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RNS
GlaxoSmithKline PLC   -  GSK   

2nd Quarter Results

Released 12:00 24-Jul-2019

RNS Number : 5762G
GlaxoSmithKline PLC
24 July 2019
 

Issued: Wednesday, 24 July 2019, London U.K.

 

GSK delivers sales and earnings growth in Q2 2019

Total EPS 19.5p, +>100% AER, +>100% CER; Adjusted EPS 30.5p +9% AER, +4% CER

 

 

Financial and product highlights

 

·

Group sales £7.8 billion, +7% AER, +5% CER. Pharmaceuticals £4.3 billion, +2% AER, -1% CER; Vaccines £1.6 billion, +26% AER, +23% CER; Consumer Healthcare £1.9 billion, +5% AER, +4% CER

·

Shingrix sales £386 million, driven by continued strong launch execution in the US

·

Total Respiratory sales £752 million +16% AER, +12% CER.  Trelegy Ellipta £120 million +>100% AER, +>100% CER, Nucala £195 million, +38% AER, +33% CER

·

HIV sales £1.2 billion +2% AER, -2% CER.  Tivicay and Triumeq sales £1 billion -3% AER, -6% CER.  Juluca and Dovato sales £89 million

·

Total Group operating margin 19.0%

·

Adjusted Group operating margin 27.8%, down 1.0 percentage point AER, down 1.4 percentage points CER (Pharmaceuticals: 29.2%; Vaccines 38.6%; Consumer Healthcare 20.4%) with increased investment in R&D, up 20% AER, 16% CER

·

Total EPS 19.5p, +>100% AER, +>100% CER reflecting lower charge for quarterly revaluation of HIV business and, following the buyout in Q2 2018, absence of Consumer Healthcare put option charge

·

Adjusted EPS 30.5p +9% AER, +4% CER reflecting operating performance and settlement of open tax matters

·

Q2 net cash flow from operations £1.4 billion.  Free cash flow £0.4 billion

·

19p dividend declared for the quarter; continue to expect 80p for FY19

·

2019 Adjusted EPS guidance improved to expected decline of -3% to -5% at CER from -5% to -9%

 

Pipeline update and newsflow

 

 

 

·

Oncology:

 

-

Positive headline results from PRIMA trial for Zejula as 1L maintenance therapy for ovarian cancer regardless of biomarker status.  Full results to be presented at an upcoming scientific conference

 

-

sNDA accepted by FDA for Zejula for priority review in late stage ovarian cancer following QUADRA trial

 

-

Bintrafusp alfa (M7824) alliance with Merck KGaA, Darmstadt, Germany progressed to pivotal phase III in biliary tract cancer

 

-

Positive ICOS phase II data in solid tumours to be presented at an upcoming scientific conference

·

HIV:

 

-

Two-drug regimen Dovato (DTG+lamivudine) approved in Europe for treatment naïve HIV patients

 

-

Positive 96-week follow-up data from GEMINI study of Dovato versus three-drug regimen and positive TANGO study demonstrating efficacy of switching treatment experienced patients to Dovato to be presented at IAS

 

-

ATLAS study for eight-week dosing of cabotegravir + rilpivirine expected in Q3

·

Respiratory:

 

-

Nucala for severe asthma approved in US for new at-home self-administration option

 

-

Positive results from pivotal CAPTAIN study for Trelegy Ellipta in asthma

·

Vaccines:

 

-

Shingrix approved in China for prevention of shingles in adults aged 50 and over

·

Phase III start for otilimab (anti-GM-CSF) for rheumatoid arthritis

·

For H2 2019, six potential major regulatory submissions: Zejula 1L ovarian cancer, belantamab mafodotin in multiple myeloma; dostarlimab in endometrial cancer; Trelegy Ellipta in asthma; fostemsavir in HIV; daprodustat for anaemia (Japan)

 

       

 

 

 

Q2 2019 results

 

Q2 2019

 

Growth

 

H1 2019

 

Growth

 

£m

 

£%

 

CER%

 

£m

 

£%

 

CER%

 

 

 

 

 

 

 

 

 

 

 

 

Turnover

7,809 

 

 

 

15,470 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating profit

1,484 

 

90 

 

80 

 

2,912 

 

44 

 

37 

Total earnings per share

19.5p

 

>100 

 

>100 

 

36.3p

 

80 

 

70 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

2,171 

 

 

(1)

 

4,334 

 

 

Adjusted earnings per share

30.5p

 

 

 

60.6p

 

15 

 

11 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operating activities

1,389 

 

 

 

 

2,052 

 

(8)

 

 

Free cash flow

370 

 

(25)

 

 

 

535 

 

(35)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Total results are presented under 'Financial performance' on pages 11 and 24 and Adjusted results reconciliations are presented on pages 20, 21, 33 and 34.  Adjusted results are a non-IFRS measure that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS.  Adjusted results are defined on page 9 and £% or AER% growth, CER% growth, free cash flow and other non-IFRS measures are defined on page 61.  GSK provides guidance on an Adjusted results basis only for the reasons set out on page 10.  All expectations, guidance and targets regarding future performance and dividend payments should be read together with "Outlook, assumptions and cautionary statements" on pages 61 and 62.

 

 

 

 

Emma Walmsley, Chief Executive Officer, GSK said:

 

"GSK delivered continued good operating performance in Q2 despite the loss of exclusivity of Advair.  We are increasing our expectations for the year and have updated our guidance for 2019.

 

"We remain focused on strengthening our R&D pipeline and the execution of new product launches.  Positive clinical data received so far this year offer significant new opportunities for products in Oncology, HIV and Respiratory and we expect more important readouts in the second half of the year.  We also expect to complete our joint venture with Pfizer shortly, laying the foundation for the creation of two great companies: one in Pharmaceuticals/Vaccines; one in Consumer Healthcare."

 

 

2019 guidance

 

GSK now expects 2019 Adjusted EPS to decline in the range of -3% to -5% at CER.  This new guidance represents an improvement to that previously given in February 2019 of an expected decline in Adjusted EPS in the range of -5% to -9% at CER.  The new guidance reflects improved operating performance, lower interest expense and a one-off benefit to the share of after tax profits of associates in Q1 2019.

 

GSK expects to maintain the dividend for 2019 at the current level of 80p per share.

 

All expectations, guidance and targets regarding future performance and dividend payments should be read together with "Outlook, assumptions and cautionary statements" on page 61.

 

If exchange rates were to hold at the closing rates on 30 June 2019 ($1.27/£1, €1.12/£1 and Yen 137/£1) for the rest of 2019, the estimated positive impact on 2019 Sterling turnover growth would be around 2% and if exchange gains or losses were recognised at the same level as in 2018, the estimated positive impact on 2019 Sterling Adjusted EPS growth would be around 4%.

 

 

Results presentation

 

A webcast of the quarterly results presentation hosted by Emma Walmsley, GSK CEO, will be held at 2pm BST on 24 July 2019.  Presentation materials will be published on www.gsk.com prior to the webcast and a transcript of the webcast will be published subsequently.

 

Information available on GSK's website does not form part of, and is not incorporated by reference into, this Results Announcement.

 

 

Operating performance - Q2 2019

 

Turnover

Q2 2019

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Pharmaceuticals

4,307

 

2

 

(1)

Vaccines

1,585

 

26

 

23 

Consumer Healthcare

1,917

 

5

 

 

 

 

 

 

 

Group turnover

7,809

 

7

 

 

 

 

 

 

 

 

Group turnover increased 7% AER, 5% CER to £7,809 million, with CER growth delivered by Vaccines and Consumer Healthcare partially offset by a decline in Pharmaceuticals.

 

Pharmaceuticals sales were up 2% AER but down 1% CER with HIV sales up 2% AER but down 2% CER to £1,209 million, with growth in Juluca and Dovato offset by declines in Tivicay and Triumeq and a decline in the remaining portfolio.  Respiratory sales were up 16% AER, 12% CER to £752 million, on growth of Trelegy Ellipta and Nucala.  Sales of Established Pharmaceuticals declined 6% AER, 7% CER to £2,138 million including the impact of loss of exclusivity of Advair.

 

Vaccines turnover grew 26% AER, 23% CER to £1,585 million, primarily driven by growth in sales of Shingrix, Meningitis vaccines and Established Vaccines also contributed to growth.

 

Consumer Healthcare sales grew 5% AER, 4% CER in the quarter to £1,917 million, primarily driven by the performance of power brands.

 

Operating profit

Total operating profit was £1,484 million compared with £779 million in Q2 2018.  Adjusted operating profit was £2,171 million, 3% higher than Q2 2018 at AER but 1% lower at CER on a turnover increase of 5% CER.  The Adjusted operating margin of 27.8% was 1.0 percentage points lower at AER, 1.4 percentage points lower on a CER basis than in Q2 2018.

 

Reduced re-measurement charges on the contingent consideration liabilities and an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands were partly offset by increased charges for major restructuring, primarily arising from write-downs in a number of manufacturing sites.

 

Operating profit was impacted by continuing price pressure, including the first full quarter's impact of the launch of a generic version of Advair in the US in February 2019, investment in R&D, including a significant increase in Oncology investment, partly on Tesaro assets, and investments in promotional product support, particularly for new launches.  These were partly offset by the benefit from sales growth, particularly in Vaccines, a more favourable mix in Vaccines and Consumer Healthcare and continued tight control of ongoing costs across all three businesses.

 

Earnings per share

Total earnings per share was 19.5p, compared with 9.0p in Q2 2018.  Adjusted EPS of 30.5p compared with 28.1p in Q2 2018, up 9% AER, 4% CER, on a 1% CER decrease in Adjusted operating profit.  The improvement primarily resulted from a reduced tax rate and the reduced non-controlling interest allocation of Consumer Healthcare profits following the buyout in Q2 2018, partly offset by increased net finance costs.

 

Cash flow

Net cash inflow from operating activities was £1,389 million (Q2 2018: £1,362 million) and free cash flow was £370 million (Q2 2018: £492 million).  The reduction in free cash flow primarily reflected increased capital expenditure, including the acquisition of intangible assets from Merck KgaA, Darmstadt, Germany, the adverse timing of payments for returns and rebates, and the initial step-down impact from US Advair generic competition.  This was partly offset by improved operating profits, lower trade receivables and a lower seasonal increase in inventory, as well as reduced dividend payments to non-controlling interests.

 

 

Operating performance - H1 2019

 

Turnover

H1 2019

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Pharmaceuticals

8,465

 

3

 

1

Vaccines

3,107

 

25

 

22

Consumer Healthcare

3,898

 

2

 

2

 

 

 

 

 

 

Group turnover

15,470

 

6

 

5

 

 

 

 

 

 

 

Group turnover increased 6% AER, 5% CER to £15,470 million, with growth delivered by all three businesses.

 

Pharmaceuticals turnover in the six months was £8,465 million, up 3% AER, 1% CER.  HIV sales were up 4% AER, 1% CER, to £2,330 million, with growth in Juluca and Dovato partly offset by a decline in Triumeq.  Respiratory sales were up 21% AER, 17% CER, to £1,383 million, on growth of Trelegy Ellipta and Nucala.  However, this was slightly offset by Established Pharmaceuticals sales, which declined 6% AER, 7% CER to £4,380 million, including the impact of loss of exclusivity of Advair in the US.

 

Vaccines turnover grew 25% AER, 22% CER to £3,107 million, primarily driven by growth in sales of ShingrixMeningitis vaccines and Established Vaccines also contributed to growth.

 

Consumer Healthcare sales grew 2% AER, 2% CER to £3,898 million in the first six months.  Growth reflected improved results in all three regions in the second quarter.

 

Operating profit

Total operating profit was £2,912 million compared with £2,019 million in H1 2018.  Adjusted operating profit was £4,334 million, 8% higher than H1 2018 at AER and 4% higher at CER on a turnover increase of 5% CER.  The Adjusted operating margin of 28.0% was 0.3 percentage points higher at AER, but 0.2 percentage points lower on a CER basis than in H1 2018.

 

Reduced re-measurement charges on the contingent consideration liabilities were partly offset by increased charges for major restructuring, primarily arising from write-downs in manufacturing sites, and a decrease in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other brands.

 

Operating profit benefited from sales growth in all three businesses, particularly Vaccines, a more favourable mix in Vaccines and Consumer Healthcare, a benefit from favourable inventory adjustments in Vaccines and continued tight control of ongoing costs across all three businesses.  This was partly offset by continuing price pressure, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, investment in R&D including a significant increase in Oncology investment, partly on Tesaro assets, and investments in promotional product support, particularly for new launches.

 

Earnings per share

Total earnings per share was 36.3p, compared with 20.2p in H1 2018.  Adjusted EPS of 60.6p compared with 52.7p in H1 2018, up 15% AER, 11% CER, on a 4% CER increase in Adjusted operating profit.  The improvement primarily resulted from improved trading, the reduced non-controlling interest allocation of Consumer Healthcare profits following the buyout in Q2 2018, a reduced tax rate and an increased share of after tax profits of the associate, Innoviva, partly offset by increased net finance costs.

 

Cash flow

Net cash inflow from operating activities was £2,052 million (H1 2018: £2,225 million) and free cash flow was £535 million (H1 2018: £821 million).  The reduction primarily reflected the adverse timing of payments for returns and rebates, as well as the initial step-down impact from US Advair generic competition and increased capital expenditure, including the acquisition of intangible assets.  This was partly offset by improved operating profits, a lower seasonal increase in trade receivables and inventory and reduced dividend payments to non-controlling interests.

 

 

R&D pipeline

 

44 new medicines in development, 13 Vaccines

 

Pipeline news flow highlights since Q1 2019:

 

Oncology

 

Zejula (niraparib)

·

Positive headline results from the phase III PRIMA study of Zejula for patients with ovarian cancer in the first line maintenance setting.  The study met its primary endpoint of a statistically significant improvement in progression free survival for women regardless of biomarker status.

·

The US FDA accepted the supplemental new drug application for Zejula in late-stage ovarian cancer based on the results of the QUADRA study with priority review and a target action date of 24 October 2019.

·

At ASCO, data was presented on the combination of niraparib and bevacizumab versus niraparib alone for treatment of recurrent platinum-sensitive ovarian cancer.  The phase II, investigator sponsored, AVANOVA study demonstrated that the chemotherapy-free regimen of niraparib and bevacizumab significantly improved progression free survival compared with niraparib alone.

 

Bintrafusp alfa (M7824)

·

The first patient was dosed in a pivotal study of bintrafusp alfa in biliary tract cancer.

 

HIV/Infectious diseases

 

Dovato (dolutegravir + lamivudine)

·

The European Commission granted Marketing Authorisation for Dovato, a new once-daily, single-pill, two-drug regimen for the treatment of HIV-1 infection.

·

96-week data for the two-drug regimen of dolutegravir plus lamivudine in treatment naïve patients from the GEMINI 1 & 2 phase III studies will be presented at the 10th International AIDS Society Conference on HIV Science.

·

The headline data from the 48-week phase III TANGO study were announced demonstrating the ability to control HIV-1 with a two-drug regimen of dolutegravir plus lamivudine in virally supressed patients switching from a TAF-containing, three-drug regimen.  This data will be presented at the 10th International AIDS Society Conference on HIV Science.

 

Cabotegravir + rilpivirine

·

The US FDA granted New Drug Approval priority review for the first once-monthly, injectable, two-drug regimen of cabotegravir plus rilpivirine and set a target approval date of 29 December 2019.

·

A study to identify and evaluate approaches to implementing once-monthly injectable HIV treatment, cabotegravir plus rilpivirine, in clinical practice was started.

 

Fostemsavir

·

Positive 96-week data from the phase III study of investigational fostemsavir in heavily treatment-experienced patients with HIV were presented at the 10th International AIDS Society Conference on HIV Science.

 

Combinectin (GSK3732394)

·

The first patient was dosed in a phase I study of combinectin to establish the effect in patients with HIV-1 infection.

 

GSK3389404/3228836 (HBV ASO)

·

Proof of concept for GSK'404/836 was achieved and the data is currently being reviewed to inform next steps.

 

Immuno-inflammation

 

Otilimab (GSK3196165)

·

The phase III clinical development programme with otilimab, an investigational anti-granulocyte macrophage colony-stimulating factor (anti-GM-CSF) monoclonal antibody, for patients with rheumatoid arthritis, started.

 

Benlysta (belimumab)

·

The intravenous formulation of Benlysta was approved in China for the treatment of adult patients with systemic lupus erythematosus.

 

GSK2983559 (RIP2k inhibitor)

·

GSK'559 for inflammatory bowel disease was terminated due to pre-clinical toxicity findings.

 

Respiratory

 

Nucala (mepolizumab)

·

Nucala gained FDA approval for two new self-administration options.

·

Nucala received a positive CHMP opinion for new self-administration options for patients with severe eosinophilic asthma.

 

Trelegy Ellipta (FF/UMEC/VI)

·

The phase III CAPTAIN study of Trelegy Ellipta in patients with asthma met its primary endpoint.

·

A sNDA was submitted to the FDA supporting a revised labelling for Trelegy Ellipta, on the reduction in the risk of all-cause mortality (ACM) compared with UMEC/VI in patients with COPD.

 

GSK3772847 (IL33 receptor antagonist)

·

Proof of concept for GSK'847 was achieved and the data is currently being reviewed to inform next steps.

 

GSK3511294 (IL5 long acting antagonist)

·

Proof of concept for GSK'294 was achieved and the data is currently being reviewed to inform next steps.

 

GSK2586881 (rhACE2 inhibitor)

·

GSK'881 for acute lung injury and pulmonary arterial hypertension was terminated due to an interim data readout which did not support progressing the programme.

 

GSK2862277 (TNFR1 antagonist)

·

GSK'277 for acute lung injury was terminated due to an interim data readout which did not support progressing the programme.

 

Other pharmaceuticals

 

GSK3186899 (CRK-12 inhibitor)

·

The first patient was dosed in a phase I study to establish the effect of GSK'899 in patients with visceral leishmaniasis.

 

Vaccines

 

Therapeutic HBV vaccine

·

First time in human trials were started for a candidate therapeutic vaccine using the AS01 adjuvant for patients suffering from chronic hepatitis B infection with limited level of fibrosis or cirrhosis.

 

Hepatitis C vaccine

·

A candidate prophylactic hepatitis C virus (HCV) vaccine was terminated following the results of a phase I/IIb study that indicated low efficacy.

 

Shingrix

·

Shingrix was approved in China for the prevention of shingles in adults aged 50 years and over.

 

 

Contents

Page

 

 

Total and Adjusted results

9

Financial performance - Q2 2019

11

Financial performance - H1 2019

24

Cash generation

37

Returns to shareholders

38

 

 

Income statements

40

Statement of comprehensive income - three months ended 30 June 2019

41

Statement of comprehensive income - six months ended 30 June 2019

42

Pharmaceuticals turnover - three months ended 30 June 2019

43

Pharmaceuticals turnover - six months ended 30 June 2019

44

Vaccines turnover - three months ended 30 June 2019

45

Vaccines turnover - six months ended 30 June 2019

46

Balance sheet

47

Statement of changes in equity

48

Cash flow statement - six months ended 30 June 2019

49

Segment information

50

Legal matters

52

Additional information

52

Reconciliation of cash flow to movements in net debt

59

Net debt analysis

59

Free cash flow reconciliation

59

Principal risks and uncertainties

60

Reporting definitions

61

Outlook, assumptions and cautionary statements

61

Directors' responsibility statement

63

Independent review report

64

 

 

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.

 

 

 

GSK enquiries:

 

 

 

UK Media enquiries:

Simon Steel

+44 (0) 20 8047 5502

(London)

 

Tim Foley

+44 (0) 20 8047 5502

(London)

 

Mary Hinks-Edwards

+44 (0) 20 8047 5502

(London)

 

 

 

 

US Media enquiries:

Kristen Neese

+1 215 751 3335

(Philadelphia)

 

 

 

 

Analyst/Investor enquiries:

Sarah Elton-Farr

+44 (0) 20 8047 5194

(London)

 

James Dodwell

+44 (0) 20 8047 2406

(London)

 

Danielle Smith

+44 (0) 20 8047 7562

(London)

 

Jeff McLaughlin

+1 215 751 7002

(Philadelphia)

 

 

 

Registered in England & Wales:

No. 3888792

 

Registered Office:

980 Great West Road

Brentford, Middlesex

TW8 9GS

 

 

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 other non-IFRS measures are defined on page 61.

 

GSK believes that Adjusted results, when considered together with Total results, provide investors, analysts and other stakeholders with helpful complementary information to understand better the financial performance and position of the Group from period to period, and allow the Group's performance to be more easily compared against the majority of its peer companies.  These measures are also used by management for planning and reporting purposes.  They may not be directly comparable with similarly described measures used by other companies.

 

GSK encourages investors and analysts not to rely on any single financial measure but to review GSK's quarterly results announcements, including the financial statements and notes, in their entirety.

 

GSK is committed to continuously improving its financial reporting, in line with evolving regulatory requirements and best practice and has made a number of changes in recent years.  In line with this practice, GSK expects to continue to review its reporting framework.

 

Adjusted results exclude the following items from Total results, together with the tax effects of all of these items:

 

·

amortisation of intangible assets (excluding computer software)

·

impairment of intangible assets (excluding computer software) and goodwill

·

major restructuring costs, which include impairments of tangible assets and computer software, (under specific Board approved programmes that are structural, of a significant scale and where the costs of individual or related projects exceed £25 million), including integration costs following material acquisitions

·

transaction-related accounting or other adjustments related to significant acquisitions

·

proceeds and costs of disposal of associates, products and businesses; significant legal charges (net of insurance recoveries) and expenses on the settlement of litigation and government investigations; other operating income other than royalty income, and other items

 

Costs for all other ordinary course smaller scale restructuring and legal charges and expenses are retained within both Total and Adjusted results.

 

As Adjusted results include the benefits of Major restructuring programmes but exclude significant costs (such as significant legal, major restructuring and transaction items) they should not be regarded as a complete picture of the Group's financial performance, which is presented in Total results.  The exclusion of other Adjusting items may result in Adjusted earnings being materially higher or lower than Total earnings.  In particular, when significant impairments, restructuring charges and legal costs are excluded, Adjusted earnings will be higher than Total earnings.

 

GSK has undertaken a number of Major restructuring programmes in recent years in response to significant changes in the Group's trading environment or overall strategy, or following material acquisitions.  Costs, both cash and non-cash, of these programmes are provided for as individual elements are approved and meet the accounting recognition criteria.  As a result, charges may be incurred over a number of years following the initiation of a Major restructuring programme.

 

Significant legal charges and expenses are those arising from the settlement of litigation or government investigations that are not in the normal course and materially larger than more regularly occurring individual matters.  They also include certain major legacy matters.

 

Reconciliations between Total and Adjusted results, providing further information on the key Adjusting items, are set out on pages 20, 21, 33 and 34.

 

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.

 

ViiV Healthcare

ViiV Healthcare is a subsidiary of the Group and 100% of its operating results (turnover, operating profit, profit after tax) are included within the Group income statement.  

 

Earnings are allocated to the three shareholders of ViiV Healthcare on the basis of their respective equity shareholdings (GSK 78.3%, Pfizer 11.7% and Shionogi 10%) and their entitlement to preferential dividends, which are determined by the performance of certain products that each shareholder contributed.  As the relative performance of these products changes over time, the proportion of the overall earnings allocated to each shareholder also changes.  In particular, the increasing sales of dolutegravir-containing products have a favourable impact on the proportion of the preferential dividends that is allocated to GSK.  Adjusting items are allocated to shareholders based on their equity interests.  GSK was entitled to approximately 85% of the Total earnings and 82% of the Adjusted earnings of ViiV Healthcare for 2018.

 

As consideration for the acquisition of Shionogi's interest in the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received the 10% equity stake in ViiV Healthcare and ViiV Healthcare also agreed to pay additional future cash consideration to Shionogi, contingent on the future sales performance of the products being developed by that joint venture, principally dolutegravir.  Under IFRS 3 'Business combinations', GSK was required to provide for the estimated fair value of this contingent consideration at the time of acquisition and is required to update the liability to the latest estimate of fair value at each subsequent period end.  The liability for the contingent consideration recognised in the balance sheet at the date of acquisition was £659 million.  Subsequent re-measurements are reflected within other operating income/expense and within Adjusting items in the income statement in each period.  At 30 June 2019, the liability, which is discounted at 8.5%, stood at £5,664 million, on a post-tax basis.

 

Cash payments to settle the contingent consideration are made to Shionogi by ViiV Healthcare each quarter, based on the actual sales performance of the relevant products in the previous quarter.  These payments reduce the balance sheet liability and hence are not recorded in the income statement.  The cash payments made to Shionogi by ViiV Healthcare in H1 2019 were £439 million.

 

Because the liability is required to be recorded at the fair value of estimated future payments, there is a significant timing difference between the charges that are recorded in the Total income statement to reflect movements in the fair value of the liability and the actual cash payments made to settle the liability.

 

Further explanation of the acquisition-related arrangements with ViiV Healthcare are set out on pages 41 and 42 of the Annual Report 2018.

 

 

Financial performance - Q2 2019

 

Total results

 

The Total results for the Group are set out below.

 

 

Q2 2019

£m

 

Q2 2018

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

 

 

Turnover

7,809 

 

7,310 

 

7

 

5

 

 

 

 

 

 

 

 

Cost of sales

(2,637)

 

(2,310)

 

14

 

14

 

 

 

 

 

 

 

 

Gross profit

5,172 

 

5,000 

 

3

 

-

 

 

 

 

 

 

 

 

Selling, general and administration

(2,590)

 

(2,457)

 

5

 

3

Research and development

(1,113)

 

(925)

 

20

 

17

Royalty income

78 

 

73 

 

7

 

4

Other operating expense

(63)

 

(912)

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

1,484 

 

779 

 

90

 

80

 

 

 

 

 

 

 

 

Finance income

21 

 

27 

 

 

 

 

Finance expense

(237)

 

(194)

 

 

 

 

Share of after tax (losses)/profits of

  associates and joint ventures

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before taxation

1,264 

 

614 

 

>100

 

94

 

 

 

 

 

 

 

 

Taxation

(214)

 

(139)

 

 

 

 

Tax rate %

16.9%

 

22.6%

 

 

 

 

 

 

 

 

 

 

 

 

Profit after taxation

1,050 

 

475 

 

>100

 

>100

 

 

 

 

 

 

 

 

Profit attributable to non-controlling

  interests

86 

 

34 

 

 

 

 

Profit attributable to shareholders

964 

 

441 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,050 

 

475 

 

>100

 

>100

 

 

 

 

 

 

 

 

Earnings per share

19.5p

 

9.0p

 

>100

 

>100

 

 

 

 

 

 

 

 

 

 

Adjusted results

 

The Adjusted results for the Group are set out below.  Reconciliations between Total results and Adjusted results for Q2 2019 and Q2 2018 are set out on pages 20 and 21.

 

 

Q2 2019

 

 

 

 

 

 

 

 

 

£m

 

% of

turnover

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

 

 

Turnover

7,809 

 

100 

 

 

 

 

 

 

 

 

 

 

Cost of sales

(2,243)

 

(28.7)

 

8 

 

7 

Selling, general and administration

(2,433)

 

(31.2)

 

4 

 

2 

Research and development

(1,040)

 

(13.3)

 

20 

 

16 

Royalty income

78 

 

1.0 

 

7 

 

4 

 

 

 

 

 

 

 

 

Adjusted operating profit

2,171 

 

27.8 

 

 

(1)

 

 

 

 

 

 

 

 

Adjusted profit before tax

1,947 

 

 

 

- 

 

(4)

Adjusted profit after tax

1,647 

 

 

 

6 

 

2 

Adjusted profit attributable to shareholders

1,509 

 

 

 

9 

 

5 

 

 

 

 

 

 

 

 

Adjusted earnings per share

30.5p

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit by business

Q2 2019

 

 

 

 

 

 

 

 

 

£m

 

% of

turnover

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

 

 

Pharmaceuticals

2,075 

 

48.2 

 

(2)

 

(5)

Pharmaceuticals R&D*

(819)

 

 

 

32 

 

28 

 

 

 

 

 

 

 

 

Total Pharmaceuticals

1,256 

 

29.2 

 

(16)

 

(19)

Vaccines

612 

 

38.6 

 

71 

 

64 

Consumer Healthcare

391 

 

20.4 

 

11 

 

 

 

 

 

 

 

 

 

 

2,259 

 

28.9 

 

 

(1)

Corporate & other unallocated costs

(88)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

2,171 

 

27.8 

 

 

(1)

 

 

 

 

 

 

 

 

 

*

Operating profit of Pharmaceuticals R&D segment, which is the responsibility of the President, Pharmaceuticals R&D.  It excludes ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals segment.

 

 

Turnover

 

Pharmaceuticals turnover

 

 

Q2 2019

 

 

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Respiratory

752 

 

16 

 

12 

HIV

1,209 

 

 

(2)

Immuno-inflammation

151 

 

32 

 

26 

Oncology

57 

 

 

Established Pharmaceuticals

2,138 

 

(6)

 

(7)

 

 

 

 

 

 

 

4,307 

 

 

(1)

 

 

 

 

 

 

US

1,783 

 

(5)

 

(10)

Europe

1,034 

 

 

International

1,490 

 

 

 

 

 

 

 

 

 

4,307 

 

 

(1)

 

 

 

 

 

 

 

Pharmaceuticals turnover in the quarter was £4,307 million, up 2% AER but down 1% CER.  Respiratory sales were up 16% AER, 12% CER to £752 million, on growth of Trelegy and Nucala.  HIV sales were up 2% AER but down 2% CER to £1,209 million, with growth in Juluca and Dovato offset by declines in Tivicay and Triumeq and a decline in the remaining portfolio.  Sales of Established Pharmaceuticals declined 6% AER, 7% CER to £2,138 million including the impact of loss of exclusivity of Advair.

 

In the US, sales declined 5% AER, 10% CER, with continued growth of Nucala, Trelegy and Benlysta offset by the decline in Established Products including the loss of exclusivity of Advair and in Relvar/Breo Ellipta, impacted by genericisation of the ICS/LABA market.  In Europe, sales grew 5% AER, 4% CER, with strong growth in Respiratory partly offset by declines in Established Pharmaceuticals.  International grew 9% AER, 8% CER, with growth in all therapy areas.

 

Respiratory

Total Respiratory sales were up 16% AER, 12% CER, with strong growth in Europe and International regions.  Europe and International saw growth in Ellipta products including Relvar/Breo and Trelegy, and Nucala, which was up 44% AER, 42% CER in Europe and 53% AER, 53% CER in International.  In the US, strong growth in Trelegy Ellipta and Nucala was offset by a decline in Relvar/Breo Ellipta, as a result of post-generic ICS/LABA price pressure.

 

Sales of Nucala were £195 million in the quarter and grew 38% AER, 33% CER, continuing to benefit from the global rollout of the product.  US sales of Nucala grew 33% AER, 26% CER to £117 million.

 

Sales of Ellipta products were up 9% AER, 6% CER to £557 million driven by growth in Europe and International regions.  In the US, sales declined 5% AER, 10% CER, reflecting continued competitive pricing pressures for ICS/LABA products following the start of generic competition to Advair.  In Europe, sales grew 29% AER, 29% CER.  Sales of Trelegy Ellipta, our new once daily closed triple product, contributed £120 million globally in the quarter, continuing to benefit from the expanded US label.

 

Relvar/Breo Ellipta sales were down 15% AER, 16% CER.  In the US, Relvar/Breo Ellipta declined 40% AER, 43% CER impacted by US competitive pricing pressures and the impact of generic Advair on the US ICS/LABA market.  In Europe and International, Relvar/Breo Ellipta continued to grow, up 15% AER, 15% CER and 21% AER, 21% CER respectively. 

 

HIV

HIV sales grew 2% AER but declined 2% CER to £1,209 million in the quarter.  The dolutegravir franchise grew 3% AER, but was flat at CER, delivering sales of £1,147 million in the quarter.  The remaining portfolio, with sales of £62 million, 5% of total HIV sales, declined 18% AER, 21% CER and reduced the overall growth of total HIV by 1% AER, 2% CER in the quarter.

 

Sales of dolutegravir products were £1,147 million in the quarter, with Triumeq and Tivicay delivering sales of £646 million and £412 million, respectively.  The two-drug regimens Juluca and Dovato delivered combined sales of £89 million in the quarter.  The combined growth of these two-drug regimens offset the decline in the three-drug regimen, Triumeq, as the business transitions to the new portfolio.

 

In the US, the second two-drug regimen, Dovato, was launched in April 2019, which, combined with Juluca, delivered sales of £75 million in the quarter.  Total dolutegravir sales declined 1% AER, 6% CER reflecting the share decline in Tivicay and Triumeq, partly offset by the share gain on two-drug regimens as the business transitions to the new portfolio.  In Europe, overall dolutegravir sales growth was 3% at AER, 2% at CER driven by Tivicay and Juluca.  International continued to grow strongly with overall dolutegravir sales growth of 27% AER, 29% CER, driven by Tivicay and Triumeq.

 

Oncology

Sales of Zejula, the newly acquired PARP inhibitor asset were £57 million in the quarter, comprising £33 million in the US and £24 million in Europe.

 

Immuno-inflammation

Sales of Benlysta in the quarter were up 32% AER, 25% CER to £150 million, including sales of the sub-cutaneous formulation.  In the US, Benlysta grew 29% AER, 24% CER to £132 million.

 

Established Pharmaceuticals

Sales of Established Pharmaceuticals in the quarter were £2,138 million, down 6% AER, 7% CER.  Established Respiratory products declined 13% AER, 14% CER to £913 million, with the decline in Seretide/Advair partly offset by higher sales of Ventolin, up 39% AER, 35% CER, benefiting from the strong uptake of an authorised generic version launched in the US prior to the entry into the market of other generic competitors.  In the US, Advair experienced its first full quarter of generic competition, resulting in a 60% AER, 61% CER decline in the quarter.  In Europe, Seretide sales were down 15% AER, 15% CER to £129 million, reflecting continued competition from generic products and the transition of the Respiratory portfolio to newer products.  In International, sales of Seretide declined 1% at both AER and CER.

 

The remainder of the Established Pharmaceuticals portfolio was flat at AER, but declined 1% CER with underlying mid single-digit decline offset by certain post divestment inventory sales and the third of four quarterly instalments of a one-year Relenza supply contract in Europe.

 

 

Vaccines turnover

 

 

Q2 2019

 

 

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Meningitis

235

 

28

 

26

Influenza

17

 

-

 

6

Shingles

386

 

>100

 

>100

Established Vaccines

947

 

7

 

5

 

 

 

 

 

 

 

1,585

 

26

 

23

 

 

 

 

 

 

US

778

 

60

 

52

Europe

403

 

3

 

2

International

404

 

8

 

8

 

 

 

 

 

 

 

1,585

 

26

 

23

 

 

 

 

 

 

 

Vaccines turnover grew 26% AER, 23% CER to £1,585 million, primarily driven by growth in sales of Shingrix.  Meningitis vaccines also contributed to growth mainly due to Bexsero demand across all regions and share gains in the US.  Established Vaccines grew 7% AER, 5% CER to £947 million, primarily reflecting Infanrix, Pediarix driven by US CDC stockpile replenishment and stronger demand in International and the US, Boostrix driven by favourable phasing and strong demand in International and share gains in the US, partly offset by supply constraints in MMRV vaccines.

 

Meningitis

Meningitis sales grew 28% AER, 26% CER to £235 million.  Bexsero sales grew 26% AER, 24% CER to £156 million, driven by strong demand across all regions and share gains in the US.  Menveo grew 27% AER, 22% CER, primarily reflecting favourable phasing and improved supply in International.

 

Influenza

Fluarix/FluLaval sales were flat at AER, up 6% CER to £17 million.

 

Shingles

Shingrix recorded sales of £386 million in the quarter, driven by continued strong uptake in the US.  Strong demand and supply phasing in Germany together with Canada also contributed to this growth.

 

Established Vaccines

Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) grew 26% AER, 22% CER.  Infanrix, Pediarix sales were up 31% AER, 28% CER to £195 million, reflecting US CDC stockpile replenishment and stronger demand in International and the US, partly offset by increased competitive pressures in Europe.

 

Boostrix sales grew 19% AER, 15% CER to £144 million, mainly due to favourable phasing and strong demand in International together with share gains and higher demand in the US.

 

Hepatitis vaccines grew 7% AER, 3% CER to £224 million primarily reflecting improved supply in Europe and stronger demand as a result of a competitor supply shortage in the US, partly offset by unfavourable phasing and supply constraints in International.

 

Rotarix sales were up 10% AER, 9% CER to £116 million, reflecting stronger demand in the US.

 

Synflorix sales grew 7% AER, 6% CER to £107 million due to favourable phasing in International.

 

MMRV vaccines sales declined 39% AER, 39% CER to £50 million, mainly driven by supply constraints in Europe and International.

 

Cervarix sales were up 75% AER, 75% CER to £28 million, primarily reflecting the favourable impact of supply timing, despite ongoing competitive pressures in China.

 

 

Consumer Healthcare turnover

 

 

Q2 2019

 

 

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Wellness

949

 

 

Oral health

651

 

 

Nutrition

164

 

 

Skin health

153

 

(6)

 

(5)

 

 

 

 

 

 

 

1,917

 

 

 

 

 

 

 

 

US

475

 

11 

 

Europe

578

 

 

International

864

 

4 

 

5 

 

 

 

 

 

 

 

1,917

 

 

 

 

 

 

 

 

 

Consumer Healthcare sales grew 5% AER, 4% CER in the quarter to £1,917 million, primarily driven by the performance of Power brands.  The US performed well, driven by the Wellness portfolio, while the International region benefited from strong results in India and South-East Asia.  In Europe, sales grew 1% AER, but were flat at CER, the stabilisation reflecting improved performance in Oral health.

 

Divestments and the phasing out of low margin contract manufacturing had a negative impact of approximately one percentage point on growth in the quarter.

 

Wellness

Wellness sales grew 5% AER, 3% CER to £949 million, driven primarily by Pain relief, which saw a return to growth for Panadol, partly benefiting from 2018 regulatory and distribution changes.  Voltaren grew in mid single-digits.  Respiratory was flat for the quarter and overall growth was impacted by a decline in other Wellness brands.

 

Oral health

Oral health sales grew 7% AER, 5% CER to £651 million.  Sensodyne delivered high single-digit, broad based growth helped by the launch of Pronamel Enamel Repair in the US and Sensodyne Herbals in India.  Double-digit growth in Gum health reflected strong sales in Europe, while Denture care grew in mid single-digits.  Oral health growth was also impacted by a decline in non-strategic brands.

 

Nutrition

Nutrition sales grew 6% AER, 5% CER to £164 million, with mid single-digit growth for Horlicks in India.

 

Skin health

Skin health sales declined 6% AER, 5% CER to £153 million, largely due to divestments of small tail brands in the US, which had a negative impact on growth in the category of four percentage points.

 

 

Operating performance

 

Cost of sales

Total cost of sales as a percentage of turnover was 33.8%, 2.2 percentage points higher at AER and 2.8 percentage points higher in CER terms compared with Q2 2018.  This reflected an increase in the costs of manufacturing restructuring programmes, primarily as a result of write downs in a number of manufacturing sites, and increased amortisation of intangible assets.

 

Excluding these and other Adjusting items, Adjusted cost of sales as a percentage of turnover was 28.7%, 0.3 percentage points higher at AER, and 0.8 percentage points higher at CER compared with Q2 2018.  The increase reflected continued adverse pricing pressure in Pharmaceuticals, particularly in Respiratory and an unfavourable product mix in Pharmaceuticals.  This was partly offset by a more favourable product mix in Vaccines, primarily due to growth of Shingrix in the US, and Consumer Healthcare, and a further contribution from integration and restructuring savings in Pharmaceuticals and Consumer Healthcare.

 

Selling, general and administration

Total SG&A costs as a percentage of turnover were 33.2%, 0.4 percentage points lower compared with Q2 2018 at AER and 0.3 percentage points lower on a CER basis.  This included increased significant legal costs, acquisition costs related to the announced agreement with Pfizer to combine our consumer healthcare businesses, as well as a reversal of an indemnity receivable from Novartis following a tax settlement with an equivalent release of a tax provision.

 

Excluding these and other Adjusting items, Adjusted SG&A costs as a percentage of turnover were 31.2%, 0.8 percentage points lower at AER than in Q2 2018 and 0.7 percentage points lower on a CER basis.  The growth in Adjusted SG&A costs of 4% AER, 2% CER reflected increased investment resulting from the acquisition of Tesaro and in promotional product support, particularly for new launches in Respiratory, HIV and Vaccines, and targeted priority markets.  This was partly offset by the tight control of ongoing costs, particularly in non-promotional spending across all three businesses, as well as income from favourable settlements in Vaccines.

 

Research and development

Total R&D expenditure was £1,113 million (14.3% of turnover), up 20% AER, 17% CER.  Adjusted R&D expenditure was £1,040 million (13.3% of turnover), 20% higher at AER, 16% higher at CER than in Q2 2018.  Pharmaceuticals R&D expenditure was £803 million, up 25% AER, 21% CER (10% excluding Tesaro), reflecting a significant increase in Oncology investment including on assets from the Tesaro acquisition (primarily Zejula and dostarlimab (TSR-042)) and a number of other mid and late-stage programmes including belantamab mafodotin (BCMA) and NY-ESO.  This was partly offset by reductions in other R&D costs, where increased spending on the progression of key assets, including otilimab (aGM-CSF) for rheumatoid arthritis was more than offset by the phasing of spend on assets reaching the end of clinical development including Trelegy Ellipta for asthma and the on-going benefits of the R&D portfolio re-prioritisation decisions, at both Research and Development stages, including nemiralisib and danarixin.  R&D expenditure in Vaccines and Consumer Healthcare was £179 million and £58 million, respectively.

 

Royalty income

Royalty income was £78 million (Q2 2018: £73 million), up 7% AER, 4% CER, primarily reflecting increased royalties on sales of Gardasil.

 

Other operating expense

Net other operating expense of £63 million (Q2 2018: £912 million) primarily reflected accounting charges of £188 million (Q2 2018: £953 million charge) 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 £226 million (Q2 2018: £744 million) for the contingent consideration liability due to Shionogi, primarily arising from changes in exchange rate assumptions and the unwind of the discount.  Q2 2018 also included a charge of £163 million in relation to the Consumer Healthcare put option.  These accounting charges were partly offset by an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands of £158 million in the quarter.  The cumulative increase in value since the signing of the proposed transaction was £52 million.

 

 

Operating profit

Total operating profit was £1,484 million in Q2 2019 compared with £779 million in Q2 2018.  Reduced re-measurement charges on the contingent consideration liabilities and an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands were partly offset by increased charges for major restructuring, primarily arising from write downs in a number of manufacturing sites.

 

Excluding these and other Adjusting items, Adjusted operating profit was £2,171 million, 3% higher than Q2 2018 at AER but 1% lower at CER on a turnover increase of 5% CER.  The Adjusted operating margin of 27.8% was 1.0 percentage points lower at AER, 1.4 percentage points lower on a CER basis than in Q2 2018.  The reduction in Adjusted operating profit primarily reflected continuing price pressure, particularly in Respiratory, including the first full quarter's impact of the launch of a generic version of Advair in the US in February 2019, investment in R&D including a significant increase in Oncology investment, partly on the assets from the Tesaro acquisition, and investments in promotional product support, particularly for new launches in Vaccines, HIV and Respiratory.  This was partly offset by the benefit from sales growth, particularly in Vaccines, a more favourable mix in Vaccines and Consumer Healthcare and continued tight control of ongoing costs across all three businesses.

 

Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement.  Total contingent consideration cash payments in the quarter amounted to £226 million (Q2 2018: £185 million).  This included cash payments made to Shionogi of £220 million (Q2 2018: £179 million).

 

Operating profit by business

Pharmaceuticals operating profit was £1,256 million, down 16% AER, 19% CER on a turnover decrease of 1% CER.  The operating margin of 29.2% was 6.1 percentage points lower at AER than in Q2 2018 and 6.5 percentage points lower on a CER basis.  This primarily reflected the increase in cost of sales percentage due to the continued impact of lower prices, particularly in Respiratory, including the first full quarter impact of the launch of a generic version of Advair in the US in February 2019, an unfavourable product mix, primarily as a result of the growth in some lower margin established products, together with a significant increase in Oncology R&D investment and investment in new product support and targeted priority markets.  This was partly offset by continued tight control of ongoing costs and the benefits of re-prioritisation of the R&D portfolio.

 

Vaccines operating profit was £612 million, 71% higher than Q2 2018 at AER and 64% higher at CER on a turnover increase of 23% CER.  The operating margin of 38.6% was 10.1 percentage points higher than in Q2 2018 at AER and 9.6 percentage points higher on a CER basis.  This was primarily driven by enhanced operating leverage from strong sales growth, particularly Shingrix in the US, improved product mix and higher royalty income, partly offset by adverse inventory adjustments.  Increased SG&A investment to support business growth was offset by income from one-off settlements.

 

Consumer Healthcare operating profit was £391 million, up 11% AER, 8% CER on a turnover increase of 4% CER.  The operating margin of 20.4% was 1.1 percentage points higher than in Q2 2018 and 0.8 percentage points higher on a CER basis.  This primarily reflected continued manufacturing restructuring savings and improved growth from higher margin power brands.  Increased investment in these brands was offset by tight control of promotional and other expenses.

 

Net finance costs

Total net finance costs were £216 million compared with £167 million in Q2 2018.  Adjusted net finance costs were £220 million compared with £165 million in Q2 2018.  The increase primarily reflected higher debt levels following the acquisition from Novartis of its stake in the Consumer Healthcare Joint Venture in June 2018 and the acquisition of Tesaro in January 2019.  This was partly offset by the benefit from older bonds being refinanced at lower interest rates.  Following the introduction of IFRS 16, 'Leases', finance costs included an unwind of the discount on the lease liability of £9 million in the quarter.

 

Share of after tax (losses)/profits of associates and joint ventures

The share of after tax losses of associates was £4 million (Q2 2018: £2 million profits).

 

Taxation

The charge of £214 million represented an effective tax rate on Total results of 16.9% (Q2 2018: 22.6%) and reflected the different tax effects of the various Adjusting items, including the non-taxable gain arising from the increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands, as well as recognition of a deferred tax liability as a result of disposal of a manufacturing site.  Tax on Adjusted profit amounted to £300 million and represented an effective Adjusted tax rate of 15.4% (Q2 2018: 20.0%), reflecting the impact of the settlement of a number of open issues with tax authorities.

 

Issues related to taxation are described in Note 14, 'Taxation' in the Annual Report 2018.  The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities.  The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.

 

Non-controlling interests

The allocation of Total earnings to non-controlling interests amounted to £86 million (Q2 2018: £34 million).  The increase was primarily due to an increased allocation of ViiV Healthcare profits to £75 million (Q2 2018: £13 million losses including charges for movements in contingent consideration liabilities) partly offset by the ending of the allocation of Consumer Healthcare profits (Q2 2018: £28 million) following the buyout of Novartis' interest, and lower net profits in some of the Group's other entities with non-controlling interests.

 

The allocation of Adjusted earnings to non-controlling interests amounted to £138 million (Q2 2018: £170 million).  The reduction in allocation was primarily due to the ending of the allocation of Consumer Healthcare profits (Q2 2018: £16 million), a reduced allocation of ViiV Healthcare profits of £127 million (Q2 2018: £135 million) and lower net profits in some of the Group's other entities with non-controlling interests.

 

Earnings per share

Total earnings per share was 19.5p, compared with 9.0p in Q2 2018.  The increase in earnings per share primarily reflected the reduced impact of charges arising from increases in the valuation of the liabilities for contingent consideration, put options and preferential dividends, an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands and a reduced tax rate.

 

Adjusted EPS of 30.5p compared with 28.1p in Q2 2018, up 9% AER, 4% CER, on a 1% CER decrease in Adjusted operating profit.  The improvement primarily resulted from a reduced tax rate and the reduced non-controlling interest allocation of Consumer Healthcare profits following the buyout in Q2 2018, partly offset by increased net finance costs.

 

Currency impact on Q2 2019 results

The Q2 2019 results are based on average exchange rates, principally £1/$1.28, £1/€1.14 and £1/Yen 140.  Comparative exchange rates are given on page 53.  The period-end exchange rates were £1/$1.27, £1/€1.12 and £1/Yen 137.

 

In the quarter, turnover increased 7% AER, 5% CER.  Total EPS was 19.5p compared with 9.0p in Q2 2018.  Adjusted EPS was 30.5p compared with 28.1p in Q2 2018, up 9% AER, 4% CER.  The positive currency impact primarily reflected the weakness of Sterling, particularly against the US$ and Yen, partly offset by weakness in emerging market currencies, relative to Q2 2018.  Exchange gains or losses on the settlement of intercompany transactions had a negligible impact on the positive currency impact of five percentage points on Adjusted EPS.

 

 

Adjusting items

The reconciliations between Total results and Adjusted results for Q2 2019 and Q2 2018 are set out below.

 

Three months ended 30 June 2019

 

 

Total

results

£m

Intangible

amort-

isation

£m

Intangible

impair-

ment

£m

Major

restruct-

uring

£m

Transaction-

related

£m

Divestments,

significant

legal and

other items

£m

Adjusted

results

£m

 

------------

------------

------------

------------

------------

------------

------------

Turnover

7,809 

 

 

 

 

 

7,809 

Cost of sales

(2,637)

188 

4 

198 

4 

 

(2,243)

 

------------

------------

------------

------------

------------

------------

------------

Gross profit

5,172 

188 

4 

198 

4 

 

5,566 

 

 

 

 

 

 

 

 

Selling, general and administration

(2,590)

 

2 

67 

41 

47 

(2,433)

Research and development

(1,113)

17 

11 

44 

 

1 

(1,040)

Royalty income

78 

 

 

 

 

 

78 

Other operating (expense)/income

(63)

 

 

 

202 

(139)

- 

 

------------

------------

------------

------------

------------

------------

------------

Operating profit

1,484 

205 

17 

309 

247 

(91)

2,171 

 

 

 

 

 

 

 

 

Net finance costs

(216)

 

 

 

 

(4)

(220)

Share of after tax losses of

  associates and joint ventures

(4)

 

 

 

 

 

(4)

 

------------

------------

------------

------------

------------

------------

------------

Profit before taxation

1,264 

205 

17 

309 

247 

(95)

1,947 

 

 

 

 

 

 

 

 

Taxation

(214)

(39)

(2)

(59)

(61)

75 

(300)

Tax rate %

16.9%

 

 

 

 

 

15.4%

 

------------

------------

------------

------------

------------

------------

------------

Profit after taxation

1,050 

166 

15 

250 

186 

(20)

1,647 

 

------------

------------

------------

------------

------------

------------

------------

Profit attributable to

  non-controlling interests

86 

 

 

 

52 

 

138 

 

 

 

 

 

 

 

 

Profit attributable to

  shareholders

964 

166 

15 

250 

134 

(20)

1,509 

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

Earnings per share

19.5p

3.3p

0.3p

5.1p

2.7p

(0.4)p

30.5p

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of

  shares (millions)

4,947 

 

 

 

 

 

4,947 

 

------------

 

 

 

 

 

------------

 

 

Three months ended 30 June 2018

 

 

Total

results

£m

Intangible

amort-

isation

£m

Intangible

impair-

ment

£m

Major

restruct-

uring

£m

Transaction-

related

£m

Divestments,

significant

legal and

other items

£m

Adjusted

results

£m

 

------------

------------

------------

------------

------------

------------

------------

Turnover

7,310 

 

 

 

 

 

7,310 

Cost of sales

(2,310)

128 

1 

99 

3 

 

(2,079)

 

------------

------------

------------

------------

------------

------------

------------

Gross profit

5,000 

128 

1 

99 

3 

 

5,231 

 

 

 

 

 

 

 

 

Selling, general and administration

(2,457)

 

2 

39 

70 

12 

(2,334)

Research and development

(925)

10 

25 

20 

 

2 

(868)

Royalty income

73 

 

 

 

 

 

73 

Other operating (expense)/income

(912)

 

 

 

949 

(37)

- 

 

------------

------------

------------

------------

------------

------------

------------

Operating profit

779 

138 

28 

158 

1,022 

(23)

2,102 

 

 

 

 

 

 

 

 

Net finance costs

(167)

 

 

1 

 

1 

(165)

Share of after tax profits of

  associates and joint ventures

 

 

 

 

 

2 

 

------------

------------

------------

------------

------------

------------

------------

Profit before taxation

614 

138 

28 

159 

1,022 

(22)

1,939 

 

 

 

 

 

 

 

 

Taxation

(139)

(24)

(5)

(38)

(197)

15 

(388)

Tax rate %

22.6%

 

 

 

 

 

20.0%

 

------------

------------

------------

------------

------------

------------

------------

Profit after taxation

475 

114 

23 

121 

825 

(7)

1,551 

 

------------

------------

------------

------------

------------

------------

------------

Profit attributable to

  non-controlling interests

34 

 

 

 

136 

 

170 

 

 

 

 

 

 

 

 

Profit attributable to

  shareholders

441 

114 

23 

121 

689 

(7)

1,381 

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

Earnings per share

9.0p

2.3p

0.4p

2.5p

14.0p

(0.1)p

28.1p

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of

  shares (millions)

4,914 

 

 

 

 

 

4,914 

 

------------

 

 

 

 

 

------------

 

Major restructuring and integration

Within the Pharmaceuticals sector, the highly regulated manufacturing operations and supply chains and long lifecycle of the business mean that restructuring programmes, particularly those that involve the rationalisation or closure of manufacturing or R&D sites are likely to take several years to complete.

 

Major restructuring costs are those related to specific Board approved Major restructuring programmes and are excluded from Adjusted Results.  Major restructuring programmes, including integration costs following material acquisitions, are those that are structural and are of a significant scale where the costs of individual or related projects exceed £25 million.  Other ordinary course smaller scale restructuring costs are retained within Total and Adjusted results.

 

Total Major restructuring charges incurred in the quarter were £309 million (Q2 2018: £158 million), analysed as follows:

 

 

Q2 2019

 

Q2 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

£m

 

Non-cash

£m

 

Total

£m

 

Cash

£m

 

Non-cash

£m

 

Total

£m

 

 

 

 

 

 

 

 

 

 

 

 

Combined restructuring and

  integration programme

-

 

9

 

9

 

94

 

64

 

158

2018 major restructuring

  programme (incl. Tesaro)

87

 

192

 

279

 

-

 

-

 

-

Consumer Healthcare Joint

  Venture integration

  programme

21

 

-

 

21

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

108

 

201

 

309

 

94

 

64

 

158

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash charges arising under the 2018 major restructuring programme primarily related to the write-down of assets as part of the plans to reduce the manufacturing network.  Cash charges arose from restructuring of the manufacturing organisation, R&D and some administrative functions, as well as the integration of Tesaro.  Non-cash charges under the Combined restructuring and integration programme primarily related to announced plans to restructure the manufacturing network.

 

Total cash payments made in the quarter were £111 million, £63 million for the existing Combined restructuring and integration programme (Q2 2018: £109 million) and £28 million under the 2018 major restructuring programme including the settlement of certain charges accrued in previous quarters and a further £20 million relating to the Consumer Healthcare Joint Venture integration programme.

 

The analysis of Major restructuring charges by business was as follows:

 

 

Q2 2019

£m

 

Q2 2018

£m

 

 

 

 

Pharmaceuticals

232

 

81

Vaccines

17

 

22

Consumer Healthcare

41

 

49

 

 

 

 

 

290

 

152

Corporate & central functions

19

 

6

 

 

 

 

Total Major restructuring costs

309

 

158

 

 

 

 

 

The analysis of Major restructuring charges by Income statement line was as follows:

 

 

Q2 2019

£m

 

Q2 2018

£m

 

 

 

 

Cost of sales

198

 

99

Selling, general and administration

67

 

39

Research and development

44

 

20

 

 

 

 

Total Major restructuring costs

309

 

158

 

 

 

 

 

The Combined restructuring and integration programme delivered incremental annual cost savings in the quarter of £0.1 billion.  The 2018 major restructuring programme delivered incremental cost savings in the quarter of £0.1 billion.

 

Transaction-related adjustments

Transaction-related adjustments resulted in a net charge of £247 million (Q2 2018: £1,022 million).  This primarily reflected £188 million of accounting charges for the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.

 

Charge/(credit)

Q2 2019

£m

 

Q2 2018

£m

 

 

 

 

Consumer Healthcare Joint Venture put option

- 

 

163 

Contingent consideration on former Shionogi-ViiV Healthcare Joint Venture

  (including Shionogi preferential dividends)

226 

 

744 

ViiV Healthcare put options and Pfizer preferential dividends

(47)

 

63 

Contingent consideration on former Novartis Vaccines business

9 

 

(17)

Other adjustments

59 

 

69 

 

 

 

 

Total transaction-related charges

247 

 

1,022 

 

 

 

 

 

The £226 million charge relating to the contingent consideration for the former Shionogi-ViiV Healthcare Joint Venture represented an increase in the valuation of the contingent consideration due to Shionogi, primarily as a result of updated exchange rate assumptions and a £106 million unwind of the discount, partly offset by adjustments to sales forecasts.

 

Other adjustments included transaction costs relating to the agreement with Pfizer to combine our consumer healthcare businesses, as well as a reversal of an indemnity receivable from Novartis following a tax settlement with an equivalent reduction in tax charges.

 

An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on page 10.

 

Divestments, significant legal charges and other items

Divestments and other items included a gain in the quarter of £158 million arising from the increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands and a profit on a number of asset disposals.  This was partly offset by certain other Adjusting items.  A charge of £47 million (Q2 2018: £12 million) for significant legal matters included the benefit of the settlement of existing matters as well as provisions for ongoing litigation.  Significant legal cash payments were £4 million (Q2 2018: £7 million).

 

 

Financial performance - H1 2019

 

Total results

 

The Total results for the Group are set out below.

 

 

H1 2019

£m

 

H1 2018

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

 

 

Turnover

15,470 

 

14,532 

 

 

 

 

 

 

 

 

 

 

Cost of sales

(5,370)

 

(4,701)

 

14 

 

14 

 

 

 

 

 

 

 

 

Gross profit

10,100 

 

9,831 

 

 

 

 

 

 

 

 

 

 

Selling, general and administration

(5,067)

 

(4,768)

 

 

Research and development

(2,119)

 

(1,829)

 

16 

 

12 

Royalty income

151 

 

126 

 

20 

 

20 

Other operating expense

(153)

 

(1,341)

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

2,912 

 

2,019 

 

44 

 

37 

 

 

 

 

 

 

 

 

Finance income

55 

 

47 

 

 

 

 

Finance expense

(461)

 

(356)

 

 

 

 

Share of after tax profits of associates

  and joint ventures

53 

 

11 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before taxation

2,559 

 

1,721 

 

49 

 

41 

 

 

 

 

 

 

 

 

Taxation

(524)

 

(487)

 

 

 

 

Tax rate %

20.5%

 

28.3%

 

 

 

 

 

 

 

 

 

 

 

 

Profit after taxation

2,035 

 

1,234 

 

65 

 

56 

 

 

 

 

 

 

 

 

Profit attributable to non-controlling

  interests

241 

 

244 

 

 

 

 

Profit attributable to shareholders

1,794 

 

990 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,035 

 

1,234 

 

65 

 

56 

 

 

 

 

 

 

 

 

Earnings per share

36.3p

 

20.2p

 

80 

 

70 

 

 

 

 

 

 

 

 

 

 

Adjusted results

 

The Adjusted results for the Group are set out below.  Reconciliations between Total results and Adjusted results for H1 2019 and H1 2018 are set out on pages 33 and 34.

 

 

H1 2019

 

 

 

 

 

 

 

 

 

£m

 

% of

turnover

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

 

 

Turnover

15,470 

 

100 

 

 

 

 

 

 

 

 

 

 

Cost of sales

(4,446)

 

(28.7)

 

4 

 

5 

Selling, general and administration

(4,830)

 

(31.2)

 

5 

 

3 

Research and development

(2,011)

 

(13.0)

 

15 

 

11 

Royalty income

151 

 

0.9 

 

20 

 

20 

 

 

 

 

 

 

 

 

Adjusted operating profit

4,334 

 

28.0 

 

 

 

 

 

 

 

 

 

 

Adjusted profit before tax

3,980 

 

 

 

7 

 

3 

Adjusted profit after tax

3,280 

 

 

 

10 

 

6 

Adjusted profit attributable to shareholders

2,993 

 

 

 

16 

 

12 

 

 

 

 

 

 

 

 

Adjusted earnings per share

60.6p

 

 

 

15 

 

11 

 

 

 

 

 

 

 

 

 

Operating profit by business

H1 2019

 

 

 

 

 

 

 

 

 

£m

 

% of

turnover

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

 

 

Pharmaceuticals

4,043 

 

47.8 

 

 

(3)

Pharmaceuticals R&D*

(1,549)

 

 

 

26 

 

21 

 

 

 

 

 

 

 

 

Total Pharmaceuticals

2,494 

 

29.5 

 

(12)

 

(14)

Vaccines

1,226 

 

39.5 

 

76 

 

67 

Consumer Healthcare

821 

 

21.1 

 

12 

 

10 

 

 

 

 

 

 

 

 

 

4,541 

 

29.4 

 

 

Corporate & other unallocated costs

(207)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

4,334 

 

28.0 

 

 

 

 

 

 

 

 

 

 

 

*

Operating profit of Pharmaceuticals R&D segment, which is the responsibility of the President, Pharmaceuticals R&D.  It excludes ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals segment.

 

 

Turnover

 

Pharmaceuticals turnover

 

 

H1 2019

 

 

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Respiratory

1,383 

 

21 

 

17 

HIV

2,330 

 

 

Immuno-inflammation

272 

 

27 

 

21 

Oncology

100 

 

 

Established Pharmaceuticals

4,380 

 

(6)

 

(7)

 

 

 

 

 

 

 

8,465 

 

 

 

 

 

 

 

 

US

3,472 

 

 

(5)

Europe

2,037 

 

 

International

2,956 

 

 

 

 

 

 

 

 

 

8,465 

 

 

 

 

 

 

 

 

 

Pharmaceuticals turnover in the six months was £8,465 million, up 3% AER, 1% CER.  Respiratory sales were up 21% AER, 17% CER, to £1,383 million, on growth of Trelegy Ellipta and Nucala.  HIV sales were up 4% AER, 1% CER, to £2,330 million, with growth in Juluca and Dovato partly offset by a decline in Triumeq.  Sales of Established Pharmaceuticals declined 6% AER, 7% CER to £4,380 million including the impact of loss of exclusivity of Advair.

 

In the US, sales grew 1% AER but declined 5% CER.  Continued growth of Nucala, Trelegy Ellipta and Benlysta was offset by the decline in Established Products including the loss of exclusivity of Advair and in Relvar/Breo Ellipta, impacted by genericisation of the ICS/LABA market.  In Europe, sales grew 1% AER, 1% CER, with strong growth in Respiratory partly offset by a decline in Established Pharmaceuticals.  International grew 6% AER, 6% CER, with growth in all therapy areas.

 

Respiratory

Total Respiratory sales were up 21% AER, 17% CER, with strong growth in all regions.  Ellipta product sales grew 16% AER, 12% CER, with Europe up 28% AER, 29% CER and International up 32% AER, 31% CER on Trelegy Ellipta and Relvar/Breo Ellipta growth.  Nucala was up 45% AER, 45% CER in Europe and 55% AER, 52% CER in International.  In the US, Trelegy Ellipta and Nucala growth offset the decline in Relvar/Breo Ellipta on post-generic ICS/LABA price pressure.

 

Sales of Nucala were £347 million in the six months and grew 42% AER, 37% CER, continuing to benefit from the global rollout of the product.  US sales of Nucala grew 37% AER, 30% CER to £202 million.

 

Sales of Ellipta products were up 16% AER, 12% CER to £1,036 million driven by growth in Europe and International.  In the US, sales grew 6% AER but were flat at CER, reflecting continued competitive pricing pressures for ICS/LABA products post generic Advair.  In Europe, sales grew 28% AER, 29% CER, and in International by 32% AER, 31% CER.  Sales of Trelegy Ellipta, our new once daily closed triple product, contributed £207 million globally in the six months, continuing to benefit from the expanded US label.

 

Relvar/Breo Ellipta sales were down 9% AER, 11% CER.  This was driven by the US decline of 33% AER, 37% CER, impacted by US competitive pricing pressures and the impact of generic Advair on the US ICS/LABA market.  In Europe and International, Relvar/Breo Ellipta continued to grow, up 11% AER, 12% CER, and 22% CER, 20% AER, respectively. 

 

HIV

HIV sales grew 4% AER, 1% CER to £2,330 million in the six months to June.  The dolutegravir franchise grew 7% AER, 3% CER, delivering sales of £2,214 million in the six months.  The remaining portfolio with sales of £116 million, 5% of total HIV sales, declined 28% AER, 28% CER and reduced the overall growth of total HIV by 3% AER, 2% CER in the six months to June.

 

Sales of dolutegravir products were £2,214 million in the six months, with Triumeq and Tivicay delivering sales of £1,260 million and £795 million, respectively.  The two-drug regimens Juluca and Dovato delivered sales of £159 million in the six months to June.  The combined growth of the two-drug regimens offset the decline in the three-drug regimen, Triumeq, as the business transitions to the new portfolio.

 

In the US, the second two-drug regimen, Dovato, was launched in April 2019, which, combined with Juluca, delivered sales of £136 million.  Total dolutegravir sales grew 4% AER but declined 1% CER reflecting the share decline in Tivicay and Triumeq, partly offset by the share gain on two-drug regimens as the business transitions to the new portfolio.  In Europe, overall dolutegravir sales growth was flat at both AER and CER with growth in dolutegravir share offset by price erosion, and the timing of clawback payments.  International grew strongly with overall dolutegravir sales growth of 37% AER, 38% CER, driven by Tivicay and Triumeq.

 

Oncology

Sales of Zejula, were £99 million in the period from the date of acquisition, comprising £59 million in the US and £40 million in Europe.

 

Immuno-inflammation

Sales of Benlysta in the six months were up 27% AER, 21% CER to £271 million, including sales of the sub-cutaneous formulation.  In the US, Benlysta grew 24% AER, 18% CER to £237 million.

 

Established Pharmaceuticals

Sales of Established Pharmaceuticals in the six months were £4,380 million, down 6% AER, 7% CER.

 

Established Respiratory products declined 6% AER, 8% CER to £1,996 million, with the decline in Seretide/Advair partially offset by higher sales of Ventolin and allergy products.  In the US, a generic version of Advair was launched in February, resulting in a 43% AER, 45% CER decline in the six months.  In Europe, Seretide sales were down 17% AER, 17% CER to £262 million, reflecting continued competition from generic products and the transition of the Respiratory portfolio to newer products.  In International, sales of Seretide grew 1% AER, 2% CER.  Globally, Ventolin grew by 37% AER, 34% CER driven by the strong uptake of an authorised generic version in the US.

 

The remainder of the Established Pharmaceuticals portfolio declined 5% AER, 5% CER broadly in line with the underlying mid single-digit decline expected of this portfolio.

 

 

Vaccines turnover

 

 

H1 2019

 

 

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Meningitis

444

 

22 

 

22 

Influenza

32

 

23 

 

27 

Shingles

743

 

>100 

 

>100 

Established Vaccines

1,888

 

4 

 

2 

 

 

 

 

 

 

 

3,107

 

25 

 

22 

 

 

 

 

 

 

US

1,555

 

59 

 

51 

Europe

742

 

(5)

 

(5)

International

810

 

10 

 

12 

 

 

 

 

 

 

 

3,107

 

25 

 

22 

 

 

 

 

 

 

 

Vaccines turnover grew 25% AER, 22% CER to £3,107 million, primarily driven by growth in sales of Shingrix.  Meningitis vaccines also contributed to growth mainly due to Bexsero demand and share gains in US together with stronger demand in International.  Established Vaccines grew 4% AER, 2% CER to £1,888 million, reflecting favourable CDC stockpile movements and stronger demand for Hepatitis vaccines in the US and favourable phasing and strong demand for Boostrix and Synflorix in International, partly offset by supply constraints in MMRV vaccines.

 

Meningitis

Meningitis sales grew 22% AER, 22% CER to £444 million.  Bexsero sales grew 19% AER, 19% CER to £312 million, driven by demand in the US, together with stronger demand in International, partly offset by the completion of the vaccination of catch-up cohorts in certain markets in Europe.  Menveo grew 10% AER, 8% CER, primarily reflecting improved supply in International.

 

Influenza

Fluarix/FluLaval sales were up 23% AER, 27% CER to £32 million, primarily due to share gains in International.

 

Shingles

Shingrix recorded sales of £743 million, primarily driven by continued strong uptake and the favourable benefit of prior period rebate adjustments in the US.  Canada, as well as strong demand and supply phasing in Germany, also contributed to this growth.

 

Established Vaccines

Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) grew 12% AER, 9% CER.  Boostrix sales were up 21% AER, 18% CER to £267 million, primarily due to favourable phasing and strong demand in International together with share gains and higher demand in the US.

 

Infanrix, Pediarix sales grew 6% AER, 4% CER to £378 million, reflecting US CDC stockpile replenishment and stronger demand in International, partly offset by increased competitive pressures in Europe.

 

Hepatitis vaccines grew 14% AER, 10% CER to £463 million, mainly due to favourable CDC stockpile movements and stronger demand benefiting from a competitor supply shortage in the US.

 

Rotarix sales were up 6% AER, 5% CER to £250 million, reflecting favourable supply phasing and stronger demand in International.

 

Synflorix sales grew 15% AER, 15% CER to £228 million, primarily due to stronger demand and favourable phasing in International as well as higher demand in Europe.

 

MMRV vaccines sales declined 34% AER, 34% CER to £105 million, mainly driven by supply constraints in Europe and International.

 

Cervarix sales were down 29% AER, 29% CER to £48 million, reflecting lower demand in International and competitive pressures in China.

 

 

Consumer Healthcare turnover

 

 

H1 2019

 

 

 

 

 

 

 

£m

 

Growth

£%

 

Growth

CER%

 

 

 

 

 

 

Wellness

1,955

 

 

Oral health

1,313

 

 

Nutrition

331

 

 

Skin health

299

 

(5)

 

(4)

 

 

 

 

 

 

 

3,898

 

 

 

 

 

 

 

 

US

964

 

 

Europe

1,177

 

(2)

 

(1)

International

1,757

 

2 

 

4 

 

 

 

 

 

 

 

3,898

 

 

 

 

 

 

 

 

 

Consumer Healthcare sales grew 2% AER, 2% CER to £3,898 million in the six months.  Growth reflected improved results in all three regions in the second quarter.

 

Divestments and the phasing out of low margin contract manufacturing had a negative impact of approximately one percentage point on growth.

 

Wellness

Wellness sales grew 2% AER, 1% CER to £1,955 million.  Pain relief grew in mid single-digits led by broad-based growth for Panadol, partly benefiting from 2018 regulatory and distribution changes.  Voltaren sales grew in low single-digits, consistent with consumption growth for the period.  Respiratory sales declined, as Flonase growth was offset by a decline in Theraflu following a strong cold and flu season comparator in H1 2018.

 

Oral health

Oral health grew 5% AER, 5% CER to £1,313 million with Sensodyne reporting broad-based, high single-digit growth, benefiting from major innovation launches in developed and emerging markets.  Gum health sales saw double digit-growth, reflecting strong performances across Europe and the US, where parodontax continued to perform well.  Denture care grew in mid single-digits.

 

Nutrition

Nutrition sales grew 3% AER, 3% CER to £331 million, with India growing in high single-digits.  Growth was adversely impacted by the Horlicks and Maxinutrition divestments in the UK, which impacted Nutrition growth by two percentage points.

 

Skin health

Skin health sales declined 5% AER, 4% CER to £299 million, largely due to divestments of small tail brands in the US, which had a negative impact on growth of the category of three percentage points.

 

 

Operating performance

 

Cost of sales

Total cost of sales as a percentage of turnover was 34.7%, 2.4 percentage points higher at AER and 3.0 percentage points higher in CER terms compared with H1 2018.  This reflected an increase in the costs of manufacturing restructuring programmes, primarily as a result of write downs in a number of manufacturing sites, and increased amortisation of intangible assets.

 

Excluding these and other Adjusting items, Adjusted cost of sales as a percentage of turnover was 28.7%, down 0.6 percentage points at AER, and flat at CER compared with H1 2018.  This reflected a more favourable product mix in Vaccines, primarily due to growth of Shingrix in the US, and Consumer Healthcare, a favourable impact of inventory adjustments in Vaccines and a further contribution from integration and restructuring savings in Pharmaceuticals and Consumer Healthcare.  This was offset by continued adverse pricing pressure in Pharmaceuticals, particularly in Respiratory, and an unfavourable product mix in Pharmaceuticals.

 

Selling, general and administration

Total SG&A costs as a percentage of turnover were 32.8%, 0.1 percentage points lower at AER and 0.1 percentage points higher on a CER basis.  This included increased significant legal costs, acquisition costs related to the announced agreement with Pfizer to combine our consumer healthcare businesses, as well as a reversal of an indemnity receivable from Novartis following a tax settlement, with an equivalent release of a tax provision which was reflected in the tax charge.

 

Excluding these and other Adjusting items, Adjusted SG&A costs as a percentage of turnover were 31.2%, 0.6 percentage points lower at AER than in H1 2018 and 0.4 percentage points lower on a CER basis.  The growth in Adjusted SG&A costs of 5% AER, 3% CER reflected increased investment resulting from the acquisition of Tesaro and in promotional product support, particularly for new launches in Vaccines, Respiratory and HIV and targeted priority markets.  This was partly offset by the tight control of ongoing costs, particularly in non-promotional spending across all three businesses.

 

Research and development

Total R&D expenditure was £2,119 million (13.7% of turnover), up 16% AER, 12% CER.  Adjusted R&D expenditure was £2,011 million (13.0% of turnover), 15% higher at AER, 11% higher at CER than H1 2018.  Pharmaceuticals R&D expenditure was £1,550 million, up 19% AER, 14% CER (5% CER excluding Tesaro), reflecting a significant increase in Oncology investment including on assets from the Tesaro acquisition (primarily Zejula and dostarlimab (TSR-042)) and a number of other mid and late-stage programmes including belantamab mafodotin (BCMA) and NY-ESO.  This was partly offset by reductions in other R&D costs, where increased spending on the progression of key assets including otilimab (aGM-CSF) for rheumatoid arthritis, was more than offset by the phasing of spend on assets reaching the end of clinical development, including Trelegy Ellipta for asthma, and the on-going benefits of the R&D portfolio re-prioritisation, at both Research and Development stages, such as nemiralisib and danarixin.  R&D expenditure in Vaccines and Consumer Healthcare was £341 million and £120 million, respectively.

 

Royalty income

Royalty income was £151 million (H1 2018: £126 million), up 20% AER, 20% CER, primarily reflecting increased royalties on sales of Gardasil.

 

Other operating expense

Net other operating expense of £153 million (H1 2018: £1,341 million) primarily reflected accounting charges of £103 million (H1 2018: £1,369 million charge) 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 £166 million (H1 2018: £713 million) for the contingent consideration liability due to Shionogi, primarily arising from changes in exchange rate assumptions and the unwind of the discount.  H1 2018 also included a charge of £658 million in relation to the Consumer Healthcare put option.  In addition there was a decrease in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands of £48 million in the six months.  The cumulative increase in value since the signing of the proposed transaction was £52 million.  This was partly offset by the profit on a number of asset disposals.

 

Operating profit

Total operating profit was £2,912 million in H1 2019 compared with £2,019 million in H1 2018.  Reduced re-measurement charges on the contingent consideration liabilities were partly offset by increased charges for major restructuring, primarily arising from write downs in a number of manufacturing sites, and a decrease in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands.

 

Excluding these and other Adjusting items, Adjusted operating profit was £4,334 million, 8% higher than H1 2018 at AER and 4% higher at CER on a turnover increase of 5% CER.  The Adjusted operating margin of 28.0% was 0.3 percentage points higher at AER, but 0.2 percentage points lower on a CER basis than in H1 2018.  The increase in Adjusted operating profit primarily reflected the benefit from sales growth in all three businesses, particularly Vaccines, a more favourable mix in Vaccines and Consumer Healthcare, a benefit from favourable inventory adjustments in Vaccines and continued tight control of ongoing costs across all three businesses.  This was partly offset by continuing price pressure, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, investment in R&D including a significant increase in Oncology investment, partly on the assets from the Tesaro acquisition, and investments in promotional product support, particularly for new launches in Vaccines, HIV and Respiratory.

 

Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement.  Total contingent consideration cash payments in the six months amounted to £443 million (H1 2018: £702 million).  This included cash payments made to Shionogi of £439 million (H1 2018: £376 million).

 

Operating profit by business 

Pharmaceuticals operating profit was £2,494 million, down 12% AER, 14% CER on a turnover increase of 1% CER.  The operating margin of 29.5% was 4.8 percentage points lower at AER than in H1 2018 and 5.0 percentage points lower on a CER basis.  This primarily reflected the increase in cost of sales percentage due to the continued impact of lower prices, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, an unfavourable product mix, primarily as a result of the growth in some lower margin established products, together with a significant increase in Oncology R&D investment and investment in new product support and targeted priority markets.  This was partly offset by continued tight control of ongoing costs and the benefits of re-prioritisation of the R&D portfolio.

 

Vaccines operating profit was £1,226 million, 76% AER, 67% CER higher than in H1 2018 on a turnover increase of 22% CER.  The operating margin of 39.5% was 11.5 percentage points higher at AER than in H1 2018 and 10.3 percentage points higher on a CER basis.  This was primarily driven by enhanced operating leverage from strong sales growth, particularly Shingrix in the US, improved product mix and higher royalty income.  Increased SG&A investment to support business growth was partly offset by income from one-off settlements.

 

Consumer Healthcare operating profit was £821 million, up 12% AER, 10% CER on a turnover increase of 2% CER.  The operating margin of 21.1% was 1.7 percentage points higher than in H1 2018 and 1.5 percentage points higher on a CER basis.  This primarily reflected continued manufacturing restructuring savings, improved growth from higher margin power brands and the divestment of lower margin tail products.  Increased investment in power brands was offset by tight control of promotional and other expenses.

 

Net finance costs

Total net finance costs were £406 million compared with £309 million in H1 2018.  Adjusted net finance costs were £407 million compared with £304 million in H1 2018.  The increase primarily reflected higher debt levels following the acquisition from Novartis of its stake in the Consumer Healthcare Joint Venture in June 2018 and the acquisition of Tesaro in January 2019, as well as an adverse comparison with a one-off accounting adjustment of £20 million to amortisation of interest charges in H1 2018.  This was partly offset by the benefit from older bonds being refinanced at lower interest rates.  Following the introduction of IFRS 16, 'Leases', finance costs included an unwind of the discount on the lease liability of £20 million in the six months.

 

Share of after tax profits of associates and joint ventures

The share of after tax profits of associates was £53 million (H1 2018: £11 million).  This included a one-off adjustment of £51 million to reflect GSK's share of increased after tax profits of Innoviva primarily as a result of a non-recurring income tax benefit.

 

Taxation

The charge of £524 million represented an effective tax rate on Total results of 20.5% (H1 2018: 28.3%) and reflected the different tax effects of the various Adjusting items, including the non-taxable loss arising from the decrease in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands as well as recognition of a deferred tax liability as a result of disposal of a manufacturing site.  Tax on Adjusted profit amounted to £700 million and represented an effective Adjusted tax rate of 17.6% (H1 2018: 20.1%), reflecting the impact of the settlement of a number of open issues with tax authorities.

 

Issues related to taxation are described in Note 14, 'Taxation' in the Annual Report 2018.  The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities.  The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.

 

Non-controlling interests

The allocation of Total earnings to non-controlling interests amounted to £241 million (H1 2018: £244 million).  The reduction was primarily due to the ending of the allocation of Consumer Healthcare profits (H1 2018: £117 million) following the buyout of Novartis' interest.  This was partly offset by an increased allocation of ViiV Healthcare profits to £204 million (H1 2018: £97 million) and higher net profits in some of the Group's other entities with non-controlling interests.

 

The allocation of Adjusted earnings to non-controlling interests amounted to £287 million (H1 2018: £394 million).  The reduction in allocation was again primarily due to the ending of the allocation of Consumer Healthcare profits (H1 2018: £118 million), partly offset by an increased allocation of ViiV Healthcare profits of £250 million (H1 2018: £246 million) and higher net profits in some of the Group's other entities with non-controlling interests.

 

Earnings per share

Total earnings per share was 36.3p, compared with 20.2p in H1 2018.  The increase in earnings per share primarily reflected reduced re-measurement charges on the contingent consideration liabilities and put options, an improved trading performance, a reduced effective tax rate and the increased share of after tax profit of the associate Innoviva.

 

Adjusted EPS of 60.6p compared with 52.7p in H1 2018, up 15% AER, 11% CER, on a 4% CER increase in Adjusted operating profit.  The improvement primarily resulted from the reduced non-controlling interest allocation of Consumer Healthcare profits following the buyout in Q2 2018, a reduced effective tax rate and an increased share of after tax profits of associates as a result of a non-recurring income tax benefit in Innoviva, partly offset by increased net finance costs.

 

Currency impact on H1 2019 results 

The H1 2019 results are based on average exchange rates, principally £1/$1.29, £1/€1.14 and £1/Yen 142.  Comparative exchange rates are given on page 53.  The period-end exchange rates were £1/$1.27, £1/€1.12 and £1/Yen 137.

 

In the six months, turnover increased 6% AER, 5% CER.  Total EPS was 36.3p compared with 20.2p in H1 2018.  Adjusted EPS was 60.6p compared with 52.7p in H1 2018, up 15% AER, 11% CER.  The positive currency impact primarily reflected the weakness of Sterling, particularly against the US$ and Yen, partly offset by weakness in emerging market currencies, relative to H1 2018.  Exchange gains or losses on the settlement of intercompany transactions had a negligible impact on the positive currency impact of four percentage points on Adjusted EPS.

 

 

Adjusting items

The reconciliations between Total results and Adjusted results for H1 2019 and H1 2018 are set out below.

 

Six months ended 30 June 2019

 

 

Total

results

£m

Intangible

amort-

isation

£m

Intangible

impair-

ment

£m

Major

restruct-

uring

£m

Transaction-

related

£m

Divestments,

significant

legal and

other items

£m

Adjusted

results

£m

 

------------

------------

------------

------------

------------

------------

------------

Turnover

15,470 

 

 

 

 

 

15,470 

Cost of sales

(5,370)

359 

17 

539 

9 

 

(4,446)

 

------------

------------

------------

------------

------------

------------

------------

Gross profit

10,100 

359 

17 

539 

9 

 

11,024 

 

 

 

 

 

 

 

 

Selling, general and administration

(5,067)

 

6 

92 

70 

69 

(4,830)

Research and development

(2,119)

34 

13 

59 

 

2 

(2,011)

Royalty income

151 

 

 

 

 

 

151 

Other operating (expense)/income

(153)

 

 

(1)

115 

39 

- 

 

------------

------------

------------

------------

------------

------------

------------

Operating profit

2,912 

393 

36 

689 

194 

110 

4,334 

 

 

 

 

 

 

 

 

Net finance costs

(406)

 

 

1 

 

(2)

(407)

Share of after tax profits of

  associates and joint ventures

53 

 

 

 

 

 

53 

 

------------

------------

------------

------------

------------

------------

------------

Profit before taxation

2,559 

393 

36 

690 

194 

108 

3,980 

 

 

 

 

 

 

 

 

Taxation

(524)

(76)

(5)

(117)

(53)

75 

(700)

Tax rate %

20.5%

 

 

 

 

 

17.6%

 

------------

------------

------------

------------

------------

------------

------------

Profit after taxation

2,035 

317 

31 

573 

141 

183 

3,280 

 

------------

------------

------------

------------

------------

------------

------------

Profit attributable to

  non-controlling interests

241 

 

 

 

46 

 

287 

 

 

 

 

 

 

 

 

Profit attributable to

  shareholders

1,794 

317 

31 

573 

95 

183 

2,993 

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

Earnings per share

36.3p

6.4p

0.7p

11.6p

1.9p

3.7p

60.6p

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of

  shares (millions)

4,942 

 

 

 

 

 

4,942 

 

------------

 

 

 

 

 

------------

 

 

Six months ended 30 June 2018

 

 

Total

results

£m

Intangible

amort-

isation

£m

Intangible

impair-

ment

£m

Major

restruct-

uring

£m

Transaction-

related

£m

Divestments,

significant

legal and

other items

£m

Adjusted

results

£m

 

------------

------------

------------

------------

------------

------------

------------

Turnover

14,532 

 

 

 

 

 

14,532 

Cost of sales

(4,701)

267 

28 

142 

6 

 

(4,258)

 

------------

------------

------------

------------

------------

------------

------------

Gross profit

9,831 

267 

28 

142 

6 

 

10,274 

 

 

 

 

 

 

 

 

Selling, general and administration

(4,768)

 

2 

58 

70 

18 

(4,620)

Research and development

(1,829)

20 

25 

23 

 

6 

(1,755)

Royalty income

126 

 

 

 

 

 

126 

Other operating (expense)/income

(1,341)

 

 

 

1,383 

(42)

- 

 

------------

------------

------------

------------

------------

------------

------------

Operating profit

2,019 

287 

55 

223 

1,459 

(18)

4,025 

 

 

 

 

 

 

 

 

Net finance costs

(309)

 

 

2 

 

3 

(304)

Share of after tax profits of

  associates and joint ventures

11 

 

 

 

 

 

11 

 

------------

------------

------------

------------

------------

------------

------------

Profit before taxation

1,721 

287 

55 

225 

1,459 

(15)

3,732 

 

 

 

 

 

 

 

 

Taxation

(487)

(56)

(9)

(55)

(177)

34 

(750)

Tax rate %

28.3%

 

 

 

 

 

20.1%

 

------------

------------

------------

------------

------------

------------

------------

Profit after taxation

1,234 

231 

46 

170 

1,282 

19 

2,982 

 

------------

------------

------------

------------

------------

------------

------------

Profit attributable to

  non-controlling interests

244 

 

 

 

150 

 

394 

 

 

 

 

 

 

 

 

Profit attributable to

  shareholders

990 

231 

46 

170 

1,132 

19 

2,588 

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

Earnings per share

20.2p

4.7p

0.9p

3.5p

23.0p

0.4p

52.7p

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of

  shares (millions)

4,909 

 

 

 

 

 

4,909 

 

------------

 

 

 

 

 

------------

 

Major restructuring and integration

Within the Pharmaceuticals sector, the highly regulated manufacturing operations and supply chains and long lifecycle of the business mean that restructuring programmes, particularly those that involve the rationalisation or closure of manufacturing or R&D sites are likely to take several years to complete.

 

Major restructuring costs are those related to specific Board approved Major restructuring programmes and are excluded from Adjusted Results.  Major restructuring programmes, including integration costs following material acquisitions, are those that are structural and are of a significant scale where the costs of individual or related projects exceed £25 million.  Other ordinary course smaller scale restructuring costs are retained within Total and Adjusted results.

 

The Board approved a new Major restructuring programme in July 2018, which is designed to significantly improve the competitiveness and efficiency of the Group's cost base with savings delivered primarily through supply chain optimisation and reductions in administrative costs.

 

The Group acquired Tesaro in January 2019, and is expected to incur around £50 million of integration and restructuring cash costs, leading to annual cost-saving benefits of around £50 million.  This is being added to and reported as part of the 2018 Major restructuring programme.

 

The Group also announced in December that it had reached agreement with Pfizer Inc to combine our consumer healthcare businesses.  The proposed transaction is expected to realise substantial cost synergies, with the new Joint Venture expected to generate total annual cost savings of £0.5 billion by 2022 for expected total major restructuring cash costs of £0.9 billion and non-cash charges of £0.3 billion. Up to 25% of the cost savings are intended to be reinvested in the business to support innovation and other growth opportunities.

 

Total Major restructuring charges incurred in the six months were £689 million (H1 2018: £223 million), analysed as follows:

 

 

H1 2019

 

H1 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

£m

 

Non-cash

£m

 

Total

£m

 

Cash

£m

 

Non-cash

£m

 

Total

£m

 

 

 

 

 

 

 

 

 

 

 

 

Combined restructuring and

  integration programme

22

 

21

 

43

 

142

 

81

 

223

2018 major restructuring

  programme (incl. Tesaro)

111

 

504

 

615

 

-

 

-

 

-

Consumer Healthcare Joint

  Venture integration

  programme

31

 

-

 

31

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

164

 

525

 

689

 

142

 

81

 

223

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash charges arising under the 2018 major restructuring programme primarily related to the write-down of assets as part of the plans to reduce the manufacturing network.  Cash charges arose from restructuring of the manufacturing organisation, R&D and some administrative functions as well as the integration of Tesaro.  Non-cash charges under the Combined restructuring and integration programme primarily related to announced plans to restructure the manufacturing network, and cash charges arose from restructuring in some manufacturing sites, R&D and some administrative functions.

 

Total cash payments made in the six months were £285 million, £219 million for the existing Combined restructuring and integration programme (H1 2018: £213 million) and £46 million under the 2018 major restructuring programme including the settlement of certain charges accrued in previous quarters and a further £20 million relating to the Consumer Healthcare Joint Venture integration programme.

 

The analysis of Major restructuring charges by business was as follows:

 

 

H1 2019

£m

 

H1 2018

£m

 

 

 

 

Pharmaceuticals

568 

 

104 

Vaccines

17 

 

47 

Consumer Healthcare

62 

 

64 

 

 

 

 

 

647 

 

215 

Corporate & central functions

42 

 

 

 

 

 

Total Major restructuring costs

689 

 

223 

 

 

 

 

 

The analysis of Major restructuring charges by Income statement line was as follows:

 

 

H1 2019

£m

 

H1 2018

£m

 

 

 

 

Cost of sales

539 

 

142 

Selling, general and administration

92 

 

58 

Research and development

59 

 

23 

Other operating income

(1)

 

 

 

 

 

Total Major restructuring costs

689 

 

223 

 

 

 

 

 

The Combined restructuring and integration programme delivered incremental annual cost savings in the six months of £0.2 billion.  The 2018 major restructuring programme delivered incremental cost savings in H1 2019 of £0.1 billion.

 

Total cash charges for the Combined restructuring and integration programme are now expected to be approximately £4.1 billion with non-cash charges up to £1.6 billion.  The programme has now delivered approximately £4.1 billion of annual savings, including an estimated currency benefit of £0.3 billion.  The programme is now expected to deliver by 2020 total annual savings of £4.4 billion on a constant currency basis, including an estimated benefit of £0.4 billion from currency on the basis of H1 2019 average exchange rates.

 

The 2018 major restructuring programme, now including Tesaro, is expected to cost £1.75 billion over the period to 2021, with cash costs of £0.85 billion and non-cash costs of £0.9 billion, and is expected to deliver annual savings of around £450 million by 2021 (at H1 2019 rates).  These savings will be fully re-invested to help fund targeted increases in R&D and commercial support of new products.

 

Transaction-related adjustments

Transaction-related adjustments resulted in a net charge of £194 million (H1 2018: £1,459 million charge).  This primarily reflected £103 million of accounting charges for the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.

 

Charge/(credit)

H1 2019

£m

 

H1 2018

£m

 

 

 

 

Consumer Healthcare Joint Venture put option

- 

 

658 

Contingent consideration on former Shionogi-ViiV Healthcare Joint Venture

  (including Shionogi preferential dividends)

166 

 

713 

ViiV Healthcare put options and Pfizer preferential dividends

(71)

 

Contingent consideration on former Novartis Vaccines business

8 

 

(4)

Other adjustments

91 

 

90 

 

 

 

 

Total transaction-related charges

194 

 

1,459 

 

 

 

 

 

The £166 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 £214 million unwind of the discount and updated exchange rate assumptions, partly offset by adjustments to sales forecasts.

 

Other adjustments included transaction costs relating to the agreement with Pfizer to combine our consumer healthcare businesses, as well as a reversal of an indemnity receivable from Novartis following a tax settlement with an equivalent release of a tax provision.

 

An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on page 10.

 

Divestments, significant legal charges and other items

Divestments and other items included a loss in the six months of £48 million arising from the decrease in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands, as well as equity investment impairments and certain other Adjusting items.  This was partly offset by the profit on a number of asset disposals.  A charge of £69 million (H1 2018: £17 million) for significant legal matters included the benefit of the settlement of existing matters as well as provisions for ongoing litigation.  Significant legal cash payments were £8 million (H1 2018: £12 million).

 

 

Cash generation

 

Cash flow

 

 

Q2 2019

 

H1 2019

 

H1 2018

 

 

 

 

 

 

Net cash inflow from operating activities (£m)

1,389 

 

2,052 

 

2,225 

Free cash flow* (£m)

370 

 

535 

 

821 

Free cash flow growth (%)

(25)%

 

(35)%

 

>100%

Free cash flow conversion* (%)

38%

 

30%

 

83%

Net debt** (£m)

28,721 

 

28,721 

 

23,935 

 

*

Free cash flow and free cash flow conversion are defined on page 61.

**

Net debt is analysed on page 59.

 

Q2 2019

The net cash inflow from operating activities for the quarter was £1,389 million (Q2 2018: £1,362 million).  The increase primarily reflected improved operating profits, lower trade receivables and a lower seasonal increase in inventory and lower operating lease payments following the transition to IFRS 16, partly offset by the adverse timing of payments for returns and rebates, as well as the initial step-down impact from US Advair generic competition.

 

Total cash payments to Shionogi in relation to the ViiV Healthcare contingent consideration liability in the quarter were £220 million (Q2 2018: £179 million), of which £195 million was recognised in cash flows from operating activities and £25 million was recognised in contingent consideration paid within investing cash flows.  These payments are deductible for tax purposes.

 

Free cash flow was £370 million for the quarter (Q2 2018: £492 million).  The reduction primarily reflected increased capital expenditure including the acquisition of intangible assets from Merck KgaA, Darmstadt, Germany, increased interest payments, the adverse timing of payments for returns and rebates, and the initial step-down impact from US Advair generic competition.  This was partly offset by improved operating profits, lower trade receivables and a lower seasonal increase in inventory, as well as reduced dividend payments to non-controlling interests.

 

H1 2019

The net cash inflow from operating activities for the six months was £2,052 million (H1 2018: £2,225 million).  The reduction primarily reflected the adverse timing of payments for returns and rebates, as well as the initial step-down impact from US Advair generic, partly offset by improved operating profits, a lower seasonal increase in trade receivables and inventory, lower contingent consideration payments compared with H1 2018 which included a milestone payment to Novartis and lower operating lease payments following the transition to IFRS 16.

 

Total cash payments to Shionogi in relation to the ViiV Healthcare contingent consideration liability in the six months were £439 million (H1 2018: £376 million), of which £390 million was recognised in cash flows from operating activities and £49 million was recognised in contingent consideration paid within investing cash flows.  These payments are deductible for tax purposes.

 

Free cash flow was £535 million in the six months (H1 2018: £821 million).  The reduction primarily reflected the adverse timing of payments for returns and rebates, as well as the initial step-down impact from US Advair generic competition, increased capital expenditure including acquisition of intangible assets and increased interest payments.  This was partly offset by improved operating profits, a lower seasonal increase in trade receivables and inventory and reduced dividend payments to non-controlling interests.

 

Net debt

At 30 June 2019, net debt was £28.7 billion, compared with £21.6 billion at 31 December 2018, comprising gross debt of £33.4 billion and cash and liquid investments of £4.7 billion, including £0.5 billion reported within Assets held for sale.  Net debt increased due to the £3.9 billion acquisition of Tesaro Inc as well as £0.2 billion of Tesaro net debt, together with the £1.3 billion impact from the implementation of IFRS 16, the dividend paid to shareholders of £2.1 billion and £0.1 billion of unfavourable exchange impacts from the translation of non-Sterling denominated debt, partly offset by £0.5 billion free cash flow.

 

At 30 June 2019, GSK had short-term borrowings (including overdrafts and lease liabilities) repayable within 12 months of £10.1 billion with loans of £2.6 billion repayable in the subsequent year.

 

 

Returns to shareholders

 

Quarterly dividends

The Board has declared a second interim dividend for 2019 of 19 pence per share (Q2 2018: 19 pence per share).

 

GSK recognises the importance of dividends to shareholders and aims to distribute regular dividend payments that will be determined primarily with reference to the free cash flow generated by the business after funding the investment necessary to support the Group's future growth.

 

The Board intends to maintain the dividend for 2019 at the current level of 80p per share, subject to any material change in the external environment or performance expectations.  Over time, as free cash flow strengthens, it intends to build free cash flow cover of the annual dividend to a target range of 1.25-1.50x, before returning the dividend to growth.

 

Payment of dividends

The equivalent interim dividend receivable by ADR holders will be calculated based on the exchange rate on 8 October 2019.  An annual fee of $0.03 per ADS (or $0.0075 per ADS per quarter) (2018: $0.02 per ADS; $0.005 per ADS per quarter) is charged by the Depositary.

 

The ex-dividend date will be 8 August 2019, with a record date of 9 August 2019 and a payment date of 10 October 2019.

 

 

Paid/

payable

 

Pence per

share

 

£m

 

 

 

 

 

 

2019

 

 

 

 

 

First interim

11 July 2019

 

19

 

940

Second interim

10 October 2019

 

19

 

940

 

 

 

 

 

 

 

2018

 

 

 

 

 

First interim

12 July 2018

 

19

 

934

Second interim

11 October 2018

 

19

 

934

Third interim

10 January 2019

 

19

 

935

Fourth interim

11 April 2019

 

23

 

1,137

 

 

 

 

 

 

 

 

 

80

 

3,940

 

 

 

 

 

 

 

 

Weighted average number of shares

 

 

 

 

 

 

 

Q2 2019

millions

 

Q2 2018

millions

 

 

 

 

 

 

Weighted average number of shares - basic

 

 

4,947

 

4,914

Dilutive effect of share options and share awards

 

 

44

 

47

 

 

 

 

 

 

Weighted average number of shares - diluted

 

 

4,991

 

4,961

 

 

 

 

 

 

 

Weighted average number of shares

 

 

 

 

 

 

 

H1 2019

millions

 

H1 2018

millions

 

 

 

 

 

 

Weighted average number of shares - basic

 

 

4,942

 

4,909

Dilutive effect of share options and share awards

 

 

43

 

46

 

 

 

 

 

 

Weighted average number of shares - diluted

 

 

4,985

 

4,955

 

 

 

 

 

 

 

At 30 June 2019, 4,948 million shares (30 June 2018: 4,915 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 0.5 million shares under employee share schemes for proceeds of £6 million (Q2 2018: £12 million).

 

At 30 June 2019, the ESOP Trust held 40 million GSK shares against the future exercise of share options and share awards.  The carrying value of £242 million has been deducted from other reserves.  The market value of these shares was £642 million.

 

At 30 June 2019, the company held 393.5 million Treasury shares at a cost of £5,505 million, which has been deducted from retained earnings.

 

 

Financial information

 

Income statements

 

 

Q2 2019

£m

 

Q2 2018

£m

 

H1 2019

£m

 

H1 2018

£m

 

 

 

 

 

 

 

 

TURNOVER

7,809 

 

7,310 

 

15,470 

 

14,532 

 

 

 

 

 

 

 

 

Cost of sales

(2,637)

 

(2,310)

 

(5,370)

 

(4,701)

 

 

 

 

 

 

 

 

Gross profit

5,172 

 

5,000 

 

10,100 

 

9,831 

 

 

 

 

 

 

 

 

Selling, general and administration

(2,590)

 

(2,457)

 

(5,067)

 

(4,768)

Research and development

(1,113)

 

(925)

 

(2,119)

 

(1,829)

Royalty income

78 

 

73 

 

151 

 

126 

Other operating expense

(63)

 

(912)

 

(153)

 

(1,341)

 

 

 

 

 

 

 

 

OPERATING PROFIT

1,484 

 

779 

 

2,912 

 

2,019 

 

 

 

 

 

 

 

 

Finance income

21 

 

27 

 

55 

 

47 

Finance expense

(237)

 

(194)

 

(461)

 

(356)

Share of after tax (losses)/profits of

  associates and joint ventures

(4)

 

 

53 

 

11 

 

 

 

 

 

 

 

 

PROFIT BEFORE TAXATION

1,264 

 

614 

 

2,559 

 

1,721 

 

 

 

 

 

 

 

 

Taxation

(214)

 

(139)

 

(524)

 

(487)

Tax rate %

16.9%

 

22.6%

 

20.5%

 

28.3%

 

 

 

 

 

 

 

 

PROFIT AFTER TAXATION

1,050 

 

475 

 

2,035 

 

1,234 

 

 

 

 

 

 

 

 

Profit attributable to non-controlling

  interests

86 

 

34 

 

241 

 

244 

Profit attributable to shareholders

964 

 

441 

 

1,794 

 

990 

 

 

 

 

 

 

 

 

 

1,050 

 

475 

 

2,035 

 

1,234 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE

19.5p

 

9.0p

 

36.3p

 

20.2p

 

 

 

 

 

 

 

 

Diluted earnings per share

19.3p

 

8.9p

 

36.0p

 

20.0p

 

 

 

 

 

 

 

 

 

 

Statement of comprehensive income

 

 

Q2 2019

£m

 

Q2 2018

£m

 

 

 

 

Profit for the period

1,050 

 

475 

 

 

 

 

Items that may be reclassified subsequently to income statement:

 

 

 

Exchange movements on overseas net assets and net investment hedges

(120)

 

(438)

Fair value movements on cash flow hedges

(73)

 

157 

Reclassification of cash flow hedges to income statement

- 

 

(134)

Deferred tax on fair value movements on cash flow hedges

1 

 

(24)

Deferred tax reversed on reclassification of cash flow hedges

- 

 

20 

 

 

 

 

 

(192)

 

(419)

 

 

 

 

Items that will not be reclassified to income statement:

 

 

 

Exchange movements on overseas net assets of non-controlling interests

8 

 

20 

Fair value movements on equity investments

6 

 

56 

Deferred tax on fair value movements on equity investments

(20)

 

(4)

Re-measurement (losses)/gains on defined benefit plans

(131)

 

728 

Tax on re-measurement (losses)/gains on defined benefit plans

27 

 

(132)

 

 

 

 

 

(110)

 

668 

 

 

 

 

Other comprehensive (expense)/income for the period

(302)

 

249 

 

 

 

 

Total comprehensive income for the period

748 

 

724 

 

 

 

 

 

 

 

 

Total comprehensive income for the period attributable to:

 

 

 

  Shareholders

654 

 

670 

  Non-controlling interests

94 

 

54 

 

 

 

 

 

748 

 

724 

 

 

 

 

 

 

Statement of comprehensive income

 

 

H1 2019

£m

 

H1 2018

£m

 

 

 

 

Profit for the period

2,035 

 

1,234 

 

 

 

 

Items that may be reclassified subsequently to income statement:

 

 

 

Exchange movements on overseas net assets and net investment hedges

(45)

 

(372)

Fair value movements on cash flow hedges

(73)

 

179 

Reclassification of cash flow hedges to income statement

1 

 

(165)

Deferred tax on fair value movements on cash flow hedges

- 

 

(24)

Deferred tax reversed on reclassification of cash flow hedges

- 

 

20 

 

 

 

 

 

(117)

 

(362)

 

 

 

 

Items that will not be reclassified to income statement:

 

 

 

Exchange movements on overseas net assets of non-controlling interests

(10)

 

(8)

Fair value movements on equity investments

44 

 

153 

Deferred tax on fair value movements on equity investments

(30)

 

(13)

Re-measurement (losses)/gains on defined benefit plans

(573)

 

914 

Tax on re-measurement (losses)/gains on defined benefit plans

102 

 

(170)

 

 

 

 

 

(467)

 

876 

 

 

 

 

Other comprehensive (expense)/income for the period

(584)

 

514 

 

 

 

 

Total comprehensive income for the period

1,451 

 

1,748 

 

 

 

 

 

 

 

 

Total comprehensive income for the period attributable to:

 

 

 

  Shareholders

1,220 

 

1,512 

  Non-controlling interests

231 

 

236 

 

 

 

 

 

1,451 

 

1,748 

 

 

 

 

 

 

Pharmaceuticals turnover - three months ended 30 June 2019

 

 

Total

US

Europe

International

 

---------------------------------------------------------------

---------------------------------------------------------------

---------------------------------------------------------------

----------------------------------------------------------------

 

 

Growth

 

Growth

 

Growth

 

Growth

 

 

----------------------------------

 

----------------------------------

 

----------------------------------

 

-----------------------------------

 

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory

752

16 

12 

419 

3 

(2)

193

33 

32 

140

40 

38 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Ellipta products

557

9 

6 

302 

(5)

(10)

141

29 

29 

114

37 

35 

  Anoro Ellipta

128

7 

3 

81 

(2)

(8)

30

25 

25 

17

31 

31 

  Arnuity Ellipta

14

40 

30 

12 

33 

22 

-

- 

- 

2

>100 

>100 

  Incruse Ellipta

57

(23)

(26)

31 

(35)

(40)

19

(5)

(5)

7

17 

17 

  Relvar/Breo Ellipta

238

(15)

(16)

93 

(40)

(43)

70

15 

15 

75

21 

21 

  Trelegy Ellipta

120

>100 

>100 

85 

>100 

>100 

22

>100 

>100 

13

>100 

>100 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nucala

195

38 

33 

117 

33 

26 

52

44 

42 

26

53 

53 

 

 

 

 

 

 

 

 

 

 

 

 

 

HIV

1,209

2 

(2)

736 

(1)

(6)

289

- 

(1)

184

17 

19 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Dolutegravir products

1,147

3 

- 

720 

(1)

(6)

271

3 

2 

156

27 

29 

  Tivicay

412

1 

(2)

242 

(5)

(11)

99

8 

7 

71

20 

24 

  Triumeq

646

(5)

(9)

403 

(10)

(15)

159

(6)

(8)

84

31 

33 

  Juluca

84

>100 

>100 

70 

>100 

>100 

13

>100 

>100 

1

>100 

>100 

  Dovato

5

- 

- 

5 

- 

- 

-

- 

- 

-

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

Epzicom/Kivexa

22

(15)

(15)

1 

>100 

>100 

6

(40)

(40)

15

(12)

(12)

Selzentry

26

(10)

(7)

13 

- 

- 

8

(11)

(11)

5

(29)

(14)

Other

14

(33)

(48)

2 

(60)

(80)

4

(33)

(50)

8

(20)

(30)

 

 

 

 

 

 

 

 

 

 

 

 

 

Immuno-

inflammation

151

32 

26 

132 

29 

23 

11

22 

22 

8

>100 

>100 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Benlysta

150

32 

25 

132 

29 

24 

11

37 

37 

7

75 

50 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oncology

57

- 

- 

33 

- 

- 

24

- 

- 

-

- 

- 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Zejula

57

- 

- 

33 

- 

- 

24

- 

- 

-

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

Established

Pharmaceuticals

2,138

(6)

(7)

463 

(25)

(29)

517

(5)

(6)

1,158

4 

4 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Established

Respiratory

913

(13)

(14)

310 

(28)

(32)

208

(11)

(12)

395

4 

4 

  Seretide/Advair

412

(30)

(31)

105 

(60)

(61)

129

(15)

(15)

178

(1)

(1)

  Flixotide/Flovent

126

(18)

(19)

65 

(31)

(34)

22

5 

- 

39

- 

5 

  Ventolin

236

39 

35 

141 

81 

71 

29

(6)

(6)

66

8 

11 

  Avamys/Veramyst

71

3 

1 

- 

- 

- 

20

(9)

(9)

51

9 

6 

  Other Respiratory

68

8 

2 

(1)

>(100)

>(100)

8

(11)

(11)

61

13 

6 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dermatology

107

3 

3 

1 

>100 

>100 

41

5 

3 

65

- 

2 

Augmentin

133

5 

6 

- 

- 

- 

38

3 

- 

95

6 

8 

Avodart

141

2 

1 

1 

(67)

(67)

53

(7)

(7)

87

12 

9 

Imigran/Imitrex

36

- 

- 

17 

21 

14 

13

(13)

(13)

6

(14)

- 

Lamictal

142

(13)

(16)

72 

(12)

(16)

28

4 

4 

42

(24)

(25)

Seroxat/Paxil

40

(5)

(5)

- 

- 

- 

9

(10)

(10)

31

(3)

(3)

Valtrex

25

(17)

(20)

1 

(80)

(60)

7

(12)

(12)

17

- 

(12)

Other

601

2 

1 

61 

(28)

(33)

120

4 

3 

420

8 

8 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Pharmaceuticals

4,307

2 

(1)

1,783 

(5)

(10)

1,034

5 

4 

1,490

9 

8 

 

--------

--------

--------

--------

----------

--------

--------

---------

--------

--------

---------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pharmaceuticals turnover - six months ended 30 June 2019

 

 

Total

US

Europe

International

 

----------------------------------------------------------------

--------------------------------------------------------------

---------------------------------------------------------------

--------------------------------------------------------------

 

 

Growth

 

Growth

 

Growth

 

Growth

 

 

-----------------------------------

 

-----------------------------------

 

------------------------------------

 

-----------------------------------

 

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory

1,383

21 

17 

756 

13 

6 

369

32 

33 

258

36 

34 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Ellipta products

1,036

16 

12 

554 

6 

- 

272

28 

29 

210

32 

31 

  Anoro Ellipta

230

6 

2 

139 

(3)

(8)

57

19 

19 

34

31 

31 

  Arnuity Ellipta

21

- 

(5)

18 

(5)

(11)

-

- 

- 

3

50 

50 

  Incruse Ellipta

125

2 

(1)

75 

- 

(7)

37

3 

3 

13

18 

27 

  Relvar/Breo Ellipta

453

(9)

(11)

171 

(33)

(37)

137

11 

12 

145

22 

20 

  Trelegy Ellipta

207

>100 

>100 

151 

>100 

>100 

41

>100 

>100 

15

>100 

>100 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nucala

347

42 

37 

202 

37 

30 

97

45 

45 

48

55 

52 

 

 

 

 

 

 

 

 

 

 

 

 

 

HIV

2,330

4 

1 

1,425 

4 

(2)

567

(3)

(3)

338

22 

23 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Dolutegravir products

2,214

7 

3 

1,390 

4 

(1)

533

- 

- 

291

37 

38 

  Tivicay

795

5 

2 

465 

(4)

(9)

193

7 

7 

137

51 

53 

  Triumeq

1,260

(2)

(6)

789 

(3)

(8)

319

(9)

(9)

152

25 

25 

  Juluca

154

>100 

>100 

131 

>100 

>100 

21

>100 

>100 

2

>100 

>100 

  Dovato

5

- 

- 

5 

- 

- 

-

- 

- 

-

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

Epzicom/Kivexa

41

(35)

(33)

2 

- 

- 

12

(50)

(50)

27

(27)

(24)

Selzentry

49

(16)

(16)

26 

(7)

(11)

15

(17)

(17)

8

(33)

(25)

Other

26

(33)

(38)

7 

(42)

(50)

7

(42)

(42)

12

(20)

(27)

 

 

 

 

 

 

 

 

 

 

 

 

 

Immuno-

inflammation

272

27 

21 

237 

24 

17 

22

29 

29 

13

>100 

>100 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Benlysta

271

27 

21 

237 

24 

18 

22

29 

29 

12

>100 

83 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oncology

100

- 

- 

59 

- 

- 

41

- 

- 

-

- 

- 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Zejula

99

- 

- 

59 

- 

- 

40

- 

- 

-

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

Established

Pharmaceuticals

4,380

(6)

(7)

995 

(17)

(22)

1,038

(8)

(8)

2,347

1 

2 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Established

Respiratory

1,996

(6)

(8)

710 

(14)

(19)

426

(13)

(12)

860

6 

5 

  Seretide/Advair

898

(22)

(23)

281 

(43)

(45)

262

(17)

(17)

355

1 

2 

  Flixotide/Flovent

272

(13)

(15)

143 

(21)

(25)

48

- 

- 

81

(4)

(1)

  Ventolin

481

37 

34 

287 

81 

70 

62

(5)

(5)

132

5 

8 

  Avamys/Veramyst

186

11 

10 

- 

- 

- 

39

(7)

(7)

147

18 

15 

  Other Respiratory

159

9 

4 

(1)

>(100)

>(100)

15

(6)

(6)

145

12 

6 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dermatology

215

2 

3 

3 

>100 

>100 

79

1 

1 

133

1 

2 

Augmentin

293

1 

2 

- 

- 

- 

87

(5)

(5)

206

4 

6 

Avodart

284

2 

1 

2 

(67)

(67)

109

(10)

(10)

173

14 

12 

Imigran/Imitrex

67

(1)

(3)

29 

12 

8 

26

(13)

(13)

12

- 

- 

Lamictal

274

(12)

(14)

137 

(10)

(15)

53

- 

- 

84

(19)

(20)

Seroxat/Paxil

80

(2)

(2)

- 

- 

- 

18

(10)

(10)

62

- 

- 

Valtrex

52

(10)

(12)

6 

(25)

(25)

14

(7)

(7)

32

(9)

(11)

Other

1,119

(8)

(8)

108 

(41)

(45)

226

(2)

(2)

785

(2)

(1)

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Pharmaceuticals

8,465

3 

1 

3,472 

1 

(5)

2,037

1 

1 

2,956

6 

6 

 

--------

--------

--------

--------

----------

--------

--------

---------

--------

--------

---------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vaccines turnover - three months ended 30 June 2019

 

 

Total

US

Europe

International

 

-------------------------------------------------------------

--------------------------------------------------------------

--------------------------------------------------------------

--------------------------------------------------------------

 

 

Growth

 

Growth

 

Growth

 

Growth

 

 

-----------------------------------

 

-----------------------------------

 

-----------------------------------

 

------------------------------------

 

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

Meningitis

235

28 

26 

100

30 

25 

87 

14 

12 

48

55 

61 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Bexsero

156

26 

24 

55

49 

43 

82 

17 

14 

19

12 

24 

Menveo

62

27 

22 

45

12 

7 

4 

- 

- 

13

>100 

>100 

Other

17

55 

55 

-

- 

- 

1 

(50)

(50)

16

78 

78 

 

 

 

 

 

 

 

 

 

 

 

 

 

Influenza

17

- 

6 

2

>100 

>100 

(1)

>(100)

>(100)

16

(6)

- 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Fluarix, FluLaval

17

- 

6 

2

>100 

>100 

(1)

>(100)

>(100)

16

(6)

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shingles

386

>100 

>100 

351

>100 

>100 

14 

>100 

>100 

21

23 

23 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Shingrix

386

>100 

>100 

351

>100 

>100 

14 

>100 

>100 

21

23 

23 

 

 

 

 

 

 

 

 

 

 

 

 

 

Established

Vaccines

947

7 

5 

325

25 

18 

303 

(4)

(4)

319

3 

3 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Infanrix, Pediarix

195

31 

28 

83

69 

59 

67 

(7)

(8)

45

61 

64 

Boostrix

144

19 

15 

71

16 

10 

43 

(4)

(4)

30

>100 

93 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hepatitis

224

7 

3 

130

9 

4 

71 

18 

18 

23

(26)

(32)

 

 

 

 

 

 

 

 

 

 

 

 

 

Rotarix

116

10 

9 

25

47 

35 

27 

8 

8 

64

2 

2 

 

 

 

 

 

 

 

 

 

 

 

 

 

Synflorix

107

7 

6 

-

- 

15 

25 

17 

92

5 

5 

 

 

 

 

 

 

 

 

 

 

 

 

 

Priorix, Priorix Tetra,

  Varilrix

50

(39)

(39)

-

- 

- 

24 

(46)

(46)

26

(31)

(31)

Cervarix

28

75 

75 

-

- 

- 

6 

(14)

(14)

22

>100 

>100 

Other

83

(18)

(18)

16

14 

7 

50 

(1)

1 

17

(54)

(54)

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Vaccines

1,585

26 

23 

778

60 

52 

403 

3 

2 

404

8 

8 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vaccines turnover - six months ended 30 June 2019

 

 

Total

US

Europe

International

 

-------------------------------------------------------------

-------------------------------------------------------------

------------------------------------------------------------

------------------------------------------------------------

 

 

Growth

 

Growth

 

Growth

 

Growth

 

 

----------------------------------

 

----------------------------------

 

----------------------------------

 

-----------------------------------

 

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

£m

£%

CER%

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

Meningitis

444

22 

22 

171

30 

23 

170

(3)

(3)

103

81 

95 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Bexsero

312

19 

19 

103

51 

44 

159

(2)

(2)

50

52 

70 

Menveo

95

10 

8 

68

6 

- 

8

(11)

(11)

19

46 

62 

Other

37

>100 

>100 

-

- 

- 

3

(25)

(25)

34

>100 

>100 

 

 

 

 

 

 

 

 

 

 

 

 

 

Influenza

32

23 

27 

2

>100 

>100 

-

- 

- 

30

15 

19 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Fluarix, FluLaval

32

23 

27 

2

>100 

>100 

-

- 

- 

30

15 

19 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shingles

743

>100 

>100 

679

>100 

>100 

19

>100 

>100 

45

80 

80 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Shingrix

743

>100 

>100 

679

>100 

>100 

19

>100 

>100 

45

80 

80 

 

 

 

 

 

 

 

 

 

 

 

 

 

Established

Vaccines

1,888

4 

2 

703

19 

12 

553

(9)

(8)

632

1 

1 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Infanrix, Pediarix

378

6 

4 

186

20 

13 

114

(21)

(21)

78

42 

44 

Boostrix

267

21 

18 

132

23 

16 

80

(2)

(2)

55

72 

75 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hepatitis

463

14 

10 

287

24 

17 

121

2 

2 

55

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rotarix

250

6 

5 

70

9 

3 

56

4 

6 

124

6 

6 

 

 

 

 

 

 

 

 

 

 

 

 

 

Synflorix

228

15 

15 

-

- 

- 

33

32 

32 

195

12 

12 

 

 

 

 

 

 

 

 

 

 

 

 

 

Priorix, Priorix Tetra,

  Varilrix

105

(34)

(34)

-

- 

- 

51

(40)

(40)

54

(28)

(27)

Cervarix

48

(29)

(29)

-

- 

- 

11

(8)

(8)

37

(34)

(34)

Other

149

(18)

(18)

28

(22)

(25)

87

4 

6 

34

(45)

(47)

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

Vaccines

3,107

25 

22 

1,555

59 

51 

742

(5)

(5)

810

10 

12 

 

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

--------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

30 June 2019

£m

 

30 June 2018

£m

 

31 December 2018

£m

ASSETS

 

 

 

 

 

Non-current assets

 

 

 

 

 

Property, plant and equipment

10,385 

 

10,823 

 

11,058 

Right of use assets

1,023 

 

 

- 

Goodwill

7,026 

 

5,778 

 

5,789 

Other intangible assets

20,134 

 

17,294 

 

17,202 

Investments in associates and joint ventures

309 

 

202 

 

236 

Other investments

1,380 

 

1,067 

 

1,322 

Deferred tax assets

3,668 

 

3,472 

 

3,887 

Derivative financial instruments

86 

 

36 

 

69 

Other non-current assets

1,393 

 

1,919 

 

1,576 

 

 

 

 

 

 

Total non-current assets

45,404 

 

40,591 

 

41,139 

 

 

 

 

 

 

Current assets

 

 

 

 

 

Inventories

5,959 

 

5,943 

 

5,476 

Current tax recoverable

186 

 

252 

 

229 

Trade and other receivables

6,875 

 

6,559 

 

6,423 

Derivative financial instruments

211 

 

85 

 

188 

Liquid investments

84 

 

81 

 

84 

Cash and cash equivalents

4,123 

 

4,046 

 

3,874 

Assets held for sale

790 

 

78 

 

653 

 

 

 

 

 

 

Total current assets

18,228 

 

17,044 

 

16,927 

 

 

 

 

 

 

TOTAL ASSETS

63,632 

 

57,635 

 

58,066 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities

 

 

 

 

 

Short-term borrowings

(10,147)

 

(3,470)

 

(5,793)

Contingent consideration liabilities

(816)

 

(806)

 

(837)

Trade and other payables

(13,385)

 

(12,545)

 

(14,037)

Derivative financial instruments

(255)

 

(84)

 

(127)

Current tax payable

(502)

 

(771)

 

(965)

Short-term provisions

(674)

 

(522)

 

(732)

 

 

 

 

 

 

Total current liabilities

(25,779)

 

(18,198)

 

(22,491)

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Long-term borrowings

(23,313)

 

(24,592)

 

(20,271)

Corporation tax payable

(273)

 

(394)

 

(272)

Deferred tax liabilities

(1,233)

 

(1,214)

 

(1,156)

Pensions and other post-employment benefits

(3,352)

 

(3,210)

 

(3,125)

Other provisions

(625)

 

(658)

 

(691)

Derivative financial instruments

- 

 

 

(1)

Contingent consideration liabilities

(5,212)

 

(5,364)

 

(5,449)

Other non-current liabilities

(878)

 

(982)

 

(938)

 

 

 

 

 

 

Total non-current liabilities

(34,886)

 

(36,414)

 

(31,903)

 

 

 

 

 

 

TOTAL LIABILITIES

(60,665)

 

(54,612)

 

(54,394)

 

 

 

 

 

 

NET ASSETS

2,967 

 

3,023 

 

3,672 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

Share capital

1,345 

 

1,343 

 

1,345 

Share premium account

3,157 

 

3,042 

 

3,091 

Retained earnings

(2,804)

 

(2,680)

 

(2,137)

Other reserves

1,916 

 

1,974 

 

2,061 

 

 

 

 

 

 

Shareholders' equity

3,614 

 

3,679 

 

4,360 

 

 

 

 

 

 

Non-controlling interests

(647)

 

(656)

 

(688)

 

 

 

 

 

 

TOTAL EQUITY

2,967 

 

3,023 

 

3,672 

 

 

 

 

 

 

 

 

Statement of changes in equity

 

 

Share

capital

£m

Share

premium

£m

Retained

earnings

£m

Other

reserves

£m

Share-

holder's

equity

£m

Non-

controlling

interests

£m

Total

equity

£m

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

As previously reported

1,345

3,091

2,061 

4,360 

(688)

3,672 

Implementation of IFRS 16

-

-

(93)

(93)

 

------------

------------

------------

------------

------------

------------

------------

At 1 January 2019, as adjusted

1,345

3,091

2,061 

4,267 

(688)

3,579 

  Profit for the period

 

 

 

1,794 

241 

2,035 

  Other comprehensive expense for the

    period

 

 

(55)

(574)

(10)

(584)

 

 

 

------------

------------

------------

------------

------------

Total comprehensive income/(expense)

  for the period

 

 

(55)

1,220 

231 

1,451 

 

 

 

------------

------------

------------

------------

------------

Distributions to non-controlling interests

 

 

 

 

(196)

(196)

Changes to non-controlling interests

 

 

 

 

Dividends to shareholders

 

 

 

(2,072)

 

(2,072)

Shares issued

-

33

 

33 

 

33 

Realised after tax profits on disposal of

  equity investments

-

 

(6)

 

Shares acquired by ESOP Trusts

 

33

(328)

 

Write-down on shares held by ESOP Trusts

 

 

244 

 

Share-based incentive plans

 

 

166 

 

166 

 

------------

------------

------------

------------

------------

------------

------------

At 30 June 2019

1,345

3,157

1,916 

3,614 

(647)

2,967 

 

------------

------------

------------

------------

------------

------------

------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As previously reported

1,343

3,019

2,047 

(68)

3,557 

3,489 

Implementation of IFRS 15

 

 

 

(4)

 

(4)

Implementation of IFRS 9

 

 

(288)

(11)

 

(11)

 

------------

------------

------------

------------

------------

------------

At 1 January 2018, as adjusted

1,343

3,019

1,759 

(83)

3,557 

3,474 

  Profit for the period

 

 

 

990 

244 

1,234 

  Other comprehensive income/(expense)

    for the period

 

 

145 

522 

(8)

514 

 

 

 

------------

------------

------------

------------

Total comprehensive income for the period

 

 

145 

1,512 

236 

1,748 

 

 

 

------------

------------

------------

------------

Distributions to non-controlling interests

 

 

 

 

(350)

(350)

Changes in non-controlling interests

 

 

 

 

(2)

(2)

Contributions from non-controlling interests

 

 

 

 

21 

21 

Derecognition of non-controlling interests

  in Consumer Healthcare Joint Venture

 

 

 

4,118 

(4,118)

- 

Dividends to shareholders

 

 

 

(2,059)

 

(2,059)

Shares issued

- 

23 

 

23 

 

23 

Realised profits on disposal of equity

  investments

 

 

(65)

- 

 

- 

Write-down on shares held by ESOP Trusts

 

 

135 

- 

 

- 

Share-based incentive plans

 

 

 

168 

 

168 

 

------------

------------

------------

------------

------------

------------

At 30 June 2018

1,343 

3,042 

1,974

3,679 

(656)

3,023 

 

------------

------------

------------

------------

------------

------------

------------

 

 

Cash flow statement - six months ended 30 June 2019

 

 

H1 2019

£m

 

H1 2018

£m

 

 

 

 

Profit after tax

2,035 

 

1,234 

Tax on profits

524 

 

487 

Share of after tax profits of associates and joint ventures

(53)

 

(11)

Net finance expense

406 

 

309 

Depreciation, amortisation and other adjusting items

1,959 

 

673 

Increase in working capital

(990)

 

(1,123)

Contingent consideration paid

(392)

 

(605)

(Decrease)/increase in other net liabilities (excluding contingent

  consideration paid)

(603)

 

2,063 

 

 

 

 

Cash generated from operations

2,886

 

3,027 

Taxation paid

(834)

 

(802)

 

 

 

 

Net cash inflow from operating activities

2,052 

 

2,225 

 

 

 

 

Cash flow from investing activities

 

 

 

Purchase of property, plant and equipment

(501)

 

(541)

Proceeds from sale of property, plant and equipment

70 

 

22 

Purchase of intangible assets

(438)

 

(189)

Proceeds from sale of intangible assets

12 

 

23 

Purchase of equity investments

(49)

 

(37)

Proceeds from sale of equity investments

39 

 

78 

Purchase of businesses, net of cash acquired

(3,641)

 

- 

Contingent consideration paid

(51)

 

(97)

Disposal of businesses

12 

 

29 

Investment in associates and joint ventures

(5)

 

(4)

Interest received

36 

 

44 

Dividends from associates and joint ventures

- 

 

39 

 

 

 

 

Net cash outflow from investing activities

(4,516)

 

(633)