiV Healthcare Group
H1 2019 GBPm GBPm
---------------- ------
Contingent consideration at beginning of the
period 5,937 6,286
Re-measurement through income statement 166 185
Cash payments: operating cash flows (390) (392)
Cash payments: investing activities (49) (51)
Contingent consideration at end of the period 5,664 6,028
---------------- ------
Contingent liabilities
There were contingent liabilities at 30 June 2020 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 58.
Business acquisitions and disposals
On 1 April 2020, GSK completed its divestment of Horlicks and other
Consumer Healthcare nutrition products in India and a number of other
countries (excluding Bangladesh) to Unilever and the merger of GSK's
Indian listed Consumer Healthcare entity with Hindustan Unilever,
an Indian listed public company. GSK received a 5.7% equity stake
in Hindustan Unilever and approximately GBP395 million in cash.
The divestment in Bangladesh closed on 30 June 2020. Total cash consideration
received was approximately GBP177 million. GSK disposed of its equity
stake in Hindustan Unilever during May 2020.
The cash divested for the disposal of Horlicks and other Consumer
Healthcare nutrition products in India and a number of other countries
was approximately GBP478 million.
Financial instruments fair value disclosures
The following tables categorise the Group's financial assets and
liabilities held at fair value by the valuation methodology applied
in determining their fair value. Where possible, quoted prices in
active markets are used (Level 1). Where such prices are not available,
the asset or liability is classified as Level 2, provided all significant
inputs to the valuation model used are based on observable market
data. If one or more of the significant inputs to the valuation model
is not based on observable market data, the instrument is classified
as Level 3. Other investments classified as Level 3 in the tables
below comprise equity investments in unlisted entities with which
the Group has entered into research collaborations and also investments
in emerging life science companies.
Level Level Level
1 2 3 Total
At 30 June 2020 GBPm GBPm GBPm GBPm
------ ------ ------ -------
Financial assets at fair value
Financial assets at fair value
through other
comprehensive income (FVTOCI):
Other investments designated at
FVTOCI 1,266 - 848 2,114
Trade and other receivables - 1,592 - 1,592
Financial assets mandatorily at
fair value through
profit or loss (FVTPL):
Other investments - - 60 60
Other non-current assets - 756 43 799
Trade and other receivables - 68 - 68
Held for trading derivatives that
are not in a
designated and effective hedging
relationship - 292 5 297
Cash and cash equivalents 5,344 - - 5,344
Derivatives designated and effective
as hedging
instruments - 129 - 129
6,610 2,837 956 10,403
------ ------ ------ -------
Financial liabilities at fair value
Financial liabilities mandatorily
at fair value through
profit or loss (FVTPL):
Contingent consideration liabilities - - (5,830) (5,830)
Held for trading derivatives that
are not in a
designated and effective hedging
relationship - (93) (24) (117)
Derivatives designated and effective
as hedging
instruments. - (152) - (152)
- (245) (5,854) (6,099)
---- ------ -------- --------
Level Level Level
1 2 3 Total
At 31 December 2019 GBPm GBPm GBPm GBPm
------ ------ ------ ------
Financial assets at fair value
Financial assets at fair value
through other
comprehensive income (FVTOCI):
Other investments designated at
FVTOCI 1,128 - 653 1,781
Trade and other receivables - 1,665 - 1,665
Financial assets mandatorily measured
at fair value
through profit or loss (FVTPL):
Other investments - - 56 56
Other non-current assets - 743 44 787
Trade and other receivables - 44 - 44
Held for trading derivatives that
are not in a
designated and effective hedging
relationship - 353 4 357
Cash and cash equivalents 2,142 - - 2,142
Derivatives designated and effective
as
hedging instruments - 167 - 167
3,270 2,972 757 6,999
------ ------ ------ ------
Level Level Level
1 2 3 Total
At 31 December 2019 GBPm GBPm GBPm GBPm
------- ------ -------- --------
Financial liabilities at fair value
Financial liabilities mandatorily
at fair value through
profit or loss (FVTPL):
Contingent consideration liabilities - - (5,479) (5,479)
Held for trading derivatives that
are not in a
designated and effective hedging
relationship - (141) - (141)
Derivatives designated and effective
as hedging
instruments - (48) - (48)
- (189) (5,479) (5,668)
-------- ------ -------- --------
Movements in the six months to 30 June 2020 and the six months to
30 June 2019 for financial instruments measured using Level 3 valuation
methods are presented below:
Financial Financial
assets liabilities
GBPm GBPm
---------- -------------
At 1 January 2020 757 (5,479)
Gains/(losses) recognised in the income statement 6 (806)
Gains recognised in other comprehensive income 151 -
Additions 52 (24)
Disposals (10) -
Payments in the period - 455
At 30 June 2020 956 (5,854)
---------- -------------
At 1 January 2019 754 (6,286)
Gains/(losses) recognised in the income statement (13) (185)
Losses recognised in other comprehensive income (40) -
Additions 53 -
Disposals (15) -
Payments in the period (42) 443
Transfers from Level 3 (37) -
Exchange 7 -
----- --------
At 30 June 2019 667 (6,028)
----- --------
Net losses of GBP800 million (H1 2019: net losses of GBP198 million)
reported in other operating income and net gains of GBP151 million
(H1 2019: net losses of GBP43 million) reported in other comprehensive
income were attributable to Level 3 financial instruments held at
the end of the period.
Financial liabilities measured using Level 3 valuation methods at
30 June included GBP5,436 million of contingent consideration for
the acquisition in 2012 of the former Shionogi-ViiV Healthcare joint
venture and GBP349 million of contingent consideration for the acquisition
of the Novartis Vaccines business in 2015. Contingent consideration
is expected to be paid over a number of years and will vary in line
with the future performance of specified products, the achievement
of certain milestone targets and movements in certain foreign currencies.
The financial liabilities are measured at the present value of expected
future cash flows, the most significant inputs to the valuation models
being future sales forecasts, the discount rate, the Sterling/US
Dollar exchange rate and the probability of success in achieving
milestone targets.
The table below shows, on an indicative basis, the income statement
and balance sheet sensitivity to reasonably possible changes in key
inputs to the valuation of the largest contingent consideration liabilities.
Shionogi- Novartis
ViiV Healthcare Vaccines
Increase/(decrease) in financial liability GBPm GBPm
----------------- ----------
10% increase in sales forecasts 545 68
10% decrease in sales forecasts (544) (68)
1% (100 basis points) increase in discount rate (209) (23)
1% (100 basis points) decrease in discount rate 224 27
5% increase in probability of milestone success 8
5% decrease in probability of milestone success (8)
10 cent appreciation of US Dollar 350 (10)
10 cent depreciation of US Dollar (297) 9
10 cent appreciation of Euro 125 30
10 cent depreciation of Euro (103) (25)
The Group transfers financial instruments between different levels
in the fair value hierarchy when, as a result of an event or change
in circumstances, the valuation methodology applied in determining
their fair values alters in such a way that it meets the definition
of a different level. There were no transfers between the Level 1
and Level 2 fair value measurement categories and no transfers to
or from the Level 3 category in the period. Transfers from Level
3 in the six months to 30 June 2019 related to equity investments
in companies which were listed on stock exchanges during that period.
The following methods and assumptions were used to measure the fair
value of the significant financial instruments carried at fair value
on the balance sheet:
-- Cash and cash equivalents carried at fair value - based on net
asset value of the funds
-- Other investments - equity investments traded in an active market
determined by reference to the relevant stock exchange quoted bid
price; other equity investments determined by reference to the
current market value of similar instruments, recent financing rounds
or the discounted cash flows of the underlying net assets
-- Contingent consideration for business acquisitions and divestments
- based on present values of expected future cash flows
-- Interest rate swaps, foreign exchange forward contracts, swaps
and options - based on the present value of contractual cash flows
or option valuation models using market-sourced data (exchange
rates or interest rates) at the balance sheet date
-- Company-owned life insurance policies - based on cash surrender
value
-- Trade receivables carried at fair value - based on invoiced amount.
There are no material differences between the carrying value of the
Group's other financial assets and liabilities and their estimated
fair values, with the exception of bonds, for which the carrying
values and fair values are set out in the table below:
30 June 2020 31 December 2019
-------------------- --------------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
--------- --------- --------- ---------
Bonds in a designated hedging relationship (9,728) (9,982) (8,636) (9,085)
Other bonds (17,718) (22,365) (15,582) (19,048)
--------- --------- --------- ---------
(27,446) (32,347) (24,218) (28,133)
--------- --------- --------- ---------
The following methods and assumptions are used to estimate the fair
values of financial assets and liabilities which are not measured
at fair value on the balance sheet:
-- Liquid investments - approximates to the carrying amount
-- Cash and cash equivalents carried at amortised cost - approximates
to the carrying amount
-- Short-term loans, overdrafts and commercial paper - approximates
to the carrying amount because of the short maturity of these instruments
-- Long-term loans - based on quoted market prices (a Level 1 fair
value measurement) in the case of European and US Medium Term Notes
and other fixed rate borrowings; approximates to the carrying amount
in the case of other fixed rate borrowings and floating rate bank
loans
-- Receivables and payables, including put options, carried at amortised
cost - approximates to the carrying amount
-- Lease obligations - approximates to the carrying amount.
Put option
Other payables in Current liabilities includes the present value
of the expected redemption amount of the Pfizer put option over its
non-controlling interest in ViiV Healthcare of GBP1,069 million.
This reflects a number of assumptions around future sales and profit
forecasts, multiples and forecast exchange rates. The forecast exchange
rates used are consistent with market rates at 30 June 2020.
The table below shows on an indicative basis the income statement
and balance sheet sensitivity to reasonably possible changes in the
key inputs to the measurement of this liability.
ViiV
Healthcare
put option
Increase/(decrease) in financial liability GBPm
------------
10% increase in sales forecasts 130
10% decrease in sales forecasts (129)
1% (100 basis points) increase in discount rate (46)
1% (100 basis points) decrease in discount rate 50
Reconciliation of cash flow to movements in net debt
H1 2020 H1 2019
GBPm GBPm
--------- ---------
Net debt, as previously reported (25,215) (21,621)
Implementation of IFRS 16 - (1,303)
--------- ---------
Net debt at beginning of the period, as adjusted (25,215) (22,924)
Increase in cash and bank overdrafts 2,817 305
Net decrease/(increase) in short-term loans 3,018 (3,009)
Increase in long-term loans (2,354) (2,603)
Net repayment of obligations under lease liabilities 111 104
Debt of subsidiary undertakings acquired - (482)
Exchange adjustments (1,769) (86)
Other non-cash movements (43) (26)
--------- ---------
Decrease/(increase) in net debt 1,780 (5,797)
--------- ---------
Net debt at end of the period (23,435) (28,721)
--------- ---------
Net debt analysis
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------- --------- ------------
Liquid investments 87 84 79
Cash and cash equivalents 8,166 4,123 4,707
Cash and cash equivalents reported
in assets
held for sale 2 532 507
Short-term borrowings (5,964) (10,147) (6,918)
Long-term borrowings (25,726) (23,313) (23,590)
---------
Net debt at end of the period (23,435) (28,721) (25,215)
--------- --------- ------------
Free cash flow reconciliation
Q2 2020 H1 2020 H1 2019
GBPm GBPm GBPm
-------- -------- --------
Net cash inflow from operating activities 2,760 3,725 2,052
Purchase of property, plant and
equipment (223) (420) (501)
Proceeds from sale of property,
plant and equipment 6 12 70
Purchase of intangible assets (179) (326) (438)
Proceeds from disposals of intangible
assets 523 636 12
Net finance costs (372) (450) (413)
Dividends from joint ventures and
associates - 14 -
Contingent consideration paid (reported
in investing
activities) (33) (62) (51)
Distributions to non-controlling
interests (533) (652) (196)
Contributions from non-controlling
interests - 3 -
Free cash flow 1,949 2,480 535
-------- -------- --------
Principal risks and uncertainties
The principal risks and uncertainties affecting the Group are those
described under the headings below. These are detailed in the 'Principal
risks and uncertainties' section of the Annual Report 2019.
Patient safety Failure to appropriately collect, review, follow up,
or report human safety information, including adverse
events from all potential sources, and to act on any
relevant findings in a timely manner.
Product quality Failure by GSK, its contractors or suppliers to ensure
appropriate controls and governance of quality in
product development; compliance with good manufacturing
practice or good distribution practice regulations
in commercial, clinical trials, manufacturing and
distribution activities; compliance with the terms
of GSK product licences and supporting regulatory
activities.
Financial controls Failure to comply with current tax laws or incurring
and reporting significant losses due to treasury activities; failure
to report accurate financial information in compliance
with accounting standards and applicable legislation.
Anti-bribery The risk comprises five sub-risk areas: bribery of
and corruption public officials by GSK; bribery of commercial and
other non-public entities by GSK; bribery by third
parties acting on behalf of GSK; GSK employees receiving
and/or requesting bribes and/or other undue personal
benefit; other corruption-non-compliance with laws
and regulations related to money laundering or facilitation
of tax evasion by third parties/clients/partners.
Commercial practices Failure to engage in commercial activities that are
consistent with the letter and spirit of the law,
industry or the Group's requirements relating to marketing
and communications about our medicines and associated
therapeutic areas; appropriate interactions with healthcare
professionals and patients, and legitimate and transparent
transfer of value.
Privacy Failure to collect, secure, use and destroy personal
information in accordance with applicable data privacy
laws.
Research practices Failure to adequately conduct ethical and sound pre-clinical
and clinical research. In addition, failure to engage
in scientific activities that are consistent with
the letter and spirit of the law, industry, or the
Group's requirements. It comprises the following sub-risks:
non-clinical and laboratory research; human subject
research; data integrity; care, welfare and treatment
of animals; human biological samples management; data
disclosure; regulatory filings and engagement; scientific
engagement and intellectual property.
Third party oversight The risk that our third parties fail to meet their
risk contractual, regulatory or ethical obligations resulting
in significant operational, reputational, legal and
financial risk for GSK, and in some cases our employees
directly.
Environment, Failure in management of: execution of hazardous activities;
health & safety GSK's physical assets and infrastructure; handling
and sustainability and processing of hazardous chemicals and biological
(EHSS) agents; control of releases of substances harmful
to the environment in both the short and long term,
leading to incidents which could disrupt our R&D and
supply activities' harm employees, harm the communities
we operate in and harm the environment and its longer-term
sustainability.
Information security The risk that unauthorised disclosure, theft, unavailability
or corruption of GSK's information or key information
systems may lead to harm to our patients, workforce
and customers, disruption to our business and/or loss
of commercial or strategic advantage, damage to our
reputation or regulatory sanction.
Supply continuity Failure to deliver a continuous supply of compliant
finished product; inability to respond effectively
to a crisis incident in a timely manner to recover
and sustain critical operations.
COVID-19 pandemic
The potential impact of the COVID-19 pandemic on GSK's trading performance
and all our Principal risks has been assessed with mitigation plans
put in place. Up to the date of this report, the pandemic, has as
anticipated, impacted the Group performance during the first half
of 2020 primarily in demand for Vaccines as a result of containment
measures impacting customers' ability and willingness to access vaccination
services across all regions. We continue to monitor the situation
closely, as this is clearly a very dynamic and uncertain situation,
with the ultimate severity, duration and impact unknown at this point
including the potential impacts on trading results, our clinical
trials, our supply continuity and our employees. The situation could
change at any time and there can be no assurance that COVID-19 will
not have a material adverse impact on the future results of the Group.
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 10 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 finance costs, 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 66.
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. GBP% 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 for Q2 2020 include
three months of results of the former Pfizer consumer healthcare
business from 1 April 2020.
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 at CER for the
quarter are calculated comparing reported results for Q2 2020, calculated
applying the exchange rates used in the comparative period, with
the results for Q2 2019 adjusted to include the equivalent three
months of results of the former Pfizer consumer healthcare business
during Q2 2019, as consolidated (in US$) and included in Pfizer's
US GAAP results. Similarly, pro-forma growth rates at CER for the
six months to 30 June 2020 are calculated comparing reported results
for the six months to 30 June 2020, calculated applying the exchange
rates used in the comparative period, with the results for the six
months to 30 June 2019, adjusted to include the equivalent six 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.
Outlook, assumptions and cautionary statements
2020 guidance
While we are maintaining our 2020 Adjusted EPS guidance, there remain
notable risks to business performance over the balance of the year.
In particular, the outcome is dependent on the timing of a recovery
in vaccination rates, particularly in the US, which we anticipate
in the third quarter. If we were to experience a delay in this recovery
we could see a significant impact in 2020. In the case of, for example,
a three month delay, the impact on adjusted EPS would be up to 5
percentage points.
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 2020 guidance and 2016-2020 outlook
In outlining the expectations for 2020 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 the end of 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 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 assumed no
material changes in the macro-economic and healthcare environment
over the period. The 2020 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 (GBP0.5 billion in
annual sales) as announced on 26 July 2017 and the product divestments
planned in connection with the formation of the Consumer Healthcare
Joint Venture 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, the new Major restructuring plan announced on 25
July 2018, the Consumer Healthcare Joint Venture integration programme
and the new Separation Preparation programme. They also assume 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).
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,
the impact of outbreaks, epidemics or pandemics, such as the COVID-19
pandemic and ongoing challenges and uncertainties posed by the COVID-19
pandemic for businesses and governments around the world, 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 2019 and any impacts
of the COVID-19 pandemic. 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 Q2 2020 relative to the
position in Q2 2019 as if, for the purposes of the Q2 2019 results,
the acquisition of the Pfizer consumer healthcare business had taken
place as at 31 July 2018 and that, accordingly, three months of results
of the former Pfizer consumer healthcare business were included in
Q2 2019. Similarly, pro-forma growth rates have been provided to
illustrate the position for the six months to 30 June 2020 relative
to the position for the six months to 30 June 2019 as if, for the
purposes of the six months to 30 June 2019 results, the acquisition
of the Pfizer consumer healthcare business had taken place as at
31 July 2018 and that, accordingly, six months of results of the
former Pfizer consumer healthcare business were included in the six
months to 30 June 2019. The results of the former Pfizer consumer
healthcare business included for Q2 2019 and the six months to 30
June 2019 are as consolidated (in US$) and included in Pfizer's US
GAAP results. The results for Q2 2020 and the six months to 30 June
2020 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.
Directors' responsibility statement
The Board of Directors approved this Half-yearly Financial Report
on 29 July 2020.
The Directors confirm that to the best of their knowledge the unaudited
condensed financial information has been prepared in accordance with
IAS 34 as adopted by the European Union and that the interim management
report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8.
After making enquiries, the Directors considered it appropriate to
adopt the going concern basis in preparing this Half-yearly Financial
Report.
The Directors of GlaxoSmithKline plc are as follows:
Sir Jonathan Symonds Non-Executive Chairman, Nominations & Corporate
Governance Committee Chair
Emma Walmsley Chief Executive Officer (Executive Director)
Iain Mackay Chief Financial Officer (Executive Director)
Hal Barron Chief Scientific Officer and President, R&D (Executive
Director)
Vindi Banga Senior Independent Non-Executive Director
Charles Bancroft Independent Non-Executive Director
Vivienne Cox Independent Non-Executive Director
Lynn Elsenhans Independent Non-Executive Director, Corporate
Responsibility Committee
Chair
Laurie Glimcher Independent Non-Executive Director
Jesse Goodman Independent Non-Executive Director, Science Committee
Chair
Judy Lewent Independent Non-Executive Director, Audit & Risk
Committee Chair
Urs Rohner Independent Non-Executive Director, Remuneration
Committee Chair
By order of the Board
Emma Walmsley Iain Mackay
Chief Executive Officer Chief Financial Officer
29 July 2020
Independent review report to GlaxoSmithKline plc
We have been engaged by GlaxoSmithKline plc ("the company") to review
the condensed financial information (the "interim financial statements")
in the Results Announcement of the company for the three and six
months ended 30 June 2020.
What we have reviewed
The interim financial statements comprises:
-- the income statement and statement of comprehensive income for
the three and six month periods ended 30 June 2020 on pages 46
to 48;
-- the balance sheet as at 30 June 2020 on page 53;
-- the statement of changes in equity for the six month period then
ended on page 54;
-- the cash flow statement for the six month period then ended on
page 55; and
-- the accounting policies and basis of preparation and the explanatory
notes to the interim financial statements on pages 49 to 52 and
56 to 64 .
We have read the other information contained in the Results Announcement,
including the non-IFRS measures contained on pages 49 to 52 and 56
to 65, 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 Financial Reporting Council. 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 the company, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Results
Announcement of the company in accordance with the Disclosure Guidance
and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
As disclosed in Note 1, the annual financial statements of the company
are prepared in accordance with IFRSs as adopted by the European
Union. The interim financial statements included in this Results
Announcement have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" as adopted by
the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the
interim financial statements 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 Financial Reporting Council 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 interim financial statements in the Results
Announcement for the three and six months ended 30 June 2020 are
not prepared, in all material respects, in accordance with International
Accounting Standard 34 as adopted by the European Union and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
29 July 2020
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 or visit www.rns.com.
END
IR PPUGPMUPUGUB
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July 29, 2020 07:00 ET (11:00 GMT)
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