TIDMGSK
RNS Number : 4879D
GlaxoSmithKline PLC
28 October 2020
Issued: Wednesday, 28 October 2020, London U.K.
GSK delivers resilient performance, strong commercial execution and
further strategic progress in Q3
Sales of GBP8.6 billion -8% AER, -3% CER (Pro-forma -5% CER*)
Total EPS 25.0p, -20% AER, -9% CER; Adjusted EPS 35.6p, -8% AER,
+1% CER
Financial and product highlights
-- Reported Group sales GBP8.6 billion, -8% AER, -3% CER (Pro-forma
-5% CER*, -3% CER excluding divestments/brands under review). Pharmaceuticals
GBP4.2 billion, -7% AER, -3% CER; Vaccines GBP2.0 billion, -12%
AER, -9% CER; Consumer Healthcare GBP2.4 billion, -4% AER, +2%
CER (Pro-forma -6% CER*). Strong performance from key growth drivers
in respiratory, HIV, oncology and Consumer Healthcare partly offset
by expected disruption from COVID-19
-- Sales of new and specialty pharmaceuticals (excluding established
products) GBP2.5 billion, +8% AER, +12% CER
-- Respiratory sales GBP978 million, +21% AER, +26% CER. Trelegy sales
GBP194 million +40% AER, +45% CER. Nucala sales GBP251 million,
+24% AER, +29% CER
-- HIV sales GBP1.2 billion, -4% AER, flat at CER; two-drug regimen
sales GBP222 million, +87% AER, +94% CER
-- Oncology sales GBP99 million, +55% AER, +58% CER
-- Shingrix sales GBP374 million, -30% AER, -25% CER. US prescriptions
rates returned to 2019 levels by quarter-end
-- Total Group operating margin 21.5%. Adjusted Group operating margin
30.8%. SG&A decline reflecting ongoing and active focus on cost
management. R&D costs down in quarter; expect 2020 full year R&D
costs to rise mid-to-high single digits as we continue to invest
in late-stage pipeline
-- Total EPS 25.0p, -20% AER, -9% CER reflecting adverse changes on
contingent consideration liabilities offset by asset disposals
and improved operating performance
-- Adjusted EPS 35.6p, -8% AER, +1% CER reflecting operating profit
growth partly offset by higher effective tax rate and non-controlling
interest allocation of Consumer Healthcare profits
-- Q3 net cash flow from operations GBP0.9 billion. Free cash flow
GBP(0.2) billion
-- 19p dividend declared for the quarter
Guidance
-- On track to deliver full year 2020 Adjusted EPS at the lower end
of the -1% to -4% range at CER
Pipeline highlights
-- Continued progress in biopharma pipeline with 3 approvals since
Q2 results: FDA and EC approval of Blenrep as first anti-BCMA therapy
for multiple myeloma; FDA approval of Trelegy for asthma; FDA approval
of Nucala as first biologic treatment for Hypereosinophilic Syndrome
(HES)
-- Positive European CHMP opinions in HIV for cabotegravir and rilpivirine
as long-acting regimen for HIV treatment and for Zejula as first-line
monotherapy maintenance treatment in ovarian cancer
-- Phase III trials to start in Q4 and Q1 2021 for RSV vaccines in
maternal and older adults following positive Phase I/II data
-- First participant vaccinated in Phase III clinical trial of 5-in-1
meningitis ABCWY vaccine candidate
COVID-19 Solutions update
-- Phase I/II study of Sanofi-GSK adjuvanted recombinant protein-based
vaccine candidate initiated. Phase III trial expected to start
December 2020
-- Supply agreements reached with US, EU, UK, Canada for Sanofi-GSK
vaccine. Statement of Intent signed with COVAX facility to support
successful and equitable access to COVID-19 vaccines worldwide
-- Phase III study underway for Vir-GSK antibody (VIR-7831) for high-risk
outpatients with COVID-19, with initial results potentially available
by the end of 2020
Q3 2020 results
9 months
Q3 2020 Growth 2020 Growth
-------------- ------------
GBPm GBP% CER% GBPm GBP% CER%
-------- ------- ----- --------- ----- -----
Turnover 8,646 (8) (3) 25,360 2 4
Total operating profit 1,858 (13) (2) 6,722 33 37
Total earnings per
share 25.0p (20) (9) 102.0p 51 55
Adjusted operating
profit 2,665 (4) 4 7,089 - 3
Adjusted earnings per
share 35.6p (8) 1 92.6p (7) (4)
Net cash from operating
activities 861 (66) 4,586 -
Free cash flow (180) >(100) 2,300 (7)
The Total results are presented under 'Financial performance' on
pages 12 and 27 and Adjusted results reconciliations are presented
on pages 23, 24, 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 62.
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 63 and 64.
* Reported AER and CER growth rates include one and seven months'
results of former Pfizer consumer healthcare business. Pro-forma
CER growth rates are calculated as if the equivalent one and seven
months of Pfizer consumer healthcare business results, as reported
by Pfizer, were included in the comparative period of Q3 2019 and
9 months 2019 respectively. See 'Pro-forma growth' on page 11.
Emma Walmsley, Chief Executive Officer, GSK said:
"GSK has responded well to a challenging operating environment this
year with disciplined cost control and strong commercial momentum
in key growth products including Nucala, Trelegy, Benlysta, 2 drug-HIV
regimens, Zejula, Shingrix and our priority Consumer Healthcare brands.
This, combined with improving vaccination rates this quarter, means
we are on track to deliver within our earnings guidance range for
2020. In addition, we continue to make good progress on our preparations
to separate the Group and create two new companies - in Biopharma
and Consumer Health - which we believe will deliver options for sustainable
growth and returns to shareholders.
"R&D delivery has continued with three product approvals since Q2
results and presentation of new clinical data to support the start
of Phase III development for our very promising RSV vaccines. We
are also urgently advancing possible COVID-19 Solutions with our
partners, including clinical trials for antibody therapy VIR-7831
and three different adjuvanted vaccines. We expect to see data on
all of these before the end of the year."
2020 guidance
At 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.
Our 2020 guidance was set before the COVID-19 pandemic and did not
include any potential impact on our business from the pandemic. It
also excluded any impact in 2020 from further material divestments
beyond those previously announced.
The COVID-19 pandemic has impacted Group performance, particularly
in the Vaccines business, during the first nine months of 2020. During
the third quarter we have seen a recovery in vaccination rates, including
adult immunisation rates in the United States returning to prior
year levels in the last month of the quarter.
This improvement, coupled with strong commercial execution of key
growth products and disciplined cost control, mean we are on track
to deliver within our earnings guidance range, with 2020 Adjusted
EPS now expected to be at the lower end of the -1% to -4% range at
CER. Achieving this guidance is supported by the expectation of sustained
recovery of adult immunisation rates, particularly in Shingrix.
All expectations, guidance and targets regarding future performance
and dividend payments should be read together with 'Outlook, assumptions
and cautionary statements' on pages 63 and 64. If exchange rates
were to hold at the closing rates on 30 September 2020 ($1.28/GBP1,
EUR1.10/GBP1 and Yen 136/GBP1) for the rest of 2020, the estimated
impact on 2020 Sterling turnover growth would be negative at around
1% and if exchange gains or losses were recognised at the same level
as in 2019, the estimated negative impact on 2020 Sterling Adjusted
EPS growth would be around 2%.
Results presentation
A webcast of the quarterly results presentation hosted by Emma Walmsley,
GSK CEO, will be held at 2pm GMT on 28 October 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 - Q3 2020
Turnover Q3 2020
------------------------------------
Pro-forma
Growth Growth growth
GBPm GBP% CER% CER%
------ ------- ------- ----------
Pharmaceuticals 4,192 (7) (3) (3)
Vaccines 2,032 (12) (9) (9)
Consumer Healthcare 2,422 (4) 2 (6)
------ ------- ------- ----------
8,646 (8) (3) (5)
Corporate and other unallocated
turnover -
------ ------- ------- ----------
Group turnover 8,646 (8) (3) (5)
------ ------- ------- ----------
Group turnover was GBP8,646 million in the quarter, down 8% AER,
3% CER and 5% CER on a pro-forma basis. On a pro-forma basis, excluding
the impact of divestments in Vaccines and brands divested or under
review in Consumer Healthcare, Group turnover was down 3% CER.
Pharmaceuticals turnover in the quarter was GBP4,192 million, down
7% AER, 3% CER. HIV sales were down 4% AER, flat at CER, to GBP1,216
million, with growth in Juluca and Dovato offset by declines in
Tivicay and Triumeq. Respiratory sales were up 21% AER, 26% CER,
to GBP978 million, on growth of Trelegy and Nucala. Sales of Established
Pharmaceuticals declined 23% AER, 18% CER, to GBP1,706 million.
Vaccines turnover declined 12% AER, 9% CER to GBP2,032 million,
largely driven by the adverse impact of the COVID-19 pandemic on
Shingrix, Established vaccines and Meningitis. This decline was
partly offset by strong demand and lower expected returns for Influenza
vaccine in the US.
Reported Consumer Healthcare sales declined 4% AER, but grew 2%
CER to GBP2,422 million in the quarter reflecting a full quarter
of sales of legacy Pfizer brands compared to two months in the third
quarter of 2019. On a pro-forma basis, sales declined 6% CER but
grew 3% CER, excluding brands divested/under review. Growth in Oral
health and Vitamins, minerals and supplements brands was offset
by weaker performance in Respiratory health and Pain relief.
Operating profit
Total operating profit was GBP1,858 million in Q3 2020 compared
with GBP2,147 million in Q3 2019. The total operating margin was
21.5%. Adjusted operating profit was GBP2,665 million, 4% lower
than Q3 2019 at AER but 4% higher at CER on a turnover decrease
of 3% CER. The Adjusted operating margin was 30.8%. On a pro-forma
basis, Adjusted operating profit was 2% higher at CER on a turnover
decrease of 5% CER, reflecting SG&A -10% CER and R&D costs -7% CER.
The Adjusted pro-forma operating margin was 30.8%.
The decrease in Total operating profit reflected higher re-measurement
charges on the contingent consideration liabilities and an adverse
comparison to an increase in value of shares in Hindustan Unilever
Limited in Q3 2019, partly offset by higher asset disposals.
The increase in pro-forma Adjusted operating profit benefited from
continued restructuring across the business including a one-off
benefit in the quarter from restructuring of post-retirement benefits,
a favourable comparison to increased costs for a number of legal
settlements in Q3 2019, a benefit in the quarter from recognition
of pre-launch inventory on approval of Blenrep, and tight control
of ongoing costs including reduced promotional and variable spending
across all three businesses as a result of the COVID-19 lockdowns.
Earnings per share
Total EPS was 25.0p, compared with 31.4p in Q3 2019. The reduction
in EPS primarily reflected higher re-measurement charges on the
contingent consideration liabilities and an adverse comparison to
an increase in value of shares in Hindustan Unilever Limited in
Q3 2019, partly offset by higher asset disposals and improved operating
performance.
Adjusted EPS was 35.6p compared with 38.6p in Q3 2019, down 8% AER,
but up 1% CER, on a 4% CER increase in Adjusted operating profit.
This reflected a higher effective tax rate and a higher non-controlling
interest allocation of Consumer Healthcare profits.
Cash flow
The net cash inflow from operating activities for the quarter was
GBP861 million (Q3 2019: GBP2,515 million) and free cash outflow
was GBP180 million (Q3 2019: GBP1,939 million inflow). The reduction
primarily reflected increased trade receivables following lower
collections from lower sales in Q2 2020, increased inventory primarily
in Vaccines, adverse timing of payments for returns and rebates
and taxes, adverse exchange rate impacts, higher dividends to non-controlling
interests and increased purchases of intangible assets, partly offset
by increased operating profits.
Operating performance - nine months 2020
Turnover 9 months 2020
------------------------------------------------
Pro-forma
Growth Growth growth
GBPm GBP% CER% CER%
------- ------- ------- ------------------
Pharmaceuticals 12,690 (2) (1) (1)
Vaccines 4,970 (8) (7) (7)
Consumer Healthcare 7,673 19 23 -
------- ------- ------- ------------------
25,333 2 4 (2)
Corporate and other unallocated
turnover 27
------- ------- ------- ------------------
Group turnover 25,360 2 4 (2)
------- ------- ------- ------------------
Group turnover was GBP25,360 million in the nine months, up 2% AER,
4% CER but down 2% CER on a pro-forma basis. On a pro-forma basis,
Group turnover was down 2% CER, but flat at CER excluding the impact
of divestments in Vaccines and brands divested or under review in
Consumer Healthcare.
Pharmaceuticals turnover in the nine months was GBP12,690 million,
down 2% AER, 1% CER. HIV sales were flat at AER and up 1% CER, to
GBP3,608 million, with growth in Juluca and Dovato partly offset
by declines in Tivicay and Triumeq. Respiratory sales were up 25%
AER, 26% CER, to GBP2,732 million, on growth of Trelegy, Nucala
and Relvar/Breo. Sales of Established Pharmaceuticals declined 16%
AER, 14% CER to GBP5,572 million.
Vaccines turnover declined 8% AER, 7% CER to GBP4,970 million, primarily
driven by the adverse impact of the COVID-19 pandemic on Hepatitis,
DTPa-containing, Shingrix and Meningitis vaccines, together with
the Rabipur and Encepur divestment. This decline was partly offset
by higher sales of Influenza vaccines in the US.
Reported Consumer Healthcare sales grew 19% AER, 23% CER to GBP7,673
million in the nine months, largely driven by the inclusion of the
Pfizer portfolio, partly offset by brands divested/under review.
On a pro-forma basis, sales were flat at CER, but grew 6% CER excluding
brands divested/under review. This reflected the continued momentum
of our Vitamins, minerals and supplements brands as well as continued
strong performance in Oral health.
Operating profit
Total operating profit was GBP6,722 million in the nine months compared
with GBP5,059 million in 2019. The Adjusted operating profit was
GBP7,089 million, flat compared with 2019 at AER and 3% higher at
CER on a turnover increase of 4% CER. The Adjusted operating margin
of 28.0% was 0.7 percentage points lower at AER, and 0.4 percentage
points lower on a CER basis than in 2019. The pro-forma Adjusted
operating margin was 28.0%.
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 as well as increased income
from asset disposals. This was partly offset by higher re-measurement
charges on the contingent consideration liabilities.
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 reduced promotional and
variable spending across all three businesses 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 102.0p, compared with 67.7p in 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 2019 from increased share of after tax profits of the associate
Innoviva.
Adjusted EPS was 92.6p compared with 99.2p in 2019, down 7% AER,
4% CER, on a 3% 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.
Cash flow
The net cash inflow from operating activities for the nine months
was GBP4,586 million (2019: GBP4,567 million) and free cash flow
was GBP2,300 million (2019: GBP2,474 million). The reduction primarily
reflected higher dividends to non-controlling interests and adverse
exchange impacts, partly offset by a lower seasonal increase in
trade receivables, beneficial timing of payments for returns and
rebates, higher proceeds from disposals of intangible assets and
improved operating profits.
R&D pipeline
Pipeline news flow highlights since Q2 2020
40 medicines in development, 18 Vaccines
COVID-19
Vaccine collaborations
-- Sanofi and GSK signed a statement of intent to support the COVAX
Facility with 200 million doses of adjuvanted, recombinant protein-based
COVID-19 vaccine. COVAX is a global collaboration co-led by Gavi,
the WHO, and CEPI, and aims to secure successful and equitable
access to COVID-19 vaccines worldwide.
-- Sanofi and GSK initiated a Phase I/II clinical trial of COVID-19
adjuvanted recombinant protein-based vaccine candidate. If data
are positive, Sanofi and GSK aim to move into a Phase III trial
by the end of 2020.
-- Agreement signed with the Government of Canada to supply up to
72 million doses of GSK's pandemic adjuvant for use in a COVID-19
vaccine, beginning in 2021.
-- Sanofi and GSK confirmed agreement with the European Union to supply
up to 300 million doses of adjuvanted COVID-19 vaccine, once the
vaccine is approved.
-- Sanofi and GSK selected for Operation Warp Speed to supply United
States Government with 100 million doses of COVID-19 vaccine.
VIR-7831/GSK4182136
-- The COMET-ICE study of VIR-7831 (GSK'136) expanded to a global
Phase III study following positive evaluation of safety and tolerability
data from the Phase II lead-in by an Independent Data Monitoring
Committee. Initial Phase III results may be available as early
as the end of 2020, results for the primary endpoint are expected
Q1 2021.
-- The first patient was dosed in the Phase II/III COMET-ICE study
of VIR-7831 (GSK'136), a fully humanised anti-SARS-CoV-2 monoclonal
antibody, for the early treatment of COVID-19 in patients who are
at high risk of hospitalisation.
Oncology
Zejula (niraparib, PARP inhibitor)
-- The EMA's Committee for Medicinal Products for Human Use issued
a positive opinion recommending approval of Zejula as first-line
monotherapy maintenance treatment for women with platinum-responsive
advanced ovarian cancer regardless of biomarker status.
Blenrep (GSK2857916, BCMA immunoconjugate)
-- The first patient was dosed in the pivotal second line multiple
myeloma study, DREAMM-8, of Blenrep in combination with pomalidomide
and dexamethasone.
-- The European Commission approved Blenrep for the treatment of patients
with relapsed and refractory multiple myeloma.
-- The US FDA approved Blenrep for the treatment of patients with
relapsed and refractory multiple myeloma.
Dostarlimab (TSR-042, PD-1)
-- New data from the GARNET study of dostarlimab in patients with
advanced or recurrent DNA mismatch repair deficient (dMMR) or proficient
(MMRp) endometrial cancer were presented at ESMO 2020 as a late-breaking
presentation.
Bintrafusp alfa (TGF beta trap/ anti-PDL1)
-- Merck KGaA announced on 20 October 2020 that an interim analysis
including review by an independent data monitoring committee (IDMC)
had previously taken place for the INTR@PID Lung 037 study of bintrafusp
alfa vs pembrolizumab. The results of this analysis will not be
made public nor will data be published. The study will continue
as planned and recruitment has closed at approximately 300 study
participants. Having passed futility, the study continues with
event-driven PFS and OS analyses.
Bintrafusp alfa (TGF beta trap/ anti-PDL1)/cont.
-- Three-year follow-up data for first-in-class bifunctional immunotherapy
bintrafusp alfa targeting TGF-<BETA>/PD-L1, in second-line NSCLC,
were shared at ESMO 2020.
-- Twenty-eight month follow-up data for bintrafusp alfa in patients
with pre-treated biliary tract cancer were shared at ESMO 2020.
GSK3359609 (ICOS receptor agonist)
-- The first patient was dosed in the INDUCE-4 Phase II/III gated
study of GSK'609 in combination with pembrolizumab and chemotherapy
in patients with recurrent or metastatic head and neck squamous
cell carcinoma.
Letetresgene-autoleucel (GSK3377794, NY-ESO-1 TCR)
-- First subject first apheresis for the pivotal study of letetresgene-autoleucel
in patients with synovial sarcoma was achieved.
GSK3901961 (NY-ESO-1 CD8 TCR)
-- Generation 2 NY-ESO-1 CD8 TCR was transitioned from pre-clinical
to clinical development.
GSK3845097 (NY-ESO-1 TGFbR2 TCR)
-- Generation 2 NY-ESO-1 TGFb TCR was transitioned from pre-clinical
to clinical development.
HIV/Infectious diseases
Dovato (dolutegravir + lamivudine)
-- Long-term safety and efficacy data, GEMINI 144-week and TANGO 96-week,
for 2-drug regimen Dovato were presented at HIV Glasgow 2020 congress,
reinforcing the potential to shift the treatment paradigm to 2-drug
regimens for people living with HIV.
Cabotegravir + rilpivirine
-- Positive findings from two studies of investigational, long-acting
cabotegravir and rilpivirine, including five-year data showing
long-term durability, efficacy, safety and tolerability were presented
at IDWeek 2020.
-- The EMAs Committee for Medicinal Products for Human Use issued
a positive opinion recommending approval of Vocabria (cabotegravir
injection) used in combination with Johnson & Johnson's Rekambys
(rilpivirine injection) for the treatment of HIV.
-- Implementation science study initiated to identify and evaluate
approaches to integrating investigational, every-two-month, injectable
HIV treatment in European healthcare practices.
Cabotegravir (long acting integrase inhibitor)
-- The first patient was dosed in a Phase I study of cabotegravir
400, an every-three-month, injectable regimen, for the treatment
of HIV.
GSK3739937 (maturation inhibitor)
-- The first patient was dosed in a Phase I study of GSK'937 for the
treatment of HIV.
GSK3228836 (HBV ASO)
-- Phase IIa data were presented at The Digital International Liver
Congress which suggests the potential of investigational drug GSK'836
to suppress hepatitis B virus after four weeks of treatment.
-- The first patient was dosed in the B-Clear monotherapy Phase IIb
study of GSK'836 for the treatment of hepatitis B.
GSK3882347 (FimH antagonist)
-- The first patient was dosed in a Phase I study of GSK'347 for the
treatment of uncomplicated urinary tract infection.
GSK3494245 (proteasome inhibitor)
-- The first patient was dosed in a Phase I study of GSK'245 for the
treatment of visceral leishmaniasis.
Immuno-inflammation
Benlysta (belimumab)
-- The US FDA confirmed the lupus nephritis submission for Benlysta
was accepted and granted Priority Review. Regulatory decision expected
before the end of 2020.
-- Results from BLISS-LN, the largest controlled Phase III study in
patients with active lupus nephritis ever conducted, were published
in the New England Journal of Medicine. The study met all primary
and key secondary endpoints.
GSK2982772 (RIP1-kinase)
-- The first patient was dosed in a Phase Ib study of GSK'772 for
psoriasis.
Respiratory
Trelegy Ellipta ( fluticasone furoate / umeclidinium / vilanterol)
-- The US FDA approved Trelegy Ellipta for asthma, becoming the first
once-daily single inhaler triple therapy for the treatment of both
asthma and COPD in the US.
-- Results from the CAPTAIN study, showing the benefit of Trelegy
Ellipta for patients with asthma, were published in The Lancet
Respiratory Medicine journal.
-- A complete response letter was received from the US FDA for the
inclusion of data on all-cause mortality in the labelling for Trelegy
Ellipta in COPD.
Nucala ( mepolizumab)
-- The US FDA approved Nucala as the first and only biologic treatment
for Hypereosinophilic Syndrome (HES).
-- A regulatory submission was made to the US FDA for Nucala for the
treatment of Chronic Rhinosinusitis with Nasal Polyps . Regulatory
decision expected in 2021.
-- A regulatory submission was made to the EMA for Nucala for Chronic
Rhinosinusitis with Nasal Polyps, Eosinophilic Granulomatosis with
Polyangiitis and Hypereosinophilic Syndrome. Regulatory decisions
expected in 2021.
GSK3772847 (IL33r antagonist)
-- GSK'874 for moderately severe asthma was terminated due to portfolio
prioritisation.
GSK3923868 (PI4K- b inhibitor )
-- First patient first visit was achieved in a Phase I first time
in human study of GSK'868 for the prevention and treatment of viral-induced
COPD exacerbations.
Vaccines
Shingrix
-- Approval in EU of Shingrix broadened indication for prevention
of herpes zoster in adults aged 18 years and older at increased
risk of HZ. Regulatory submission was made to the US FDA.
MenABCWY candidate vaccine
-- The first patient was dosed in the pivotal Phase III study of 5-in-1
meningitis ABCWY vaccine candidate compared to licensed meningococcal
vaccines, Bexsero and Menveo.
RSV older adults candidate vaccine
-- Positive data from the Phase I/II older adults RSV candidate vaccine
were presented at ID week 2020. Phase III programme expected to
start in early 2021.
RSV maternal candidate vaccine
-- Positive data from the Phase I/II maternal RSV candidate vaccine
in non-pregnant women were shared at ID week 2020. Phase III trial
expected to start by end 2020.
Contents Page
Total and Adjusted results 10
Financial performance - Q3 2020 12
Financial performance - nine months ended 30 September 2020 27
Cash generation 43
Returns to shareholders 44
Income statements 46
Statement of comprehensive income - three months ended 30 September
2020 47
Statement of comprehensive income - nine months ended 30 September
2020 48
Pharmaceuticals turnover - three months ended 30 September
2020 49
Pharmaceuticals turnover - nine months ended 30 September 2020 50
Vaccines turnover - three months ended 30 September 2020 51
Vaccines turnover - nine months ended 30 September 2020 52
Balance sheet 53
Statement of changes in equity 54
Cash flow statement - nine months ended 30 September 2020 55
Segment information 56
Legal matters 58
Additional information 59
Reconciliation of cash flow to movements in net debt 61
Net debt analysis 61
Free cash flow reconciliation 61
Reporting definitions 62
Outlook, assumptions and cautionary statements 63
Independent review report 65
Contacts
GSK - one of the world's leading research-based pharmaceutical and
healthcare companies - is committed to improving the quality of human
life by enabling people to do more, feel better and live longer.
For further information please visit www.gsk.com .
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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 62.
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 23,
24, 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 Q3 2020 include
three months of results of the former Pfizer consumer healthcare
business from 1 July 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 Q3 2020, calculated
applying the exchange rates used in the comparative period, with
the results for Q3 2019 adjusted to include the equivalent one month
of results of the former Pfizer consumer healthcare business during
July 2019, as consolidated (in US$) and included in Pfizer's US GAAP
results. Similarly, pro-forma growth rates at CER for the nine months
to 30 September 2020 are calculated comparing reported results for
the nine months to 30 September 2020, calculated applying the exchange
rates used in the comparative period, with the results for the nine
months to 30 September 2019, adjusted to include the equivalent seven
months of results to 31 July 2019 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 September 2020, the liability,
which is discounted at 8.5%, stood at GBP5,572 million, on a post-tax
basis.
Cash payments to settle the contingent consideration are made to
Shionogi by ViiV Healthcare each quarter, based on the actual sales
performance of the relevant products in the previous quarter. These
payments reduce the balance sheet liability and hence are not recorded
in the income statement. The cash payments made to Shionogi by ViiV
Healthcare in the nine months to September 2020 were GBP648 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 - Q3 2020
Total results
The Total results for the Group are set out below.
Q3 2020 Q3 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Turnover 8,646 9,385 (8) (3)
Cost of sales (2,885) (3,245) (11) (8)
-------- -------- ------- -------
Gross profit 5,761 6,140 (6) -
Selling, general and administration (2,669) (2,892) (8) (4)
Research and development (1,140) (1,206) (5) (2)
Royalty income 85 118 (28) (26)
Other operating expense (179) (13)
-------- -------- ------- -------
Operating profit 1,858 2,147 (13) (2)
Finance income (3) 32
Finance expense (195) (245)
Share of after tax profits
of
associates and joint ventures 11 17
-------- -------- ------- -------
Profit before taxation 1,671 1,951 (14) (2)
Taxation (241) (235)
Tax rate % 14.4% 12.0%
-------- -------- ------- -------
Profit after taxation 1,430 1,716 (17) (5)
-------- -------- ------- -------
Profit attributable to non-controlling
interests 186 164
Profit attributable to shareholders 1,244 1,552
-------- -------- ------- -------
1,430 1,716 (17) (5)
-------- -------- ------- -------
Earnings per share 25.0p 31.4p (20) (9)
-------- -------- ------- -------
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for Q3 2020 and Q3 2019
are set out on pages 23 and 24.
Q3 2020
----------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
-------- ---------- ------- --------- ----------
Turnover 8,646 100 (8) (3) (5)
Cost of sales (2,540) (29.4) (9) (6) (8)
Selling, general and
administration (2,477) (28.6) (11) (7) (10)
Research and development (1,049) (12.1) (10) (6) (7)
Royalty income 85 0.9 (28) (26) (26)
-------- ---------- ------- --------- ----------
Adjusted operating
profit 2,665 30.8 (4) 4 2
-------- ---------- ------- --------- ----------
Adjusted profit before
tax 2,479 (5) 4
Adjusted profit after
tax 2,062 (6) 3
Adjusted profit attributable
to
shareholders 1,775 (7) 1
-------- ------- ---------
Adjusted earnings
per share 35.6p (8) 1
-------- ------- ---------
Operating profit by
business Q3 2020
--------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
------ ---------- ------- --------- ----------
Pharmaceuticals 1,945 46.4 (2) 4 4
Pharmaceuticals R&D* (770) (14) (10) (10)
------ ---------- ------- --------- ----------
Total Pharmaceuticals 1,175 28.0 8 16 16
Vaccines 899 44.2 (23) (18) (18)
Consumer Healthcare 541 22.3 (12) (2) (9)
------ ---------- ------- --------- ----------
2,615 30.2 (9) (1) (3)
Corporate & other
unallocated
costs 50
----------
Adjusted operating
profit 2,665 30.8 (4) 4 2
------ ---------- ------- --------- ----------
* Operating profit of Pharmaceuticals R&D segment, which is the responsibility
of the Chief Scientific Officer and President, R&D. It excludes
ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals
segment.
Turnover
Pharmaceuticals turnover
Q3 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Respiratory 978 21 26
HIV 1,216 (4) -
Immuno-inflammation 193 13 18
Oncology 99 55 58
------ ------- -------
2,486 8 12
Established Pharmaceuticals 1,706 (23) (18)
------
4,192 (7) (3)
------
US 1,918 (3) 2
Europe 974 (6) (6)
International 1,300 (14) (7)
------ ------- -------
4,192 (7) (3)
------ ------- -------
Pharmaceuticals turnover in the quarter was GBP4,192 million, down
7% AER, 3% CER, but grew 8% AER, 12% CER excluding the impact of
the decline in Established Pharmaceuticals turnover. HIV sales were
down 4% AER, flat at CER, to GBP1,216 million, with growth in Juluca
and Dovato offset by Tivicay and Triumeq. Respiratory sales were
up 21% AER, 26% CER, to GBP978 million, on growth of Trelegy and
Nucala. Sales of Established Pharmaceuticals declined 23% AER, 18%
CER, to GBP1,706 million.
In the quarter, as expected, results reflect the COVID-19 pandemic
environment, with lower levels of new patient prescriptions in US
and Europe, reduced market size for allergy and antibiotic products
in International and pressure on net prices in US.
In the US, sales declined 3% AER and grew 2% CER. Continued growth
of Nucala, Trelegy, Benlysta and the HIV two-drug regimens was partially
offset by the decline in Triumeq and Established Pharmaceuticals,
including the impact of generic albuterol substitutes.
In Europe, sales declined 6% AER, 6% CER, with growth in Trelegy,
Anoro, Nucala and HIV two-drug regimens, more than offset by the
impacts of generic competition and a one-off UK Relenza contract
last year in the Established Pharmaceuticals portfolio.
International declined 14% AER, 7% CER. In addition to growth from
the Respiratory and HIV portfolios, Immuno-inflammation sales were
boosted by the launch of Duvroq for patients with anaemia due to
chronic kidney disease in Japan. Established Pharmaceutical sales
declined, including the impact of a weaker allergy season and generic
Avolve in Japan and government mandated changes increasing use of
generics in China.
Respiratory
Total Respiratory sales were up 21% AER, 26% CER, with growth from
Trelegy, Relvar/Breo and Nucala in all regions. International Respiratory
sales grew 26% AER, 33% CER including Nucala, up 39% AER, 45% CER,
and Relvar/Breo up 8% AER, 15% CER to GBP81 million. In Europe, Respiratory
grew 13% AER, 13% CER including Nucala growing 11% AER, 11% CER.
In the US, Trelegy and Nucala growth continued while Relvar/Breo
sales grew 64% AER, 70% CER, including the effect of a prior period
RAR adjustment and a stronger US ICS/LABA market in the COVID-19
pandemic environment.
Sales of Nucala were GBP251 million in the quarter and grew 24% AER,
29% CER, with US sales up 25% AER, 32% CER to GBP149 million, Europe
sales of GBP59 million grew 11% AER, 11% CER and International sales
of GBP43 million grew 39% AER, 45% CER.
Trelegy sales were up 40% AER, 45% CER to GBP194 million driven by
growth in all regions. In the US, the new asthma indication was approved
and launched in the quarter, with sales up 20% AER, 29% CER. In Europe,
sales grew 50% AER, 54% CER and in International sales grew to GBP26
million in the quarter.
Relvar/Breo sales were up 30% AER, 34% CER to GBP323 million in the
quarter. In the US, Relvar/Breo grew 64% AER, 70% CER, benefiting
from the effect of a prior period RAR adjustment and a stronger US
ICS/LABA market impacted by the COVID-19 pandemic. In Europe and
International, Relvar/Breo continued to grow, up 3% AER, 1% CER and
8% AER, 15% CER respectively.
HIV
HIV sales were GBP1,216 million, down 4% AER, flat at CER in the
quarter. The dolutegravir franchise declined 3% AER but grew 1% CER,
delivering sales of GBP1,176 million. The remaining portfolio, with
sales of GBP40 million and 3% of total HIV sales, declined 29% AER,
25% CER and reduced the overall growth of total HIV by one percentage
point at AER and at CER.
Sales of dolutegravir products were GBP1,176 million in the quarter.
Tivicay delivered sales of GBP377 million and declined 15% AER, 10%
CER. Triumeq delivered sales of GBP577 million and declined 11% AER,
8% CER. The two-drug regimens, Juluca and Dovato delivered sales
of GBP222 million in the quarter, with combined growth more than
offsetting the decline of the three-drug regimen Triumeq.
In the US, dolutegravir sales declined 5% AER, but were flat at CER
and in Europe dolutegravir sales grew 3% AER, 4% CER. Following recent
launches of Dovato, combined sales of the two-drug regimens were
GBP151 million in the US and GBP62 million in Europe, with growth
more than offsetting the decline in Triumeq. International dolutegravir
sales declined 2% AER, but grew 5% CER.
Oncology
Sales of Zejula, the PARP inhibitor asset acquired from Tesaro in
Q1 2019 were GBP92 million in the quarter, up 44% AER, 47% CER. Sales
comprised GBP57 million in the US and GBP33 million in Europe.
Blenrep for the treatment of patients with relapsed or refractory
multiple myeloma was approved and launched in the US and Europe in
the quarter and reported sales of GBP8 million.
Immuno-inflammation
Sales of Benlysta in the quarter were up 8% AER, 13% CER to GBP186
million, including sales of the sub-cutaneous formulation of GBP93
million up 19% AER, 24% CER.
Duvroq for patients with anaemia due to chronic kidney disease, was
launched in Japan in the quarter and reported sales in the International
region of GBP7 million.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the quarter were GBP1,706
million, down 23% AER, 18% CER.
Established Respiratory products declined 23% AER, 18% CER to GBP725
million. This includes the impact of generic albuterol substitutes
on Ventolin and price pressure on Flovent in the US. Advair/Seretide
sales declined 12% AER, 8% CER with all regions impacted by generic
competition.
The remainder of the Established Pharmaceuticals portfolio declined
by 24% AER, 19% CER to GBP981 million on lower demand for antibiotics
during the COVID-19 pandemic period, the impact of government mandated
changes increasing use of generics in markets including France and
China, and a strong comparator, including a European Relenza contract.
Vaccines turnover
Q3 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Meningitis 363 (2) 1
Influenza 445 20 21
Shingles 374 (30) (25)
Established Vaccines 850 (18) (15)
------
2,032 (12) (9)
------
US 1,151 (20) (17)
Europe 383 (3) (3)
International 498 6 11
------ ------- -------
2,032 (12) (9)
------ ------- -------
Vaccines turnover declined 12% AER, 9% CER to GBP2,032 million, largely
driven by the adverse impact of the COVID-19 pandemic on Shingrix,
Established vaccines and Meningitis. This decline was partly offset
by strong demand and lower expected returns for Influenza vaccine
in the US.
Vaccines performance in the third quarter was affected by continued
lower demand in some countries due to limited visits to healthcare
practitioners and points of vaccination during pandemic conditions.
Wellness visits have mostly recovered to prior year levels for paediatrics
and adolescents, although US back-to-school vaccinations have been
disrupted because schools and universities have delayed or reversed
in-person tuition. Adult immunisation rates have improved over the
quarter with wellness visits returning to prior year levels in the
last month of the quarter.
Lower demand in the quarter was related to COVID-19 pandemic conditions
unless stated otherwise.
Meningitis
Meningitis sales declined 2% AER but increased 1% CER to GBP363 million.
Bexsero sales decreased 14% AER, 11% CER to GBP219 million, reflecting
lower demand in the US and International, partly offset by lower
US returns and rebates.
Menveo sales declined 2% AER but remained flat at CER to GBP104
million, primarily driven by lower demand mostly offset by lower
returns and rebates in the US together with higher demand and favourable
phasing in International.
Influenza
Fluarix/FluLaval sales were GBP445 million, up 20% AER, 21% CER,
primarily reflecting strong sales execution and reversal of prior
year returns provision in the US, together with favourable phasing
delivery and higher demand in International.
Shingles
Shingrix sales declined 30% AER, 25% CER to GBP374 million, driven
by lower adult wellness visits and vaccination rates in the US. Total
US prescriptions for Shingrix reflected a consistent growth trend
during the quarter reaching similar levels to the same time last
year by quarter-end. In Europe, a strong performance was recorded
in Germany due to robust underlying demand. The launch of Shingrix
in China also contributed to sales in the quarter.
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix)
declined 17% AER, 14% CER. Infanrix/Pediarix sales declined 21% AER,
17% CER to GBP158 million, reflecting lower demand in the US and
supply constraints in Europe.
Boostrix sales were down 13% AER, 11% CER to GBP163 million primarily
due to decreased vaccination rates in International and in the US.
Hepatitis vaccines declined 36% AER, 33% CER to GBP138 million, adversely
impacted in the US and Europe by lower demand and travel restrictions,
together with competition returning to market in the US.
Synflorix sales declined by 28% AER, 27% CER to GBP83 million, primarily
due to unfavourable phasing in International and lower demand in
Emerging Markets.
Rotarix sales were down 21% AER, 18% CER to GBP132 million, reflecting
unfavourable phasing in International and in Emerging Markets together
with channel de-stocking in the US.
MMRV vaccines sales grew 26% AER, 30% CER to GBP72 million, largely
driven by improved supply in Europe.
Consumer Healthcare turnover
Q3 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Oral health 702 (1) 5
Pain relief 537 2 8
Vitamins, minerals and supplements 353 58 67
Respiratory health 294 (15) (9)
Digestive health and other 456 7 15
------ ------- -------
2,342 5 12
Brands divested/under review 80 (73) (70)
------ ------- -------
2,422 (4) 2
------ ------- -------
US 785 8 15
Europe 654 (1) -
International 983 (14) (5)
------ ------- -------
2,422 (4) 2
------ ------- -------
Pro-forma growth (6)
-------
On a reported basis, sales declined 4% AER, but grew 2% CER to GBP2,422
million in the quarter. Reported numbers reflect a full quarter of
sales of legacy Pfizer brands sales compared to two months in the
third quarter of 2019. Brands divested/under review declined 73%
AER,70% CER to GBP80 million given strong progress on the divestment
programme.
On a pro-forma basis, sales declined 6% CER but grew 3% CER, excluding
brands divested/under review. Growth in Oral health and Vitamins,
minerals and supplements brands was offset by weaker performance
in Respiratory health and Pain relief. The previously disclosed reversal
of increased retailer stocking ahead of a systems cutover in North
America impacted overall growth by approximately two percentage points
.
COVID-19 pandemic continues to impact results, with different impacts
across categories. In Oral health and in Pain the accelerated purchases
from earlier this year have largely unwound. In Respiratory social
distancing measures continue to create volatility, especially within
cold and flu categories, while Vitamins, minerals and supplements
brands continue to benefit from strong demand given increased consumer
focus on health and wellness.
Oral health
Oral health sales declined 1% AER but grew 5% CER to GBP702 million.
Sensodyne grew in high single digits with strong performance in the
International region, particularly India, partly offset by the impact
of the North America systems cutover. There was minimal impact from
reversal of accelerated purchases seen in prior quarters. Gum health
grew in double digits with broad-based growth, while Denture care
declined in low-single digits, reflecting challenging market conditions.
Pain relief
Pain relief grew 2% AER, 8% CER to GBP537 million. On a pro-forma
basis, sales declined in low single digits, largely driven by a decline
of Advil, reflecting weakness in the US. The performance of Panadol
was impacted by retailer stock movements. This was partly offset
by double-digit growth from Voltaren, largely driven by a successful
OTC launch in the US.
Vitamins, minerals and supplements
Vitamins, minerals and supplements grew 58% AER, 67% CER to GBP353
million. On a pro-forma basis, sales continued to grow in the high-teens
per cent, with double digit growth for Centrum, Caltrate and Emergen-C.
This reflects an ongoing increase in consumer demand for the category,
driven by consumer focus on health and wellness, a trend consistent
with previous quarters.
Respiratory health
Respiratory health sales declined 15% AER, 9% CER to GBP294 million.
On a pro-forma basis, sales declined in low double-digits, impacted
by seasonality in some markets and lower retail sell in ahead of
the cold and flu season. This was partly offset by a strong performance
from Robitussin, which partly benefited from a successful Naturals
innovation.
Digestive health and other
Digestive health and other brands grew 7% AER, 15% CER to GBP456
million. On a pro-forma basis, sales grew in mid-single digits. Strong
performance from Digestive health products was partly offset by a
decline in Skin health, which continued to be impacted by lower footfall,
reducing impulse purchases in retail stores due to COVID-19.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 33.4%, 1.2 percentage
points lower at AER and 1.9 percentage points lower in CER terms
compared with Q3 2019. This primarily reflected the unwind in Q3
2019 of the fair market value uplift on inventory arising on completion
of the Consumer Healthcare Joint Venture with Pfizer, partly offset
by increased write downs in a number of manufacturing sites.
Excluding these and other Adjusting items, Adjusted cost of sales
as a percentage of turnover was 29.4%, 0.3 percentage points lower
at AER and 0.9 percentage points lower at CER compared with Q3 2019.
On a pro-forma basis, Adjusted cost of sales as a percentage of turnover
was 29.4%, 1.0 percentage points lower at CER, compared with Q3 2019.
This reflected favourable product mix and a favourable comparison
to a non-restructuring related write down in a manufacturing site
in Q3 2019 in Pharmaceuticals and restructuring savings across all
three businesses, partly offset by unfavourable product mix in Vaccines,
primarily due to the decline of Shingrix in the US and continued
adverse pricing pressure in Pharmaceuticals, particularly in Respiratory.
Selling, general and administration
Total SG&A costs as a percentage of turnover were 30.9%, 0.1 percentage
points higher at AER but 0.4 percentage points lower at CER compared
with Q3 2019. This included increased major restructuring costs and
separation 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 28.6%, 0.8 percentage points lower
at AER than in Q3 2019 and 1.3 percentage points lower on a CER basis.
On a pro-forma basis, Adjusted SG&A costs as a percentage of turnover
were 28.6%, 1.5 percentage points lower at CER, compared with Q3
2019.
Adjusted SG&A costs declined 11% AER, 7% CER and 10% CER on a pro-forma
basis, which reflected the benefits from restructuring including
a one-off benefit in the quarter from restructuring of post-retirement
benefits and the continuing benefit of restructuring in Pharmaceuticals,
Consumer Healthcare and support functions, a favourable comparison
to increased costs for a number of legal settlements in Q3 2019,
reduced variable spending across all three businesses as a result
of the COVID-19 lockdowns and the tight control of ongoing costs,
partly offset by increased investment for new launches in Respiratory,
HIV and Vaccines.
Research and development
Total R&D expenditure was GBP1,140 million (13.2% of turnover), down
5% AER, 2% CER, including an increase in impairment charges. Adjusted
R&D expenditure was GBP1,049 million (12.1% of turnover), 10% lower
at AER, 6% lower at CER than in Q3 2019. On a pro-forma basis, Adjusted
R&D expenditure declined 7% CER compared with Q3 2019.
Pharmaceuticals R&D expenditure was GBP805 million, down 10% AER,
6% CER, reflecting a benefit in the quarter from recognition of pre-launch
inventory following the successful approval of Blenrep for the treatment
of multiple myeloma, reduction of spend on the PRIMA study and dostarlimab
which filed for approval at the end of 2019 as well as some efficiency
savings as part of the Separation Preparation restructuring programme
and variable spending as a result of COVID-19 lockdowns. This was
partly offset by increased investment in Oncology assets such as
Blenrep and ICOS as well as increased investment in the progression
of key assets in the Specialty and Primary Care Portfolio including
otilimab for Rheumatoid Arthritis and two key COVID-19 programmes
(otilimab COVID and Vir antibody).
R&D expenditure in Vaccines was GBP175 million, down 8% AER, 7% CER,
reflecting efficiency savings as part of the Separation Preparation
restructuring programme and variable spending as a result of COVID-19
lockdowns. R&D expenditure in Consumer Healthcare was GBP69 million.
Royalty income
Royalty income was GBP85 million (Q3 2019: GBP118 million), down
28% AER, 26% CER, primarily reflecting reduced royalties on sales
of Gardasil.
Other operating expense
Net other operating expense of GBP179 million (Q3 2019: GBP13 million
expense) primarily reflected accounting charges of GBP395 million
(Q3 2019: GBP305 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 GBP339 million (Q3 2019:
GBP255 million) for the contingent consideration liability due to
Shionogi, primarily arising from changes in sales forecasts partly
offset by changes in exchange rate assumptions as well as the unwind
of discounting. These charges were partly offset by milestone income
and profits from a number of asset disposals.
Operating profit
Total operating profit was GBP1,858 million in Q3 2020 compared with
GBP2,147 million in Q3 2019. This reflected higher re-measurement
charges on the contingent consideration liabilities and an adverse
comparison to an increase in value of shares in Hindustan Unilever
Limited in Q3 2019, partly offset by higher asset disposals.
Excluding these and other Adjusting items, Adjusted operating profit
was GBP2,665 million, 4% lower than Q3 2019 at AER but 4% higher
at CER on a turnover decrease of 3% CER. The Adjusted operating margin
of 30.8% was 1.1 percentage points higher at AER, and 2.2 percentage
points higher on a CER basis than in Q3 2019. On a pro-forma basis,
Adjusted operating profit was 2% higher at CER on a turnover decrease
of 5% CER. The Adjusted pro-forma operating margin of 30.8% was 2.4
percentage points higher on a CER basis than in Q3 2019.
The increase in pro-forma Adjusted operating profit benefited from
continued restructuring across the business including a one-off benefit
in the quarter from restructuring of post-retirement benefits, a
favourable comparison to increased costs for a number of legal settlements
in Q3 2019, a benefit in the quarter from recognition of pre-launch
inventory on approval of Blenrep, and tight control of ongoing costs
including reduced promotional and variable spending across all three
businesses as a result of the COVID-19 lockdowns .
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 Q3 2020 amounted to GBP209 million (Q3 2019: GBP217
million). This included cash payments made to Shionogi of GBP203
million (Q3 2019: GBP206 million).
Operating profit by business
Pharmaceuticals operating profit was GBP1,175 million, up 8% AER,
16% CER on a turnover decrease of 3% CER. The operating margin of
28.0% was 3.9 percentage points higher at AER than in Q3 2019 and
4.7 percentage points higher on a CER basis. This primarily reflected
favourable product mix, a favourable comparison to a non-restructuring
related write down in a manufacturing site in Q3 2019, a favourable
comparison to increased costs for a number of legal settlements in
Q3 2019, a benefit in the quarter from recognition of pre-launch
inventory on approval of Blenrep, the continuing benefit of restructuring,
reduced variable spending across all three businesses as a result
of the COVID-19 lockdowns and the tight control of ongoing costs.
This was partly offset by increased investment in new product support
and targeted priority markets, the continued impact of lower prices,
particularly in Respiratory and increased investment in Oncology
R&D and initiation of several COVID-19 programmes.
Vaccines operating profit was GBP899 million, down 23% AER, 18% CER
on a turnover decrease of 9% CER. The operating margin of 44.2% was
6.1 percentage points lower at AER than in Q3 2019 and 5.0 percentage
points lower on a CER basis. This was primarily driven by the negative
operating leverage from the significant COVID-19 related sales decline
and investment behind key brands.
Consumer Healthcare operating profit was GBP541 million, down 12%
AER, 2% CER on a turnover increase of 2% CER. On a pro-forma basis,
operating profit was GBP541 million, 9% CER lower on a turnover decrease
of 6% CER. The operating margin of 22.3% was 1.9 percentage points
lower at AER and 0.9 percentage points lower on a CER basis than
in Q3 2019. The pro-forma operating margin of 22.3% was 0.9 percentage
points lower on a CER basis.
This primarily reflected the impact of divestments as well as increased
investment in the quarter following delays in the earlier part of
the year due to COVID-19, partially offset by synergy benefits from
the Pfizer integration.
Net finance costs
Total net finance costs were GBP198 million compared with GBP213
million in Q3 2019. Adjusted net finance costs were GBP197 million
compared with GBP206 million in Q3 2019. The decrease primarily reflects
lower debt levels and favourable refinancing of term debt, partly
offset by a fair value expense on interest rate swaps in Q3 2020
and lower interest income on reduced overseas cash post-closing of
the divestment of Horlicks and other Consumer Healthcare nutrition
products in India and a number of other countries.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates and joint ventures was
GBP11 million (Q3 2019: GBP17 million).
Taxation
The charge of GBP241 million represented an effective tax rate on
Total results of 14.4% (Q3 2019: 12.0%) and reflected the different
tax effects of the various Adjusting items. Tax on Adjusted profit
amounted to GBP417 million and represented an effective Adjusted
tax rate of 16.8% (Q3 2019: 15.8%).
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 GBP186 million (Q3 2019: GBP164 million). The increase was primarily
due to the allocation of Consumer Healthcare profits of GBP114 million
(Q3 2019: GBP47 million) 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 GBP62 million
(Q3 2019: GBP86 million), including increased charges for re-measurement
of contingent consideration liabilities.
The allocation of Adjusted earnings to non-controlling interests
amounted to GBP287 million (Q3 2019: GBP275 million). The increase
in allocation primarily reflected an increased allocation of Consumer
Healthcare profits of GBP147 million (Q3 2019: GBP103 million) 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 GBP130 million (Q3 2019: GBP141 million) and
reduced 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 25.0p, compared with 31.4p in Q3 2019. The reduction
in EPS primarily reflected higher re-measurement charges on the contingent
consideration liabilities and an adverse comparison to an increase
in value of shares in Hindustan Unilever Limited in Q3 2019, partly
offset by higher asset disposals and improved operating performance.
Adjusted EPS was 35.6p compared with 38.6p in Q3 2019, down 8% AER,
but up 1% CER, on a 4% CER increase in Adjusted operating profit
reflecting a higher effective tax rate and a higher non-controlling
interest allocation of Consumer Healthcare profits.
Currency impact on Q3 2020 results
The results for Q3 2020 are based on average exchange rates, principally
GBP1/$1.30, GBP1/EUR1.11 and GBP1/Yen 138. Comparative exchange rates
are given on page 59. The period-end exchange rates were GBP1/$1.28,
GBP1/EUR1.10 and GBP1/Yen 136.
In the quarter, turnover decreased 8% AER, 3% CER. Total EPS was
25.0p compared with 31.4p in Q3 2019. Adjusted EPS was 35.6p compared
with 38.6p in Q3 2019, down 8% AER, but up 1% CER. The adverse currency
impact primarily reflected the strengthening in Sterling, particularly
against the US$ and Yen, partly offset by weakness in emerging market
currencies relative to Q3 2019. Exchange gains or losses on the settlement
of intercompany transactions had a one percentage point negative
impact on the negative currency impact of nine percentage points
on Adjusted EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for
Q3 2020 and Q3 2019 are set out below.
Three months ended 30 September 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 8,646 8,646
Cost of sales (2,885) 178 1 163 3 (2,540)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 5,761 178 1 163 3 6,106
Selling, general
and
administration (2,669) 160 (5) 12 25 (2,477)
Research and
development (1,140) 16 60 14 1 (1,049)
Royalty income 85 85
Other operating
(expense)/income (179) (1) 391 (211) -
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 1,858 194 61 336 389 (198) 25 2,665
Net finance costs (198) 1 (197)
Share of after
tax profits
of associates
and joint
ventures 11 11
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,671 194 61 337 389 (198) 25 2,479
Taxation (241) (37) (11) (89) (72) 38 (5) (417)
Tax rate % 14.4% 16.8%
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 1,430 157 50 248 317 (160) 20 2,062
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 186 101 287
Profit
attributable
to
shareholders 1,244 157 50 248 216 (160) 20 1,775
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 25.0p 3.1p 1.0p 5.0p 4.3p (3.2)p 0.4p 35.6p
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number of shares
(millions) 4,980 4,980
------------ ------------
Three months ended 30 September 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 9,385 9,385
Cost of sales (3,245) 191 10 108 151 (2,785)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 6,140 191 10 108 151 6,600
Selling, general
and
administration (2,892) (1) 77 30 18 (2,768)
Research and
development (1,206) 14 17 12 (1) (1,164)
Royalty income 118 118
Other operating
(expense)/income (13) 2 300 (289) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 2,147 205 26 199 481 (272) 2,786
Net finance costs (213) 3 4 (206)
Share of after
tax
profits of
associates and
joint
ventures 17 17
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 1,951 205 26 202 481 (268) 2,597
Taxation (235) (39) (6) (33) (86) (12) (411)
Tax rate % 12.0% 15.8%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 1,716 166 20 169 395 (280) 2,186
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 164 111 275
Profit
attributable
to
shareholders 1,552 166 20 169 284 (280) 1,911
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 31.4p 3.4p 0.4p 3.4p 5.7p (5.7)p 38.6p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of
shares
(millions) 4,951 4,951
------------ ------------
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 Q3 2020 were GBP336
million (Q3 2019: GBP199 million), analysed as follows:
Q3 2020 Q3 2019
------------------------- -----------------------------
Cash Non-cash Total Cash Non-cash Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ --------- ------ ------ --------- ------
2018 major restructuring
programme (incl. Tesaro) 19 25 44 68 45 113
Consumer Healthcare
Joint
Venture integration
programme 106 7 113 104 - - 104
Separation Preparation
restructuring programme 73 109 182 - - -
Combined restructuring
and
integration programme 13 (16) (3) (30) 12 (18)
211 125 336 142 57 199
------ --------- ------ ------ --------- ------
Cash charges of GBP73 million under the Separation Preparation programme
primarily arose from restructuring of Vaccines manufacturing and
R&D functions as well as commercial pharmaceuticals restructuring.
Non-cash charges of GBP109 million were related to write-down of
assets in sites in the Pharma Supply Chain.
Cash charges of GBP106 million on the Consumer Healthcare Joint Venture
programme primarily related to severance and integration costs.
The 2018 major restructuring programme incurred cash charges of GBP19
million in relation to severance costs for restructuring within central
functions and non-cash charges of GBP25 million for write-downs on
disposal of sites.
Total cash payments made in Q3 2020 were GBP212 million (Q3 2019:
GBP105 million), GBP28 million for the existing Combined restructuring
and integration programme (Q3 2019: GBP28 million), GBP45 million
(Q3 2019: GBP39 million) under the 2018 major restructuring programme
including the settlement of certain charges accrued in previous quarters,
a further GBP89 million (Q3 2019: GBP38 million) relating to the
Consumer Healthcare Joint Venture integration programme and GBP50
million relating to the Separation Preparation restructuring programme.
The analysis of Major restructuring charges by business was as follows:
Q3 2020 Q3 2019
GBPm GBPm
-------- --------
Pharmaceuticals 146 47
Vaccines 7 31
Consumer Healthcare 124 125
-------- --------
277 203
Corporate & central functions 59 (4)
-------- --------
Total Major restructuring costs 336 199
-------- --------
The analysis of Major restructuring charges by Income statement line
was as follows:
Q3 2020 Q3 2019
GBPm GBPm
-------- --------
Cost of sales 163 108
Selling, general and administration 160 77
Research and development 14 12
Other operating expense (1) 2
-------- --------
Total Major restructuring costs 336 199
-------- --------
The benefit in the quarter from the 2018 major restructuring programme
was GBPnil 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 GBP389
million (Q3 2019: GBP481 million). This included a net GBP395 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.
Q3 2020 Q3 2019
Charge/(credit) GBPm GBPm
-------- --------
Contingent consideration on former Shionogi-ViiV
Healthcare joint venture
(including Shionogi preferential dividends) 339 255
ViiV Healthcare put options and Pfizer preferential
dividends (101) (10)
Contingent consideration on former Novartis Vaccines
business 157 60
Other adjustments (6) 176
-------- --------
Total transaction-related charges 389 481
-------- --------
The GBP339 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 GBP105 million unwind of
the discount and a GBP234 million charge primarily from adjustments
to sales forecasts including the impact of the results of the cabotegravir
for pre-exposure prophylaxis HPTN 083 study, partly offset by 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 September 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 also included milestone income and gains
from a number of asset disposals and certain other Adjusting items.
There was no charge (Q3 2019: GBP18 million) for significant legal
matters arising in the quarter. Significant legal cash payments were
GBP1 million (Q3 2019: GBP5 million).
Separation costs
From Q2 2020, the Group started to report additional one-time costs
to prepare for Consumer Healthcare separation.
Financial performance - nine months 2020
Total results
The Total results for the Group are set out below.
9 months 9 months
2020 2019 Growth Growth
GBPm GBPm GBP% CER%
--------- --------- ------- -------
Turnover 25,360 24,855 2 4
Cost of sales (8,533) (8,615) (1) -
--------- --------- ------- -------
Gross profit 16,827 16,240 4 6
Selling, general and administration (8,294) (7,959) 4 6
Research and development (3,628) (3,325) 9 10
Royalty income 227 269 (16) (16)
Other operating income/(expense) 1,590 (166)
--------- --------- ------- -------
Operating profit 6,722 5,059 33 37
Finance income 39 87
Finance expense (653) (706)
Share of after tax profits
of
associates and joint ventures 39 70
--------- --------- ------- -------
Profit before taxation 6,147 4,510 36 41
Taxation (598) (759)
Tax rate % 9.7% 16.8%
--------- --------- ------- -------
Profit after taxation 5,549 3,751 48 53
--------- --------- ------- -------
Profit attributable to non-controlling
interests 477 405
Profit attributable to shareholders 5,072 3,346
--------- --------- ------- -------
5,549 3,751 48 53
--------- --------- ------- -------
Earnings per share 102.0p 67.7p 51 55
--------- --------- ------- -------
Adjusted results
The Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for the nine months 2020
and the nine months 2019 are set out on pages 38 and 39.
9 months 2020
----------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
-------- ---------- ------- --------- ----------
Turnover 25,360 100 2 4 (2)
Cost of sales (7,399) (29.2) 2 4 (3)
Selling, general and
administration (7,793) (30.7) 3 4 (3)
Research and development (3,306) (13.0) 4 5 3
Royalty income 227 0.9 (16) (16) (16)
-------- ---------- ------- --------- ----------
Adjusted operating
profit 7,089 28.0 - 3 (3)
-------- ---------- ------- --------- ----------
Adjusted profit before
tax 6,517 (1) 2
Adjusted profit after
tax 5,442 - 3
Adjusted profit attributable
to
shareholders 4,606 (6) (3)
-------- ------- ---------
Adjusted earnings
per share 92.6p (7) (4)
-------- ------- ---------
Operating profit by
business 9 months 2020
----------------------------------------------------
Reported Pro-forma
% of Growth growth growth
GBPm turnover GBP% CER% CER%
-------- ---------- ------- --------- ----------
Pharmaceuticals 5,849 46.1 (3) (1) (1)
Pharmaceuticals R&D* (2,515) 3 4 4
-------- ---------- ------- --------- ----------
Total Pharmaceuticals 3,334 26.3 (7) (5) (5)
Vaccines 2,022 40.7 (15) (14) (14)
Consumer Healthcare 1,828 23.8 27 33 2
-------- ---------- ------- --------- ----------
7,184 28.3 (3) - (6)
Corporate & other
unallocated
costs (95)
----------
Adjusted operating
profit 7,089 28.0 - 3 (3)
-------- ---------- ------- --------- ----------
* Operating profit of Pharmaceuticals R&D segment, which is the responsibility
of the Chief Scientific Officer and President, R&D. It excludes
ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals
segment.
Turnover
Pharmaceuticals turnover
9 months 2020
-------------------------
Growth Growth
GBPm GBP% CER%
------- ------- -------
Respiratory 2,732 25 26
HIV 3,608 - 1
Immuno-inflammation 521 18 19
Oncology 257 57 57
------- ------- -------
7,118 11 12
Established Pharmaceuticals 5,572 (16) (14)
-------
12,690 (2) (1)
-------
US 5,477 1 1
Europe 3,047 (1) (1)
International 4,166 (7) (3)
------- ------- -------
12,690 (2) (1)
------- ------- -------
Pharmaceuticals turnover in the nine months was GBP12,690 million,
down 2% AER, 1% CER, but grew 11% AER, 12% CER excluding the impact
of the decline in Established Pharmaceuticals turnover. HIV sales
were flat at AER and up 1% CER, to GBP3,608 million, with growth
in Juluca and Dovato partly offset by declines in Tivicay and Triumeq.
Respiratory sales were up 25% AER, 26% CER, to GBP2,732 million,
on growth of Trelegy, Nucala and Relvar/Breo. Sales of Established
Pharmaceuticals declined 16% AER, 14% CER to GBP5,572 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. This effect broadly reversed in the second
quarter, which also saw lower levels of new patient prescriptions
in US and Europe and reduced market demand for allergy and antibiotic
products in International and Europe. These effects continue to be
seen in the third quarter.
In the US, sales grew 1% AER, 1% CER. Continued growth of Nucala,
Trelegy, Benlysta, Zejula and the HIV two-drug regimens was partly
offset by the decline in Tivicay, Triumeq and Established Products,
including the impact of generic albuterol substitutes.
In Europe, sales declined 1% AER, 1% CER, with growth from Respiratory,
HIV and Oncology partly offset by the decline of Established Pharmaceutical
sales, impacted by generic competition and lower demand for antibiotics
during the COVID-19 pandemic period. Approximately two percentage
points of decline are due to the impact of a one-off UK Relenza contract
in the comparator.
International declined 7% AER, 3% CER, with Respiratory, HIV and
Benlysta growth partly offset by lower Established Pharmaceutical
sales. This included the impact of a weaker allergy season and generic
competition for Avolve in Japan and government mandated changes increasing
the use of generics in China.
Respiratory
Total Respiratory sales were up 25% AER, 26% CER, with strong growth
in all regions. International Respiratory sales grew 26% AER, 29%
CER including Nucala, up 43% AER 43% CER and Relvar/Breo, up 11%
AER, 14% CER to GBP245 million. In Europe, Respiratory sales grew
to GBP691 million up 21% AER, 22% CER. In the US, Trelegy and Nucala
growth continued while Relvar/Breo sales grew 34% AER, 35% CER, including
the effect of a prior period RAR adjustment and a stronger US ICS/LABA
market in the COVID-19 pandemic environment.
Sales of Nucala were GBP702 million in the nine months and grew 28%
AER, 28% CER, with US sales up 29% AER, 30% CER to GBP414 million.
Europe sales of GBP175 million grew 17% AER 17% CER and International
sales of GBP113 million grew 43% AER, 43% CER.
Trelegy sales were up 68% AER, 69% CER to GBP581 million driven by
growth in all regions. In the US, the new asthma indication was approved
and launched in Q3 2020, with sales up 56% AER, 57% CER to GBP400
million. In Europe, sales grew 74% AER, 75% CER and in International,
sales grew to GBP61 million in the nine months.
Relvar/Breo sales were up 21% AER, 22% CER to GBP850 million in the
nine months. In the US, Relvar/Breo grew 34% AER, 35% CER, benefiting
from the effect of a prior period RAR adjustment and a stronger US
ICS/LABA market in the COVID-19 pandemic environment. In Europe and
International, Relvar/Breo continued to grow, up 14% AER, 14% CER
and 11% AER, 14% CER respectively.
HIV
HIV sales were GBP3,608 million, flat at AER, up 1% CER in the nine
months. The dolutegravir franchise grew 2% AER, 3% CER, delivering
sales of GBP3,477 million. The remaining portfolio, with sales of
GBP131 million and 4% of total HIV sales, declined 24% AER, 24% CER
and reduced the overall growth of total HIV by two percentage points
at CER.
Sales of dolutegravir products were GBP3,477 million in the nine
months. Tivicay delivered sales of GBP1,162 million, down 6% AER,
5% CER and Triumeq sales were GBP1,726 million, down 10% AER, 9%
CER. The two-drug regimens, Juluca and Dovato delivered sales of
GBP589 million in the nine months, with combined growth more than
offsetting decline in the three-drug regimen, Triumeq.
In the US, dolutegravir sales declined 1% AER, but were flat at CER,
and in Europe dolutegravir sales grew 5% AER, 5% CER. Following recent
launches of Dovato, combined sales of the two-drug regimens were
GBP429 million in the US and GBP143 million in Europe, with growth
offsetting the decline in Triumeq. International continued to grow
strongly with total dolutegravir sales growth of 6% AER, 11% CER,
driven by Tivicay tender business.
Oncology
Sales of Zejula, the PARP inhibitor asset acquired from Tesaro in
Q1 2019 were GBP250 million in the nine months, up 53% AER, 53% CER.
Blenrep for the treatment of patients with relapsed or refractory
multiple myeloma was approved and launched in the US and Europe in
Q3 2020 and reported sales of GBP8 million.
Immuno-inflammation
Sales of Benlysta in the nine months were up 16% AER, 17% CER to
GBP514 million, including sales of the sub-cutaneous formulation
of GBP249 million up 32% AER, 32% CER.
Duvroq for patients with anaemia due to chronic kidney disease was
launched in Japan in Q3 2020 and reported sales in the International
region of GBP7 million.
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the nine months were GBP5,572
million, down 16% AER, 14% CER.
Established Respiratory products declined 15% AER, 13% CER to GBP2,495
million. Advair/Seretide and Ventolin were impacted by generic substitutes
in the US and Europe, and Flovent experienced price pressure in the
US. In the International region, allergy sales were impacted by market
contraction in Japan.
The remainder of the Established Pharmaceuticals portfolio declined
16% AER, 14% CER to GBP3,077 million on lower demand for antibiotics
during the COVID-19 pandemic period, the impact of government mandated
changes increasing use of generics in markets including France and
China, and a strong comparator, including a European Relenza contract.
Vaccines turnover
9 months 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Meningitis 755 (7) (5)
Influenza 481 19 21
Shingles 1,344 5 6
Established Vaccines 2,390 (18) (17)
------
4,970 (8) (7)
------
US 2,612 (13) (12)
Europe 1,019 (10) (10)
International 1,339 5 8
------ ------- -------
4,970 (8) (7)
------ ------- -------
Vaccines turnover declined 8% AER, 7% CER to GBP4,970 million, primarily
driven by the adverse impact of the COVID-19 pandemic on Hepatitis,
DTPa-containing, Shingrix and Meningitis vaccines, together with
the Rabipur and Encepur divestment. This decline was partly offset
by higher sales of Influenza vaccines in the US.
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
recovered, with paediatric vaccination near pre-COVID levels by the
end of Q2 2020, while adolescent and adult immunisations improved
at a slower pace. US back-to-school vaccinations have been disrupted
because schools and universities have delayed or reversed in-person
tuition. Adult immunisation rates have improved during Q3 2020 with
wellness visits returning to prior year levels in the last month
of the quarter.
Lower demand year-to-date was related to COVID-19 pandemic conditions
unless stated otherwise.
Meningitis
Meningitis sales declined 7% AER, 5% CER to GBP755 million. Bexsero
sales declined 13% AER, 11% CER to GBP491 million, reflecting lower
demand in the US and International, partly offset by lower US returns
and rebates.
Menveo sales declined 9% AER, 8% CER to GBP182 million, primarily
driven by lower demand partly offset by lower returns and rebates
in the US together with higher demand and favourable phasing in International.
In the US, Bexsero maintained and Menveo grew market share.
Influenza
Fluarix/FluLaval sales were GBP481 million, up 19% AER, 21% CER,
primarily reflecting strong sales execution and reversal of prior
year returns provision in the US, together with favourable phasing
delivery and higher demand in International.
Shingles
Shingrix grew 5% AER, 6% CER to GBP1,344 million, primarily driven
by a strong performance in Europe reflecting robust underlying demand
in post-lockdown conditions in Germany. The launch of Shingrix in
China also contributed to sales growth. In the US, a decline in demand
in Q2 and Q3 2020 due to lower adult wellness visits and vaccination
rates was partially offset by strong uptake in Q1 2020 and favourable
returns and rebates.
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix)
declined by 22% AER, 21% CER. Infanrix/Pediarix sales declined 21%
AER, 20% CER to GBP457 million, reflecting lower demand in the US,
unfavourable year-on-year US CDC stockpile movements and supply constraints
in Europe.
Boostrix sales were down 23% AER, 22% CER to GBP351 million primarily
due to lower vaccination rates across all regions.
Hepatitis vaccines declined 36% AER, 35% CER to GBP437 million, adversely
impacted in the US and Europe lower demand and travel restrictions,
together with competition returning to market in the US.
Synflorix sales declined by 10% AER, 9% CER to GBP309 million, primarily
due to unfavourable phasing in International and lower demand in
Emerging Markets.
Rotarix sales declined 1% AER but remained flat at CER to GBP411
million, reflecting lower demand in the US, mostly offset by higher
demand in International.
MMRV vaccines sales grew 13% AER, 15% CER to GBP183 million, largely
driven by improved supply in Europe.
Consumer Healthcare turnover
9 months 2020
------------------------
Growth Growth
GBPm GBP% CER%
------ ------- -------
Oral health 2,074 3 5
Pain relief 1,677 31 34
Vitamins, minerals and supplements 1,120 >100 >100
Respiratory health 947 14 16
Digestive health and other 1,395 19 22
------ ------- -------
7,213 29 32
Brands divested/under review 460 (45) (43)
------ ------- -------
7,673 19 23
------ ------- -------
US 2,583 52 53
Europe 2,002 9 10
International 3,088 7 13
------ ------- -------
7,673 19 23
------ ------- -------
Pro-forma growth -
-------
On a reported basis, sales grew 19% AER, 23% CER to GBP7,673 million
in the nine months, largely driven by the inclusion of the Pfizer
portfolio, partly offset by brands divested/under review.
On a pro-forma basis, sales were flat at CER, but grew 6% CER excluding
brands divested/under review. This reflected the continued momentum
of our Vitamins, minerals and supplements brands as well as continued
strong performance in Oral health.
Oral health
Oral health sales grew 3% AER, 5% CER to GBP2,074 million. Sensodyne
continued to drive performance for the category, reporting high single-digit
growth, reflecting the underlying strength of the brand. Growth was
supported by new launches including Sensodyne Sensitivity & Gum.
Gum health grew in double digits, while Denture care declined in
low single digits, largely due to challenging market conditions.
Overall growth was impacted by a decline in non-strategic brands.
Pain relief
Pain relief grew 31% AER, 34% CER to GBP1,677 million. On a pro-forma
basis, sales grew in mid-single-digits, driven by Panadol and Voltaren.
Panadol growth reflected increased consumption due to the COVID-19
pandemic earlier in the year, while Voltaren performance was largely
driven by the successful OTC launch in the US. This was partly offset
by weaker performance of Advil in the US.
Vitamins, minerals and supplements
Vitamins, minerals and supplements more than doubled at AER and CER
to GBP1,120 million. On a pro-forma basis, sales continued to grow
in the high-teens per cent, with strong performance from Centrum
and Emergen-C. This reflects an ongoing increase in consumer demand
for the category, driven by consumer focus on health and wellness,
a trend consistent with previous quarters.
Respiratory health
Respiratory health sales grew 14% AER, 16% CER to GBP947 million.
On a pro-forma basis, sales grew in low single-digits, driven by
Theraflu, Flonase and Robitussin. Theraflu performance benefitted
from increased consumption in response to COVID-19. Growth was impacted
by weaker performance of Otrivin and other Respiratory brands.
Digestive health and other
Digestive health and other brands grew 19% AER, 22% CER to GBP1,395
million. On a pro-forma basis, sales grew in low-single digits with
growth in Smokers' health and Digestive health products partly offset
by a decline in Skin health products and other non-strategic brands.
Operating performance
Cost of sales
Total cost of sales as a percentage of turnover was 33.6%, 1.0 percentage
points lower at AER and 1.2 percentage points lower in CER terms
compared with 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 29.2%, 0.1 percentage points higher
at AER, but flat at CER compared with 2019. On a pro-forma basis,
Adjusted cost of sales as a percentage of turnover was 29.2%, 0.3
percentage points lower at CER, compared with 2019. This reflected
a more favourable product mix in Pharmaceuticals, a further contribution
from restructuring savings in Pharmaceuticals and Vaccines and integration
savings in Consumer Healthcare, partly offset by adverse product
mix in Vaccines and continued adverse pricing pressure in Pharmaceuticals,
particularly in Respiratory.
Selling, general and administration
Total SG&A costs as a percentage of turnover were 32.7%, 0.7 percentage
points higher at AER and 0.6 percentage points higher at CER compared
with 2019. This reflected increased Major restructuring costs and
separation 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 30.7%, 0.2 percentage points higher
at AER than in 2019 and 0.1 percentage points higher on a CER basis.
On a pro-forma basis, Adjusted SG&A costs as a percentage of turnover
were 30.7%, 0.1 percentage points lower at CER, compared with 2019.
The growth in Adjusted SG&A costs of 3% AER, 4% CER but reduction
of 3% CER on a pro-forma basis reflected the benefits from restructuring
including a one-off benefit from restructuring of post-retirement
benefits in Q3 2020 and the continuing benefit of restructuring in
Pharmaceuticals, Consumer Healthcare and support functions, reduced
variable spending across all three businesses as a result of the
COVID-19 lockdowns and the tight control of ongoing costs, particularly
in non-promotional spending across all three businesses. This was
partly offset by increased investment resulting from the acquisition
of Tesaro and in promotional product support, particularly for new
launches in Vaccines, Respiratory and HIV.
Research and development
Total R&D expenditure was GBP3,628 million (14.3% of turnover), up
9% AER, 10% CER, including an increase in Major restructuring costs
and intangible impairments. Adjusted R&D expenditure was GBP3,306
million (13.0% of turnover), 4% higher at AER, 5% higher at CER than
in 2019. On a pro-forma basis, Adjusted R&D expenditure grew 3% CER
compared with 2019.
Pharmaceuticals R&D expenditure was GBP2,580 million, up 5% AER,
6% CER, primarily driven by the significant increase in investment
in Oncology, reflecting the progression of a number of key programmes
including Blenrep, ICOS and bintrafusp alfa, as well as initiation
and progression of COVID-19 treatment programmes (Vir, Otilimab).
This has been partly offset by a reduction in investment in research
and several Specialty and Primary Care programmes (daprodustat, Trelegy,
HIV) as well as efficiency savings as part of the Separation Preparation
restructuring programme and variable spending as a result of COVID-19
lockdowns.
R&D expenditure in Vaccines was GBP508 million, down 5% AER, 4% CER
reflecting efficiency savings as part of the Separation Preparation
restructuring programme and variable spending as a result of COVID-19
lockdowns. R&D expenditure in Consumer Healthcare was GBP218 million.
Royalty income
Royalty income was GBP227 million (2019: GBP269 million), down 16%
AER, 16% CER, primarily reflecting adverse movements in Consumer
Healthcare and lower sales of Gardasil.
Other operating income/(expense)
Net other operating income of GBP1,590 million (2019: GBP166 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 GBP1,236 million
(2019: GBP408 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 GBP1,117 million (2019: GBP421 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 discounting.
Operating profit
Total operating profit was GBP6,722 million in the nine months compared
with GBP5,059 million in 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 GBP7,089 million, flat compared with 2019 at AER and 3% higher
at CER on a turnover increase of 4% CER. The Adjusted operating margin
of 28.0% was 0.7 percentage points lower at AER, and 0.4 percentage
points lower on a CER basis than in 2019. On a pro-forma basis, Adjusted
operating profit was 3% lower at CER on a turnover decrease of 2%
at CER. The Adjusted pro-forma operating margin of 28.0% was 0.4
percentage points lower on a CER basis than in 2019.
The reduction in pro-forma Adjusted operating profit reflects 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, 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 offset by reduced promotional
and variable spending across all three business as a result of the
COVID-19 lockdowns, a one-off benefit in Q3 2020 from restructuring
of post-retirement benefits and the continuing benefit of restructuring
in Pharmaceuticals, Consumer Healthcare and support functions 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 the nine months amounted to GBP664 million (2019:
GBP660 million). This included cash payments made to Shionogi of
GBP648 million (2019: GBP645 million).
Operating profit by business
Pharmaceuticals operating profit was GBP3,334 million, down 7% AER,
5% CER on a turnover decrease of 1% CER. The operating margin of
26.3% was 1.3 percentage points lower at AER than in 2019 and 1.1
percentage points lower on a CER basis. This primarily reflected
a significant increase in Oncology R&D as well as the continued impact
of lower prices, 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. This was partly offset
by the reduced promotional and variable spending as a result of the
COVID-19 lockdowns and the continued benefit of restructuring and
tight control of ongoing costs.
Vaccines operating profit was GBP2,022 million, down 15% AER, 14%
CER on a turnover decrease of 7% CER. The operating margin of 40.7%
was 3.4 percentage points lower at AER than in 2019 and 3.1 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.
Consumer Healthcare operating profit was GBP1,828 million, up 27%
AER, 33% CER on a turnover increase of 23% CER. On a pro-forma basis,
operating profit was GBP1,828 million, 2% CER higher on flat turnover
at CER. The operating margin of 23.8% was 1.5 percentage points higher
at AER and 1.9 percentage points higher on a CER basis than in 2019.
The pro-forma operating margin of 23.8% was 0.5 percentage points
higher on a CER basis. The higher margin was driven by higher than
normal sales growth in Q1 due to COVID-19, favourable product mix
from growth in power brands and synergy delivery from the Pfizer
integration. This was partially offset by the impact of divestments
and increased targeted promotional investment.
Net finance costs
Total net finance costs were GBP614 million compared with GBP619
million in 2019. Adjusted net finance costs were GBP611 million compared
with GBP613 million in 2019. The decrease primarily reflects reduced
interest expense from lower debt levels and refinancing at lower
rates offset by reductions in income on overseas cash post-closing
of the divestment of Horlicks and other Consumer Healthcare nutrition
products in India and a number of other countries, a fair value gain
on interest rate swaps in the 2019 comparator and reduced swap interest
income on foreign currency hedges.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was GBP39 million (2019:
GBP70 million). 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 GBP598 million represented an effective tax rate on
Total results of 9.7% (2019: 16.8%) 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 GBP1,075 million and represented an effective
Adjusted tax rate of 16.5% (2019: 16.9%), 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 GBP477 million (2019: GBP405 million). The increase was primarily
due to an increased allocation of Consumer Healthcare profits of
GBP310 million (2019: GBP47 million) 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 GBP126 million
(2019: GBP290 million), including increased charges for re-measurement
of contingent consideration liabilities.
The allocation of Adjusted earnings to non-controlling interests
amounted to GBP836 million (2019: GBP562 million). The increase in
allocation primarily reflected an increased allocation of Consumer
Healthcare profits of GBP424 million (2019: GBP103 million) 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 GBP371 million (2019: GBP391 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 102.0p, compared with 67.7p in 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
2019 from increased share of after tax profits of the associate Innoviva.
Adjusted EPS was 92.6p compared with 99.2p in 2019, down 7% AER,
4% CER, on a 3% 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 nine months 2020 results
The results for the nine months to September 2020 are based on average
exchange rates, principally GBP1/$1.28, GBP1/EUR1.13 and GBP1/Yen
137. Comparative exchange rates are given on page 59. The period-end
exchange rates were GBP1/$1.28, GBP1/EUR1.10 and GBP1/Yen 136.
In the nine months, turnover increased 2% AER, 4% CER. Total EPS
was 102.0p compared with 67.7p in 2019. Adjusted EPS was 92.6p compared
with 99.2p in 2019, down 7% AER, 4% CER. The adverse currency impact
primarily reflected strengthening of Sterling against the US$ and
weakness in emerging market currencies relative to 2019. Exchange
gains or losses on the settlement of intercompany transactions had
a negligible impact on the adverse currency impact of three percentage
points on Adjusted EPS.
Adjusting items
The reconciliations between Total results and Adjusted results for
the nine months 2020 and the nine months 2019 are set out below.
Nine months ended 30 September 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 25,360 25,360
Cost of sales (8,533) 529 28 468 109 (7,399)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 16,827 529 28 468 109 17,961
Selling, general
and
administration (8,294) 17 448 (25) 18 43 (7,793)
Research and
development (3,628) 50 176 96 (3,306)
Royalty income 227 227
Other operating
income/
(expense) 1,590 1,223 (2,813) -
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 6,722 579 221 1,012 1,307 (2,795) 43 7,089
Net finance
costs (614) 2 1 (611)
Share of after
tax profits
of associates
and joint
ventures 39 39
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 6,147 579 221 1,014 1,307 (2,794) 43 6,517
Taxation (598) (110) (39) (241) (186) 107 (8) (1,075)
Tax rate % 9.7% 16.5%
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 5,549 469 182 773 1,121 (2,687) 35 5,442
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 477 359 836
Profit
attributable
to
shareholders 5,072 469 182 773 762 (2,687) 35 4,606
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 102.0p 9.4p 3.7p 15.5p 15.3p (54.0)p 0.7p 92.6p
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number of
shares
(millions) 4,974 4,974
------------ ------------
Nine months ended 30 September 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 24,855 24,855
Cost of sales (8,615) 550 27 647 160 (7,231)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross profit 16,240 550 27 647 160 17,264
Selling, general
and
administration (7,959) 5 169 100 87 (7,598)
Research and
development (3,325) 48 30 71 1 (3,175)
Royalty income 269 269
Other operating
(expense)/income (166) 1 415 (250) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating profit 5,059 598 62 888 675 (162) 7,120
Net finance costs (619) 4 2 (613)
Share of after
tax
profits of
associates and
joint
ventures 70 70
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit before
taxation 4,510 598 62 892 675 (160) 6,577
Taxation (759) (115) (11) (150) (139) 63 (1,111)
Tax rate % 16.8% 16.9%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit after
taxation 3,751 483 51 742 536 (97) 5,466
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit
attributable
to
non-controlling
interests 405 157 562
Profit
attributable
to
shareholders 3,346 483 51 742 379 (97) 4,904
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings per
share 67.7p 9.8p 1.0p 15.0p 7.7p (2.0)p 99.2p
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
number
of
shares
(millions) 4,945 4,945
------------ ------------
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 the nine months were
GBP1,012 million (2019: GBP888 million), analysed as follows:
9 months 2020 9 months 2019
------------------------- -------------------------
Cash Non-cash Total Cash Non-cash Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ --------- ------ ------ --------- ------
2018 major restructuring
programme (incl. Tesaro) 75 195 270 179 549 728
Consumer Healthcare
Joint
Venture integration
programme 245 24 269 135 - 135
Separation Preparation
restructuring programme 352 112 464 - - -
Combined restructuring
and
integration programme 13 (4) 9 (8) 33 25
685 327 1,012 306 582 888
------ --------- ------ ------ --------- ------
Cash charges of GBP352 million under the Separation Preparation programme
primarily arose from restructuring of Vaccines manufacturing and
R&D functions as well as restructuring of commercial pharmaceuticals
and some administrative functions. Non-cash charges of GBP112 million
were related to write-down of assets in sites in the Pharma Supply
Chain.
Cash charges of GBP245 million under the Consumer Healthcare Joint
Venture programme primarily related to severance and integration
costs.
The 2018 major restructuring programme incurred cash charges of GBP75
million in relation to severance costs for restructuring of the manufacturing
organisation, R&D and some administrative functions as well as the
integration of Tesaro and non-cash charges of GBP195 million for
write-downs on disposal of sites.
Total cash payments made in the nine months were GBP543 million (2019:
GBP390 million), GBP93 million for the existing Combined restructuring
and integration programme (2019: GBP247 million), GBP145 million
(2019: GBP85 million) under the 2018 major restructuring programme
including the settlement of certain charges accrued in previous quarters,
a further GBP224 million (2019: GBP58 million) relating to the Consumer
Healthcare Joint Venture integration programme and GBP81 million
relating to the Separation Preparation restructuring programme.
The analysis of Major restructuring charges by business was as follows:
9 months 9 months
2020 2019
GBPm GBPm
--------- ---------
Pharmaceuticals 362 615
Vaccines 203 48
Consumer Healthcare 303 187
--------- ---------
868 850
Corporate & central functions 144 38
--------- ---------
Total Major restructuring costs 1,012 888
--------- ---------
The analysis of Major restructuring charges by Income statement line
was as follows:
9 months 9 months
2020 2019
GBPm GBPm
--------- ---------
Cost of sales 468 647
Selling, general and administration 448 169
Research and development 96 71
Other operating expense - 1
--------- ---------
Total Major restructuring costs 1,012 888
--------- ---------
The benefit in the nine months from the 2018 major restructuring
programme was GBP0.2 billion and the benefit from the Consumer Healthcare
Joint Venture integration was GBP0.2 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 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 GBP1,307
million (2019: GBP675 million). This included a net GBP1,236 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.
9 months 9 months
2020 2019
Charge/(credit) GBPm GBPm
--------- ---------
Contingent consideration on former Shionogi-ViiV
Healthcare joint venture
(including Shionogi preferential dividends) 1,117 421
ViiV Healthcare put options and Pfizer preferential
dividends (42) (81)
Contingent consideration on former Novartis Vaccines
business 161 68
Release of fair value uplift on acquired Pfizer
inventory 91 -
Other adjustments (20) 267
--------- ---------
Total transaction-related charges 1,307 675
--------- ---------
The GBP1,117 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 GBP298 million unwind of the discount
and GBP819 million primarily from updated exchange rate assumptions
as well as adjustments to sales forecasts. The GBP42 million credit
relating to the ViiV Healthcare put options and Pfizer preferential
dividends represented a decrease in the valuation of the put option
as a result of adjustments to multiples and sales forecasts partly
offset by 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 September 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
milestone income and gains from a number of asset disposals and certain
other Adjusting items. A charge of GBP6 million (2019: GBP87 million)
for significant legal matters included the settlement of existing
matters as well as provisions for ongoing litigation. Significant
legal cash payments were GBP7 million (2019: GBP13 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
9 months 9 months
Q3 2020 2020 2019
-------- --------- ---------
Net cash inflow from operating activities
(GBPm) 861 4,586 4,567
Free cash flow* (GBPm) (180) 2,300 2,474
Free cash flow growth (%) >(100)% (7)% 4%
Free cash flow conversion* (%) <-% 45% 74%
Net debt** (GBPm) 23,882 23,882 28,139
-------- --------- ---------
* Free cash flow and free cash flow conversion are defined on page
62 .
** Net debt is analysed on page 61.
Q3 2020
The net cash inflow from operating activities for the quarter was
GBP861 million (Q3 2019: GBP2,515 million). The reduction primarily
reflected increased trade receivables following lower collections
from lower sales in Q2 2020, increased inventory primarily in Vaccines,
adverse timing of payments for returns and rebates and taxes and
adverse exchange rate impacts partly offset by increased operating
profits.
Total cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were GBP203 million
(Q3 2019: GBP206 million), of which GBP178 million was recognised
in cash flows from operating activities and GBP25 million was recognised
in contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
Free cash outflow was GBP180 million for the quarter (Q3 2019: GBP1,939
million inflow). The reduction primarily reflected a significant
increase in trade receivables following lower collections from lower
sales in Q2 2020, increased inventory primarily in Vaccines, adverse
timing of payments for returns and rebates and taxes, higher dividends
to non-controlling interests and increased purchases of intangible
assets.
9 months 2020
The net cash inflow from operating activities for the nine months
was GBP4,586 million (2019: GBP4,567 million). The increase primarily
reflected a lower seasonal increase in trade receivables, beneficial
timing of payments for returns and rebates and improved operating
profits, partly offset by adverse exchange impacts and increased
tax payments including tax on disposals.
Total cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the nine months were GBP648
million (2019: GBP645 million), of which GBP566 million was recognised
in cash flows from operating activities and GBP82 million was recognised
in contingent consideration paid within investing cash flows. These
payments are deductible for tax purposes.
Free cash flow was GBP2,300 million for the nine months (2019: GBP2,474
million). The reduction primarily reflected h igher dividends to
non-controlling interests, increased tax payments including tax on
disposals and adverse exchange impacts, partly offset by a lower
seasonal increase in trade receivables, beneficial timing of payments
for returns and rebates, higher proceeds from disposals of intangible
assets and improved operating profits.
Net debt
At 30 September 2020, net debt was GBP23.9 billion, compared with
GBP25.2 billion at 31 December 2019, comprising gross debt of GBP28.3
billion and cash and liquid investments of GBP4.4 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, GBP0.5 billion
of other business and asset disposals together with GBP2.3 billion
free cash flow, partly offset by cash divested of GBP0.5 billion,
dividends paid to shareholders of GBP3.0 billion, GBP0.4 billion
in additional investments and GBP0.9 billion of unfavourable exchange
impacts from the translation of non-Sterling denominated debt and
exchange on other financing items.
At 30 September 2020, GSK had short-term borrowings (including overdrafts
and lease liabilities) repayable within 12 months of GBP4.9 billion
with loans of GBP2.7 billion repayable in the subsequent year.
Returns to shareholders
Quarterly dividends
The Board has declared a third interim dividend for 2020 of 19 pence
per share (Q3 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 12 January 2021. 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 12 November 2020, with a record date
of 13 November 2020 and a payment date of 14 January 2021.
Paid/ Pence per
payable share GBPm
------------- ---------- -----
2020
First interim 9 July 2020 19 946
8 October
Second interim 2020 19 946
14 January
Third interim 2021 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
Q3 2020 Q3 2019
millions millions
---------- ----------
Weighted average number of shares
- basic 4,980 4,951
Dilutive effect of share options
and share awards 60 56
---------- ----------
Weighted average number of shares
- diluted 5,040 5,007
---------- ----------
Weighted average number of shares
9 months 9 months
2020 2019
Millions millions
---------- ----------
Weighted average number of shares
- basic 4,974 4,945
Dilutive effect of share options
and share awards 60 56
---------- ----------
Weighted average number of shares
- diluted 5,034 5,001
---------- ----------
At 30 September 2020, 4,980 million shares (30 September 2019: 4,952
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 0.1 million shares under employee share
schemes in the quarter for proceeds of GBP2 million (Q3 2019: GBP8
million).
At 30 September 2020, the ESOP Trust held 36.8 million GSK shares
against the future exercise of share options and share awards. The
carrying value of GBP259 million has been deducted from other reserves.
The market value of these shares was GBP543 million.
At 30 September 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
9 months 9 months
Q3 2020 Q3 2019 2020 2019
GBPm GBPm GBPm GBPm
-------- -------- --------- ---------
TURNOVER 8,646 9,385 25,360 24,855
Cost of sales (2,885) (3,245) (8,533) (8,615)
-------- -------- --------- ---------
Gross profit 5,761 6,140 16,827 16,240
Selling, general and administration (2,669) (2,892) (8,294) (7,959)
Research and development (1,140) (1,206) (3,628) (3,325)
Royalty income 85 118 227 269
Other operating (expense)/income (179) (13) 1,590 (166)
-------- -------- --------- ---------
OPERATING PROFIT 1,858 2,147 6,722 5,059
Finance income (3) 32 39 87
Finance expense (195) (245) (653) (706)
Share of after tax profits
of
associates and joint ventures 11 17 39 70
-------- -------- --------- ---------
PROFIT BEFORE TAXATION 1,671 1,951 6,147 4,510
Taxation (241) (235) (598) (759)
Tax rate % 14.4% 12.0% 9.7% 16.8%
-------- -------- --------- ---------
PROFIT AFTER TAXATION 1,430 1,716 5,549 3,751
-------- -------- --------- ---------
Profit attributable to non-controlling
interests 186 164 477 405
Profit attributable to shareholders 1,244 1,552 5,072 3,346
-------- -------- --------- ---------
1,430 1,716 5,549 3,751
-------- -------- --------- ---------
EARNINGS PER SHARE 25.0p 31.4p 102.0p 67.7p
-------- -------- --------- ---------
100.7
Diluted earnings per share 24.7 p 31.0p p 66.9p
-------- -------- --------- ---------
Statement of comprehensive income
Q3 2020 Q3 2019
GBPm GBPm
-------- --------
Profit for the period 1,430 1,716
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges (171) (150)
Fair value movements on cash flow hedges - (33)
Reclassification of cash flow hedges to income statement 1 2
Deferred tax on fair value movements on cash flow
hedges 1 -
(169) (181)
-------- --------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests (65) 38
Fair value movements on equity investments 528 52
Deferred tax on fair value movements on equity investments (102) 3
Re-measurement gains on defined benefit plans 63 (619)
Tax on re-measurement gains on defined benefit plans (14) 113
-------- --------
410 (413)
-------- --------
Other comprehensive income/(expense) for the period 241 (594)
-------- --------
Total comprehensive income for the period 1,671 1,122
-------- --------
Total comprehensive income for the period attributable
to:
Shareholders 1,550 920
Non-controlling interests 121 202
-------- --------
1,671 1,122
-------- --------
Statement of comprehensive income
9 months 9 months
2020 2019
GBPm GBPm
--------- ---------
Profit for the period 5,549 3,751
Items that may be reclassified subsequently to income
statement:
Exchange movements on overseas net assets and net
investment hedges 189 (195)
Reclassification of exchange movements on liquidation
or disposal of
overseas subsidiaries 36 -
Fair value movements on cash flow hedges (23) (106)
Reclassification of cash flow hedges to income statement 53 3
Deferred tax on fair value movements on cash flow
hedges (2) -
253 (298)
--------- ---------
Items that will not be reclassified to income statement:
Exchange movements on overseas net assets of non-controlling
interests 30 28
Fair value movements on equity investments 713 96
Deferred tax on fair value movements on equity investments (116) (27)
Re-measurement losses on defined benefit plans (382) (1,192)
Tax on re-measurement losses on defined benefit
plans 78 215
--------- ---------
323 (880)
--------- ---------
Other comprehensive income/(expense) for the period 576 (1,178)
--------- ---------
Total comprehensive income for the period 6,125 2,573
--------- ---------
Total comprehensive income for the period attributable
to:
Shareholders 5,618 2,140
Non-controlling interests 507 433
--------- ---------
6,125 2,573
--------- ---------
Pharmaceuticals turnover - three months ended 30 September 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Respiratory 978 21 26 576 24 30 225 13 13 177 26 33
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ellipta products 727 21 26 427 23 29 166 13 13 134 22 30
Anoro Ellipta 140 (2) 3 86 (9) (4) 35 17 13 19 - 21
Arnuity Ellipta 14 17 33 13 30 30 - - - 1 (50) 50
Incruse Ellipta 56 (7) (2) 33 (3) 3 16 (11) (6) 7 (13) (12)
Relvar/Breo
Ellipta 323 30 34 169 64 70 73 3 1 81 8 15
Trelegy Ellipta 194 40 45 126 20 29 42 50 54 26 >100 >100
Nucala 251 24 29 149 25 32 59 11 11 43 39 45
HIV 1,216 (4) - 755 (5) - 296 1 1 165 (7) 1
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dolutegravir
products 1,176 (3) 1 739 (5) - 284 3 4 153 (2) 5
Tivicay 377 (15) (10) 220 (18) (13) 87 (15) (14) 70 (1) 7
Triumeq 577 (11) (8) 368 (11) (6) 135 (12) (13) 74 (11) (5)
Juluca 123 22 28 95 14 20 24 50 56 4 >100 100
Dovato 99 >100 >100 56 >100 >100 38 >100 >100 5 >100 >100
Epzicom/Kivexa 7 (63) (58) 1 - - 2 (67) (67) 4 (67) (58)
Selzentry 23 (8) (8) 12 (14) (14) 6 (14) (14) 5 25 25
Rukobia 3 - - 3 - - - - - - - -
Other 7 (42) (42) - - - 4 (20) (40) 3 (40) (20)
Immuno-
Inflammation
and other
specialty 193 13 18 158 5 11 15 25 25 20 >100 >100
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Benlysta 186 8 13 158 5 11 15 25 25 13 30 40
Oncology 99 55 58 61 61 68 36 35 35 2 >100 >100
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Zejula 92 44 47 57 50 55 33 27 27 2 >100 >100
Blenrep 8 - - 5 - - 3 - - - - -
Pharmaceuticals
excluding
established
products 2,486 8 12 1,550 7 13 572 8 8 364 12 19
Established
Pharmaceuticals 1,706 (23) (18) 368 (30) (26) 402 (21) (21) 936 (22) (14)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Established
Respiratory 725 (23) (18) 256 (30) (26) 164 (11) (11) 305 (22) (13)
Seretide/Advair 368 (12) (8) 112 (4) (1) 104 (14) (14) 152 (16) (8)
Flixotide/Flovent 92 (46) (42) 45 (59) (57) 15 (17) (17) 32 (26) (14)
Ventolin 177 (23) (18) 100 (26) (22) 25 (7) (4) 52 (24) (15)
Avamys/Veramyst 56 (15) (8) - - - 13 (13) (13) 43 (16) (6)
Other Respiratory 32 (40) (28) (1) - - 7 75 50 26 (46) (38)
Dermatology 110 (7) (1) - - - 36 (10) (13) 74 (5) 5
Augmentin 106 (30) (24) - - - 30 (21) (21) 76 (33) (25)
Avodart 95 (37) (30) 1 (50) (50) 36 (29) (29) 58 (40) (30)
Imigran/Imitrex 30 (17) (14) 11 (27) (27) 12 (8) (8) 7 (13) -
Lamictal 125 (15) (10) 61 (18) (12) 30 (3) (3) 34 (19) (10)
Seroxat/Paxil 38 (10) (2) - - - 9 (10) (10) 29 (9) -
Valtrex 24 (14) (7) 4 - - 8 (11) (11) 12 (20) (7)
Other 453 (26) (22) 35 (44) (46) 77 (41) (40) 341 (18) (13)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pharmaceuticals 4,192 (7) (3) 1,918 (3) 2 974 (6) (6) 1,300 (14) (7)
-------- -------- -------- -------- ---------- -------- -------- --------- -------- -------- --------- --------
Pharmaceuticals turnover - nine months ended 30 September 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Respiratory 2,732 25 26 1,540 26 27 691 21 22 501 26 29
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ellipta products 2,030 24 25 1,126 25 26 516 23 23 388 21 25
Anoro Ellipta 396 6 8 237 2 2 103 18 18 56 6 13
Arnuity Ellipta 31 (6) (3) 26 (7) (7) - - - 5 - 20
Incruse Ellipta 172 (7) (6) 96 (12) (12) 55 - 2 21 - 5
Relvar/Breo
Ellipta 850 21 22 367 34 35 238 14 14 245 11 14
Trelegy Ellipta 581 68 69 400 56 57 120 74 75 61 >100 >100
Nucala 702 28 28 414 29 30 175 17 17 113 43 43
HIV 3,608 - 1 2,200 (1) - 886 3 3 522 1 6
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dolutegravir
products 3,477 2 3 2,155 (1) - 848 5 5 474 6 11
Tivicay 1,162 (6) (5) 642 (12) (12) 280 (5) (5) 240 15 21
Triumeq 1,726 (10) (9) 1,084 (10) (9) 425 (10) (10) 217 (8) (4)
Juluca 356 40 41 279 30 31 69 86 89 8 100 100
Dovato 233 >100 >100 150 >100 >100 74 >100 >100 9 >100 >100
Epzicom/Kivexa 25 (58) (57) 2 (33) (33) 7 (61) (61) 16 (59) (56)
Selzentry 70 (5) (4) 35 (13) (13) 20 (9) (9) 15 25 33
Rukobia 3 - - 3 - - - - - - - -
Other 33 (13) (21) 5 (44) (67) 11 (8) (17) 17 - -
Immuno-
Inflammation
and other
specialty 521 18 19 437 13 14 41 21 21 43 95 100
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Benlysta 514 16 17 437 13 14 41 21 21 36 64 68
Oncology 257 57 57 156 61 62 99 48 48 2 - -
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Zejula 250 53 53 152 57 57 96 45 45 2 - -
Blenrep 8 - - 5 - - 3 - - - - -
Pharmaceuticals
excluding
established
products 7,118 11 12 4,333 10 11 1,717 12 12 1,068 14 18
Established
Pharmaceuticals 5,572 (16) (14) 1,144 (25) (24) 1,330 (14) (14) 3,098 (12) (9)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Established
Respiratory 2,495 (15) (13) 814 (24) (24) 563 (8) (8) 1,118 (11) (7)
Seretide/Advair 1,184 (10) (8) 361 (9) (9) 344 (10) (10) 479 (10) (7)
Flixotide/Flovent 332 (25) (23) 149 (41) (41) 60 (9) (8) 123 (1) 4
Ventolin 574 (19) (17) 305 (28) (27) 87 (2) (1) 182 (9) (3)
Avamys/Veramyst 227 (10) (7) - - - 51 (6) (6) 176 (11) (8)
Other Respiratory 178 (16) (16) (1) - - 21 11 5 158 (18) (18)
Dermatology 316 (5) (2) 1 (67) (67) 104 (13) (13) 211 - 6
Augmentin 375 (16) (12) - - - 108 (14) (13) 267 (16) (12)
Avodart 370 (15) (12) 4 - - 124 (23) (23) 242 (10) (6)
Imigran/Imitrex 91 (12) (11) 36 (18) (18) 37 (5) (5) 18 (10) (5)
Lamictal 397 (6) (4) 196 (7) (6) 90 7 7 111 (12) (8)
Seroxat/Paxil 110 (10) (7) - - - 27 (4) (4) 83 (12) (9)
Valtrex 77 (4) (1) 11 10 10 24 4 4 42 (11) (6)
Other 1,341 (23) (21) 82 (52) (53) 253 (29) (29) 1,006 (16) (13)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pharmaceuticals 12,690 (2) (1) 5,477 1 1 3,047 (1) (1) 4,166 (7) (3)
-------- -------- -------- -------- ---------- -------- -------- --------- -------- -------- --------- --------
Vaccines turnover - three months ended 30 September 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Meningitis 363 (2) 1 197 (16) (14) 93 3 3 73 55 68
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Bexsero 219 (14) (11) 119 (18) (17) 87 4 4 13 (50) (27)
Menveo 104 (2) - 78 (12) (10) 4 - - 22 69 69
Other 40 >100 >100 - - - 2 - - 38 >100 >100
Influenza 445 20 21 379 19 20 33 (3) (3) 33 74 74
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Fluarix,
FluLaval 445 20 21 379 19 20 33 (3) (3) 33 74 74
Shingles 374 (30) (25) 287 (42) (37) 53 >100 >100 34 48 57
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Shingrix 374 (30) (25) 287 (42) (37) 53 >100 >100 34 48 57
Established
Vaccines 850 (18) (15) 288 (27) (23) 204 (20) (20) 358 (6) (2)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Infanrix,
Pediarix 158 (21) (17) 82 (23) (19) 40 (27) (25) 36 (5) -
Boostrix 163 (13) (11) 95 (6) (2) 42 - (2) 26 (41) (39)
Hepatitis 138 (36) (33) 79 (40) (37) 31 (46) (44) 28 - 4
Rotarix 132 (21) (18) 26 (28) (22) 29 4 7 77 (25) (23)
Synflorix 83 (28) (27) - - - 13 18 27 70 (33) (32)
Priorix,
Priorix
Tetra,
Varilrix 72 26 30 - - - 39 70 70 33 (3) 3
Cervarix 49 >100 >100 - - - 5 - - 44 >100 >100
Other 55 (26) (23) 6 (68) (68) 5 (86) (91) 44 >100 >100
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines 2,032 (12) (9) 1,151 (20) (17) 383 (3) (3) 498 6 11
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines turnover - nine months ended 30 September 2020
Total US Europe International
------------------------------------- ------------------------------------- ------------------------------------- -------------------------------------
Growth Growth Growth Growth
----------------------- ----------------------- ----------------------- -----------------------
GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER% GBPm GBP% CER%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Meningitis 755 (7) (5) 323 (20) (20) 265 2 2 167 11 20
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Bexsero 491 (13) (11) 200 (19) (19) 242 - - 49 (36) (21)
Menveo 182 (9) (8) 123 (22) (21) 18 50 50 41 28 34
Other 82 74 74 - - - 5 - - 77 83 83
Influenza 481 19 21 381 19 20 33 (3) (3) 67 37 43
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Fluarix,
FluLaval 481 19 21 381 19 20 33 (3) (3) 67 37 43
Shingles 1,344 5 6 1,155 (2) (1) 117 >100 >100 72 6 9
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Shingrix 1,344 5 6 1,155 (2) (1) 117 >100 >100 72 6 9
Established
Vaccines 2,390 (18) (17) 753 (31) (31) 604 (25) (25) 1,033 2 4
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Infanrix,
Pediarix 457 (21) (20) 211 (28) (27) 136 (20) (19) 110 (5) (2)
Boostrix 351 (23) (22) 187 (20) (19) 104 (15) (15) 60 (39) (37)
Hepatitis 437 (36) (35) 248 (41) (40) 111 (38) (37) 78 (6) (4)
Rotarix 411 (1) - 84 (21) (20) 88 5 6 239 5 7
Synflorix 309 (10) (9) - - - 42 (5) (2) 267 (11) (10)
Priorix,
Priorix
Tetra,
Varilrix 183 13 15 - - - 95 28 28 88 - 5
Cervarix 95 51 56 - - - 14 (13) (13) 81 72 79
Other 147 (34) (33) 23 (51) (55) 14 (89) (89) 110 >100 >100
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Vaccines 4,970 (8) (7) 2,612 (13) (12) 1,019 (10) (10) 1,339 5 8
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Balance sheet
30 September 30 September 31 December
2020 2019 2019
GBPm GBPm GBPm
------------- ------------- ------------
ASSETS
Non-current assets
Property, plant and equipment 10,307 10,668 10,348
Right of use assets 898 1,032 966
Goodwill 10,888 11,046 10,562
Other intangible assets 30,664 32,455 30,955
Investments in associates and
joint ventures 396 334 314
Other investments 2,576 1,592 1,837
Deferred tax assets 4,381 3,909 4,096
Derivative financial instruments 4 161 103
Other non-current assets 932 1,058 1,020
------------- ------------- ------------
Total non-current assets 61,046 62,255 60,201
------------- ------------- ------------
Current assets
Inventories 6,440 6,776 5,947
Current tax recoverable 567 169 262
Trade and other receivables 7,854 8,173 7,202
Derivative financial instruments 206 518 421
Liquid investments 83 86 79
Cash and cash equivalents 4,283 4,305 4,707
Assets held for sale 448 963 873
------------- ------------- ------------
Total current assets 19,881 20,990 19,491
------------- ------------- ------------
TOTAL ASSETS 80,927 83,245 79,692
------------- ------------- ------------
LIABILITIES
Current liabilities
Short-term borrowings (4,914) (8,216) (6,918)
Contingent consideration liabilities (776) (838) (755)
Trade and other payables (15,142) (14,737) (14,939)
Derivative financial instruments (127) (310) (188)
Current tax payable (428) (610) (629)
Short-term provisions (792) (803) (621)
------------- ------------- ------------
Total current liabilities (22,179) (25,514) (24,050)
------------- ------------- ------------
Non-current liabilities
Long-term borrowings (23,334) (24,833) (23,590)
Corporation tax payable (195) (273) (189)
Deferred tax liabilities (3,917) (3,914) (3,810)
Pensions and other post-employment
benefits (3,771) (3,793) (3,457)
Other provisions (782) (686) (670)
Derivative financial instruments (6) - (1)
Contingent consideration liabilities (5,329) (5,288) (4,724)
Other non-current liabilities (789) (884) (844)
------------- ------------- ------------
Total non-current liabilities (38,123) (39,671) (37,285)
------------- ------------- ------------
TOTAL LIABILITIES (60,302) (65,185) (61,335)
------------- ------------- ------------
NET ASSETS 20,625 18,060 18,357
------------- ------------- ------------
EQUITY
Share capital 1,346 1,345 1,346
Share premium account 3,280 3,165 3,174
Retained earnings 7,055 5,265 4,530
Other reserves 2,605 1,997 2,355
------------- ------------- ------------
Shareholders' equity 14,286 11,772 11,405
Non-controlling interests 6,339 6,288 6,952
------------- ------------- ------------
TOTAL EQUITY 20,625 18,060 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 5,072 5,072 477 5,549
Other
comprehensive
(expense)/income
for the period (83) 629 546 30 576
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income
for the period 4,989 629 5,618 507 6,125
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (1,006) (1,006)
Contributions from
non-controlling
interests 3 3
Changes to
non-controlling
interests (117) (117)
Dividends to
shareholders (3,031) (3,031) (3,031)
Shares issued - 28 28 28
Realised after tax
profits
on disposal of
equity
investments 260 (260) - -
Shares acquired by
ESOP
Trusts 78 361 (439) - -
Write-down on
shares held
by ESOP Trusts (320) 320 - -
Share-based
incentive plans 266 266 266
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 September
2020 1,346 3,280 7,055 2,605 14,286 6,339 20,625
------------ ------------ ------------ ------------ ------------ ------------ ------------
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 3,346 3,346 405 3,751
Other
comprehensive
(expense)/income
for the period (1,171) (35) (1,206) 28 (1,178)
------------ ------------ ------------ ------------ ------------
Total
comprehensive
income/(expense)
for the period 2,175 (35) 2,140 433 2,573
------------ ------------ ------------ ------------ ------------
Distributions to
non-controlling
interests (313) (313)
Changes in
non-controlling
interests 10 10
Dividends to
shareholders (3,012) (3,012) (3,012)
Recognition of
interest
in Consumer
Healthcare Joint
Venture 8,082 8,082 6,846 14,928
Shares issued - 41 41 41
Realised profits
on disposal
of equity
investments (4) 4 -
Shares acquired by
ESOP
Trusts 33 295 (328) -
Write-down on
shares held
by ESOP Trusts (295) 295 -
Share-based
incentive plans 254 254 254
------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 September
2019 1,345 3,165 4,686 1,997 11,193 6,867 18,060
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash flow statement - nine months ended 30 September 2020
9 months 9 months
2020 2019
GBPm GBPm
--------- ---------
Profit after tax 5,549 3,751
Tax on profits 598 759
Share of after tax profits of associates and
joint ventures (39) (70)
Net finance expense 614 619
Depreciation, amortisation and other adjusting
items (330) 2,472
Increase in working capital (1,444) (1,477)
Contingent consideration paid (573) (577)
Increase in other net liabilities (excluding
contingent
consideration paid) 1,547 149
--------- ---------
Cash generated from operations 5,922 5,626
Taxation paid (1,336) (1,059)
--------- ---------
Net cash inflow from operating activities 4,586 4,567
--------- ---------
Cash flow from investing activities
Purchase of property, plant and equipment (712) (785)
Proceeds from sale of property, plant and equipment 35 86
Purchase of intangible assets (682) (613)
Proceeds from sale of intangible assets 637 88
Purchase of equity investments (396) (239)
Proceeds from sale of equity investments 3,134 51
Purchase of businesses, net of cash acquired 9 (3,548)
Contingent consideration paid (91) (83)
Disposal of businesses 234 (2)
Investment in associates and joint ventures (1) (6)
Interest received 33 66
Increase/(decrease) in liquid investments (1) 1
Dividends from associates and joint ventures 14 -
--------- ---------
Net cash inflow/(outflow) from investing activities 2,213 (4,984)
--------- ---------
Cash flow from financing activities
Issue of share capital 28 41
Increase in short-term loans - 4,350
Increase in long-term loans 2,333 4,822
Repayment of short-term loans (5,824) (4,253)
Repayment of lease liabilities (166) (159)
Purchase of non-controlling interests - (7)
Interest paid (517) (539)
Dividends paid to shareholders (3,031) (3,012)
Distributions to non-controlling interests (1,006) (313)
Contributions from non-controlling interests 3 -
Other financing items 223 (11)
--------- ---------
Net cash (outflow)/inflow from financing activities (7,957) 919
--------- ---------
(Decrease)/increase in cash and bank overdrafts
in the period (1,158) 502
--------- ---------
Cash and bank overdrafts at beginning of the
period 4,831 4,087
Exchange adjustments (17) 20
(Decrease)/increase in cash and bank overdrafts (1,158) 502
--------- ---------
Cash and bank overdrafts at end of the period 3,656 4,609
--------- ---------
Cash and bank overdrafts at end of the period
comprise:
Cash and cash equivalents 4,283 4,305
Cash and cash equivalents reported in assets
held for sale - 519
--------- ---------
4,283 4,824
Overdrafts (627) (215)
--------- ---------
3,656 4,609
--------- ---------
Segment information
Operating segments are reported based on the financial information
provided to the Chief Executive Officer and the responsibilities
of the Corporate Executive Team (CET). GSK reports results under
four segments: Pharmaceuticals; Pharmaceuticals R&D; Vaccines and
Consumer Healthcare, and individual members of the CET are responsible
for each segment.
The Pharmaceuticals R&D segment is the responsibility of the Chief
Scientific Officer and President, R&D and is reported as a separate
segment. The operating profit of this segment excludes the ViiV Healthcare
operating profit (including R&D expenditure) that is reported within
the Pharmaceuticals segment.
The Group's management reporting process allocates intra-Group profit
on a product sale to the market in which that sale is recorded, and
the profit analyses below have been presented on that basis.
Corporate and other unallocated turnover and costs include the results
of certain Consumer Healthcare products which are being held for
sale in a number of markets in order to meet anti-trust approval
requirements, together with the costs of corporate functions.
Turnover by segment
Q3 2020 Q3 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 4,192 4,531 (7) (3)
Vaccines 2,032 2,308 (12) (9)
Consumer Healthcare 2,422 2,526 (4) 2
-------- -------- ------- -------
8,646 9,365 (8) (3)
Corporate and other unallocated
turnover - 20
-------- -------- ------- -------
Total turnover 8,646 9,385 (8) (3)
-------- -------- ------- -------
Operating profit by segment
Q3 2020 Q3 2019 Growth Growth
GBPm GBPm GBP% CER%
-------- -------- ------- -------
Pharmaceuticals 1,945 1,986 (2) 4
Pharmaceuticals R&D (770) (893) (14) (10)
-------- -------- ------- -------
Pharmaceuticals including R&D 1,175 1,093 8 16
Vaccines 899 1,162 (23) (18)
Consumer Healthcare 541 613 (12) (2)
-------- -------- ------- -------
Segment profit 2,615 2,868 (9) (1)
Corporate and other unallocated
costs 50 (82)
-------- -------- ------- -------
Adjusted operating profit 2,665 2,786 (4) 4
Adjusting items (807) (639)
-------- -------- ------- -------
Total operating profit 1,858 2,147 (13) (2)
Finance income (3) 32
Finance costs (195) (245)
Share of after tax profits of
associates
and joint ventures 11 17
-------- -------- ------- -------
Profit before taxation 1,671 1,951 (14) (2)
-------- -------- ------- -------
Turnover by segment
9 months 9 months
2020 2019 Growth Growth
GBPm GBPm GBP% CER%
--------- --------- ------- -------
Pharmaceuticals 12,690 12,996 (2) (1)
Vaccines 4,970 5,415 (8) (7)
Consumer Healthcare 7,673 6,424 19 23
--------- --------- ------- -------
25,333 24,835 2 4
Corporate and other unallocated
turnover 27 20
--------- --------- ------- -------
Total turnover 25,360 24,855 2 4
--------- --------- ------- -------
Operating profit by segment
9 months 9 months
2020 2019 Growth Growth
GBPm GBPm GBP% CER%
--------- --------- ------- -------
Pharmaceuticals 5,849 6,029 (3) (1)
Pharmaceuticals R&D (2,515) (2,442) 3 4
--------- --------- ------- -------
Pharmaceuticals including R&D 3,334 3,587 (7) (5)
Vaccines 2,022 2,388 (15) (14)
Consumer Healthcare 1,828 1,434 27 33
--------- --------- ------- -------
Segment profit 7,184 7,409 (3) -
Corporate and other unallocated
costs (95) (289)
--------- --------- ------- -------
Adjusted operating profit 7,089 7,120 - 3
Adjusting items (367) (2,061)
--------- --------- ------- -------
Total operating profit 6,722 5,059 33 37
Finance income 39 87
Finance costs (653) (706)
Share of after tax profits of
associates
and joint ventures 39 70
--------- --------- ------- -------
Profit before taxation 6,147 4,510 36 41
--------- --------- ------- -------
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
and the 'Legal Matters' notes in subsequent quarterly results. At
30 September 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.
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.
There have been no significant legal developments since the date
of the Annual Report 2019 and the Q2 2020 results.
Additional information
Accounting policies and basis of preparation
This unaudited Results Announcement contains condensed financial
information for the three and nine months ended 30 September 2020,
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.
The Group has not identified any changes to its key sources of accounting
judgements or estimations of uncertainty compared with those disclosed
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.
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 nine months
to September 2020 primarily in demand for Vaccines as a result of
ongoing 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.
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:
9 months 9 months
Q3 2020 Q3 2019 2020 2019 2019
-------- -------- --------- --------- -----
Average rates:
US$/GBP 1.30 1.23 1.28 1.27 1.28
Euro/GBP 1.11 1.11 1.13 1.13 1.14
Yen/GBP 138 133 137 139 139
Period-end rates:
US$/GBP 1.28 1.23 1.28 1.23 1.32
Euro/GBP 1.10 1.13 1.10 1.13 1.18
Yen/GBP 136 133 136 133 143
During Q3 2020 average Sterling exchange rates were stronger against
the US Dollar and the Yen, but flat against the Euro compared with
the same period in 2019. During the nine months ended 30 September
2020, average Sterling exchange rates were stronger against the US
Dollar, flat against the Euro, but weaker against the Yen compared
with the same period in 2019. Period-end Sterling exchange rates
were stronger against the US Dollar and the Yen, but weaker against
the Euro compared with the 2019 period-end rates.
Net assets
The book value of net assets increased by GBP2,268 million from GBP18,357
million at 31 December 2019 to GBP20,625 million at 30 September
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 September 2020 was GBP396 million (31 December 2019: GBP314
million), with a market value of GBP340 million (31 December 2019:
GBP396 million).
At 30 September 2020, the net deficit on the Group's pension plans
was GBP2,296 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
1.6%, and US pension liabilities from 3.2% to 2.5%, 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 GBP969 million (31 December
2019: GBP1,011 million).
Contingent consideration amounted to GBP6,105 million at 30 September
2020 (31 December 2019: GBP5,479 million), of which GBP5,572 million
(31 December 2019: GBP5,103 million) represented the estimated present
value of amounts payable to Shionogi relating to ViiV Healthcare
and GBP493 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 September 2020, GBP741 million (31 December 2019:
GBP730 million) is expected to be paid within one year.
Movements in contingent consideration are as follows :
ViiV Healthcare Group
9 months 2020 GBPm GBPm
---------------- ------
Contingent consideration at beginning of the
period 5,103 5,479
Re-measurement through income statement 1,117 1,290
Cash payments: operating cash flows (566) (573)
Cash payments: investing activities (82) (91)
Contingent consideration at end of the period 5,572 6,105
---------------- ------
ViiV Healthcare Group
9 months 2019 GBPm GBPm
---------------- ------
Contingent consideration at beginning of the
period 5,937 6,286
Re-measurement through income statement 421 500
Cash payments: operating cash flows (572) (577)
Cash payments: investing activities (73) (83)
Contingent consideration at end of the period 5,713 6,126
---------------- ------
Contingent liabilities
There were contingent liabilities at 30 September 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.
Reconciliation of cash flow to movements in net debt
9 months 9 months
2020 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 (1,158) 502
Increase/(decrease) in liquid investments 1 (1)
Net decrease/(increase) in short-term loans 5,824 (97)
Increase in long-term loans (2,333) (4,822)
Repayment of lease liabilities 166 159
Debt of subsidiary undertakings acquired - (518)
Exchange adjustments (1,084) (406)
Other non-cash movements (83) (32)
--------- ---------
Decrease/(increase) in net debt 1,333 (5,215)
--------- ---------
Net debt at end of the period (23,882) (28,319)
--------- ---------
Net debt analysis
30 September 30 September 31 December
2020 2019 2019
GBPm GBPm GBPm
------------- ------------- ------------
Liquid investments 83 86 79
Cash and cash equivalents 4,283 4,305 4,707
Cash and cash equivalents reported
in assets
held for sale - 519 507
Short-term borrowings (4,914) (8,216) (6,918)
Long-term borrowings (23,334) (24,833) (23,590)
-------------
Net debt at end of the period (23,882) (28,139) (25,215)
------------- ------------- ------------
Free cash flow reconciliation
9 months 9 months
Q3 2020 2020 2019
GBPm GBPm GBPm
-------- --------- ---------
Net cash inflow from operating activities 861 4,586 4,567
Purchase of property, plant and
equipment (292) (712) (785)
Proceeds from sale of property,
plant and equipment 23 35 86
Purchase of intangible assets (356) (682) (613)
Proceeds from disposals of intangible
assets 1 637 88
Net finance costs (34) (484) (473)
Dividends from joint ventures and
associates - 14 -
Contingent consideration paid (reported
in investing
activities) (29) (91) (83)
Distributions to non-controlling
interests (354) (1,006) (313)
Contributions from non-controlling
interests - 3 -
Free cash flow (180) 2,300 2,474
-------- --------- ---------
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 61.
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 Q3 2020 include
three months of results of the former Pfizer consumer healthcare
business from 1 July 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 Q3 2020, calculated
applying the exchange rates used in the comparative period, with
the results for Q3 2019 adjusted to include the equivalent one month
of results of the former Pfizer consumer healthcare business during
July 2019, as consolidated (in US$) and included in Pfizer's US GAAP
results. Similarly, pro-forma growth rates at CER for the nine months
to 30 September 2020 are calculated comparing reported results for
the nine months to 30 September 2020, calculated applying the exchange
rates used in the comparative period, with the results for the nine
months to 30 September 2019, adjusted to include the equivalent seven
months of results to 31 July 2019 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
The COVID-19 pandemic has impacted Group performance, particularly
in the Vaccines business, during the first nine months of 2020. During
the third quarter we have seen a recovery in vaccination rates, including
adult immunisation rates in the United States returning to prior
year levels in the last month of the quarter.
This improvement, coupled with strong commercial execution of key
growth products and disciplined cost control, mean we are on track
to deliver within our earnings guidance range, with 2020 Adjusted
EPS now expected to be at the lower end of the -1% to -4% range at
CER. Achieving this guidance is supported by the expectation of sustained
recovery of adult immunisation rates, particularly in Shingrix.
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 Q3 2020 relative to the
position in Q3 2019 as if, for the purposes of the Q3 2019 results,
the acquisition of the Pfizer consumer healthcare business had taken
place as at 31 July 2018 and that, accordingly, one month of results
of the former Pfizer consumer healthcare business were included in
Q3 2019. Similarly, pro-forma growth rates have been provided to
illustrate the position for the nine months to 30 September 2020
relative to the position for the nine months to 30 September 2019
as if, for the purposes of the nine months to 30 September 2019 results,
the acquisition of the Pfizer consumer healthcare business had taken
place as at 31 July 2018 and that, accordingly, seven months of results
of the former Pfizer consumer healthcare business were included in
the nine months to 30 September 2019. The results of the former Pfizer
consumer healthcare business included for Q3 2019 and the nine months
to 30 September 2019 are as consolidated (in US$) and included in
Pfizer's US GAAP results. The results for Q3 2020 and the nine months
to 30 September 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.
Independent review report to GlaxoSmithKline plc
We have been engaged by GlaxoSmithKline plc ("the Company") to review
the condensed financial information in the Results Announcement for
the three and nine months ended 30 September 2020.
What we have reviewed
The condensed financial information comprises:
-- the income statement and statement of comprehensive income for
the three and nine month periods ended 30 September 2020 on pages
46 to 48;
-- the balance sheet as at 30 September 2020 on page 53;
-- the statement of changes in equity for the nine month period then
ended on page 54;
-- the cash flow statement for the nine month period then ended on
page 55; and
-- the accounting policies and basis of preparation and the explanatory
notes to the condensed financial information on pages 56 to 61
that have been prepared applying consistent accounting policies
to those applied by the Group in the Annual Report 2019, which
was prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union.
We have read the other information contained in the Results Announcement,
including the non-IFRS measures contained on pages 56 to 61, and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. Our work has been
undertaken so that we might state to the Company those matters we
are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company,
for our review work, for this report, or for the conclusions we have
formed .
Directors' responsibilities
The Results Announcement of GlaxoSmithKline plc, including the condensed
financial information, is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the
Results Announcement by applying consistent accounting policies to
those applied by the Group in the Annual Report 2019, which was prepared
in accordance with IFRS as adopted by the European Union .
Our responsibility
Our responsibility is to express to the Company a conclusion on the
condensed financial information in the Results Announcement based
on our review.
Scope of review
We conducted our review in accordance with International Standard
on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued
by the Auditing Practices Board for use in the United Kingdom. A
review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters,
and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion .
Conclusion
Based on our review, nothing has come to our attention that causes
us to believe that the condensed financial information in the Results
Announcement for the three and nine months ended 30 September 2020
are not prepared, in all material respects in accordance with the
accounting policies set out in the accounting policies and basis
of preparation section on page 59 .
Deloitte LLP
Statutory Auditor
London, United Kingdom
28 October 2020
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