UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the month of October, 2019

 

Commission File Number 001-15170

 

 

GlaxoSmithKline plc

(Translation of registrant's name into English)

 

 

980 Great West Road, Brentford, Middlesex, TW8 9GS

(Address of principal executive office)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F . . . .X. . . . Form 40-F . . . . . . . .

 

 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

 

 

 

Issued: Wednesday, 30 October 2019, London U.K.

 

GSK delivers sales of £9.4 billion +16% AER, +11% CER (Pro-forma +6% CER*) Total EPS 31.4p +9% AER, -1% CER; Adjusted EPS 38.6p +9% AER, +1% CER

 

Financial highlights
●	Reported Group sales £9.4 billion +16% AER, +11% CER (Pro-forma growth +6% CER*); Pharmaceuticals £4.5 billion +7% AER, +3% CER; Vaccines £2.3 billion +20% AER, +15% CER; Consumer Healthcare £2.5 billion +30% AER, +25% CER (Pro-forma growth +3% CER*)
●	Total Group operating margin 22.9%; Adjusted Group operating margin 29.7% reflecting increased spending on R&D and priority assets, and the impact of generic Advair in the US, partly offset by Vaccines performance (Pharmaceuticals 24.1%; Vaccines 50.3%; Consumer Healthcare 24.3%)
●	Total EPS 31.4p +9% AER, -1% CER, Adjusted EPS 38.6p +9% AER, +1% CER reflecting operating performance and lower effective tax rate offset by increased profit allocation to non-controlling interests
●	9 months net cash flow from operations £4.6 billion. Free cash flow £2.5 billion
●	19p dividend declared for the quarter, continue to expect 80p for FY19
●	Consumer Healthcare JV with Pfizer completed 31 July creating new world leader in Consumer Healthcare
●	2019 Adjusted EPS guidance improved to expectation of around flat at CER from a decline of -3% to -5%
Product and pipeline highlights
●	Shingrix sales £535 million +87% AER, +76% CER driven by continuing strong execution in the US
●	Total Respiratory sales £806 million +25% AER, +19% CER. Nucala £203 million +40% AER, +33% CER, Trelegy £139 million +>100% AER, +>100% CER
●	Total HIV sales £1.3 billion, +5% AER, flat at CER. Two-drug regimen sales £119 million
●	Continued progress to strengthen and advance R&D pipeline including:
	Oncology:
	-		Positive data presented at ESMO from PRIMA trial of Zejula monotherapy showing significant improvement in PFS in women with ovarian cancer regardless of biomarker status. On track to file by end 2019
	-		Positive headline data from pivotal DREAMM-2 study of belantamab mafodotin (GSK2857916) for multiple myeloma. On track to file by end 2019
	-		Positive data from GARNET study of dostarlimab for advanced or recurrent endometrial cancer. On track to file by end 2019
	-		Positive data presented at ESMO on GSK3359609 (ICOS receptor agonist) plus pembrolizumab in head and neck squamous cell carcinoma. Phase II/III registrational trial announced
	Respiratory:
	-		Nucala approved in EU for self-administration by patients with severe eosinophilic asthma
	-		Trelegy Ellipta submitted to the FDA for use in patients with asthma
	HIV:
	-		Long-acting injectable cabotegravir + rilpivirine submitted to EMA as the first monthly treatment for HIV
	-		Positive phase III results from ATLAS-2M study of cabotegravir + rilpivirine administered every 8 weeks
	Other:
	-		Phase III start for first-in-class antibiotic, gepotidacin, in uncomplicated urinary tract infection and urogenital gonorrhoea
	-		Daprodustat filed in Japan for patients with renal anaemia due to chronic kidney disease

 

Q3 2019 results
	Q3 2019		Growth				9 months 2019		Growth
	£m		£%		CER%		£m		£%		CER%
Turnover	9,385		16		11		24,855		10		7
Total operating profit	2,147		12		3		5,059		29		20
Total earnings per share	31.4p		9		(1)		67.7p		38		28
Adjusted operating profit	2,786		10		3		7,120		9		3
Adjusted earnings per share	38.6p		9		1		99.2p		12		7
Net cash from operating activities	2,515		21				4,567		6
Free cash flow	1,939		25				2,474		4

 

The Total results are presented under ‘Financial performance’ on pages 11 and 24 and Adjusted results reconciliations are presented on pages 20, 21, 34 and 35. Adjusted results are a non-IFRS measure that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results are defined on page 9 and £% or AER% growth, CER% growth, free cash flow and other non-IFRS measures are defined on page 58. GSK provides guidance on an Adjusted results basis only, for the reasons set out on page 10. All expectations, guidance and targets regarding future performance and dividend payments should be read together with “Outlook, assumptions and cautionary statements” on pages 59 and 60.

*

Reported AER and CER growth rates include two months’ results of former Pfizer consumer healthcare business. Pro-forma CER growth rates are calculated as if the equivalent two months of Pfizer consumer healthcare business results, as reported by Pfizer, were included in the comparative period of 2018. See “Pro-forma growth” on page 10.

 

 

Emma Walmsley, Chief Executive Officer, GSK said:   “GSK has made further good progress in Q3, with sales growth across all three businesses, and we have today upgraded our full-year EPS guidance. This quarter we have continued to strengthen our pipeline and have advanced assets in Respiratory, HIV and, notably, Oncology, where we are on track to file three innovative medicines by year end, following positive pivotal trial data. We also achieved a significant milestone with the completion of our new Consumer Healthcare Joint Venture with Pfizer, to create a new world leading consumer healthcare business.”

 

 

2019 guidance

 

GSK now expects 2019 Adjusted EPS will be around flat at CER. This new guidance represents a further improvement to that previously given in July 2019 of an expected decline in Adjusted EPS in the range of -3% to -5% at CER. The new guidance reflects operating performance in the nine months, increased investment in R&D and priority assets and a lower expected effective tax rate of around 17% for the year.   GSK expects to maintain the dividend for 2019 at the current level of 80p per share.   All expectations, guidance and targets regarding future performance and dividend payments should be read together with “Outlook, assumptions and cautionary statements” on pages 59 and 60.   If exchange rates were to hold at the closing rates on 25 October 2019 ($1.28/£1, €1.15/£1 and Yen 139/£1) for the rest of 2019, the estimated positive impact on 2019 Sterling turnover growth would be around 2% and if exchange gains or losses were recognised at the same level as in 2018, the estimated positive impact on 2019 Sterling Adjusted EPS growth would be around 4%.

 

 

Results presentation

 

A webcast of the quarterly results presentation hosted by Emma Walmsley, GSK CEO, will be held at 2pm GMT on 30 October 2019. Presentation materials will be published on www.gsk.com prior to the webcast and a transcript of the webcast will be published subsequently.   Information available on GSK’s website does not form part of, and is not incorporated by reference into, this Results Announcement.

 

 

Operating performance – Q3 2019

 

Turnover			Q3 2019
			£m		Growth £%		Growth CER%
Pharmaceuticals			4,531		7		3
Vaccines			2,308		20		15
Consumer Healthcare			2,526		30		25
			9,365		16		11
Corporate and other unallocated turnover			20
Group turnover			9,385		16		11
Pro-forma growth							6

 

Group turnover increased 16% AER, 11% CER to £9,385 million in the quarter, with growth delivered by all three businesses, primarily driven by Vaccines and the acquired Pfizer consumer healthcare business to form the new Consumer Healthcare Joint Venture. Pro-forma turnover growth for the Group was 6% CER.   Pharmaceuticals sales were up 7% AER, 3% CER with HIV sales of £1,267 million, up 5% AER, flat at CER, as growth in Juluca and Dovato offset declines in Tivicay and Triumeq. Respiratory sales were up 25% AER, 19% CER to £806 million, on growth of Trelegy Ellipta and Nucala. Sales of Established Pharmaceuticals declined 1% AER, 5% CER to £2,223 million including the impact of loss of exclusivity of Advair.   Vaccines turnover grew 20% AER, 15% CER to £2,308 million, primarily driven by growth in sales of Shingrix. Meningitis and Influenza vaccines also contributed to growth.   Consumer Healthcare sales grew 30% AER, 25% CER to £2,526 million, primarily reflecting the acquired Pfizer legacy brands. On a pro-forma basis, turnover grew 3% CER, driven by strong performance in Oral health.

 

Operating profit Total operating profit was £2,147 million compared with £1,910 million in Q3 2018. Adjusted operating profit was £2,786 million, up 10% AER, 3% CER on a turnover increase of 11% CER. The Adjusted operating margin of 29.7% was down 1.5 percentage points at AER, 2.4 percentage points at CER and down 2.0 percentage points CER on a pro-forma basis.   The unwind of the fair value uplift on Consumer Healthcare inventory acquired from Pfizer and increased re-measurement charges on the contingent consideration liabilities were partly offset by lower charges for major restructuring and an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands. GSK now expects the transaction to complete in Q1 2020, subject to legal and regulatory approvals.   Operating profit was also impacted by continuing price pressure, including from the loss of exclusivity of Advair, investment in R&D, including a significant increase in Oncology investment, and investments in promotional product support, particularly for new product launches. These were partly offset by the benefit from sales growth, particularly in Vaccines, a more favourable mix in Vaccines and Consumer Healthcare and continued tight control of ongoing costs across all three businesses.   Earnings per share Total earnings per share was 31.4p, compared with 28.8p in Q3 2018. Adjusted EPS of 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER, on a 3% CER increase in Adjusted operating profit. The improvement primarily resulted from a reduced tax rate and lower net finance costs partly offset by the higher non-controlling interest allocation of Consumer Healthcare profits.   Cash flow Net cash inflow from operating activities was £2,515 million (Q3 2018: £2,077 million) and free cash flow was £1,939 million (Q3 2018: £1,554 million). The increased free cash flow primarily reflected improved operating profits, a lower seasonal increase in trade receivables and inventory, and reduced dividend payments to non-controlling interests.

 

 

Operating performance – nine months 2019

 

Turnover			9 months 2019
			£m		Growth £%		Growth CER%
Pharmaceuticals			12,996		4		1
Vaccines			5,415		23		19
Consumer Healthcare			6,424		12		10
			24,835		10		7
Corporate and other unallocated turnover			20
Group turnover			24,855		10		7
Pro-forma growth							5

 

Group turnover increased 10% AER, 7% CER to £24,855 million in the nine months, with growth delivered by all three businesses. Pro-forma turnover growth for the Group was 5% CER.   Pharmaceuticals turnover was £12,996 million, up 4% AER, 1% CER. HIV sales were up 4% AER, 1% CER, to £3,597 million, with growth in Juluca and Dovato partly offset by a decline in Triumeq. Respiratory sales were up 23% AER, 18% CER, to £2,189 million, on growth of Trelegy Ellipta and Nucala. Established Pharmaceuticals sales declined 4% AER, 6% CER to £6,603 million, including the impact of loss of exclusivity of Advair.   Vaccines turnover grew 23% AER, 19% CER to £5,415 million, primarily driven by growth in sales of Shingrix. Meningitis and Influenza vaccines also contributed to growth.   Consumer Healthcare sales grew 12% AER, 10% CER to £6,424 million. On a pro-forma basis, sales grew 2% CER, driven largely by the International region with double digit growth in India and China.

 

Operating profit Total operating profit was £5,059 million in the nine months compared with £3,929 million in 2018. Adjusted operating profit was £7,120 million, up 9% AER, 3% CER on a turnover increase of 7% CER. The Adjusted operating margin of 28.6% was down 0.3 percentage points at AER, 1.0 percentage points at CER and down 0.9 percentage points CER on a pro-forma basis. Reduced re-measurement charges on the contingent consideration liabilities and an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other brands were partly offset by increased charges for major restructuring, primarily arising from write-downs in manufacturing sites.   Operating profit also benefited from sales growth in all three businesses, particularly Vaccines, a more favourable mix in Vaccines and Consumer Healthcare, a benefit from favourable inventory adjustments in Vaccines and continued tight control of ongoing costs across all three businesses. This was partly offset by continuing price pressure, particularly in Respiratory, including the impact of the loss of exclusivity of Advair, investment in R&D including a significant increase in Oncology investment, and investments in promotional product support, particularly for new launches.   Earnings per share Total earnings per share for the nine months was 67.7p, compared with 49.0p in 2018. Adjusted EPS of 99.2p compared with 88.3p in 2018, up 12% AER, 7% CER, on a 3% CER increase in Adjusted operating profit. The improvement primarily resulted from the lower non-controlling interest allocation of Consumer Healthcare profits, a reduced effective tax rate and an increased share of after tax profits of associates, partly offset by increased net finance costs.   Cash flow Net cash inflow from operating activities was £4,567 million (2018: £4,302 million) and free cash flow was £2,474 million (2018: £2,375 million). The increase primarily reflected improved operating profits, a lower seasonal increase in trade receivables, lower contingent consideration payments and reduced dividend payments to non-controlling interests.

 

R&D pipeline

 

41 new medicines in development, 17 Vaccines

 

Pipeline news flow highlights since Q2 2019:

Oncology

 

Zejula (niraparib)
●	Positive phase III results from the PRIMA study of Zejula in the first line maintenance setting in women with advanced ovarian cancer were presented at the 2019 European Society for Medical Oncology (ESMO) Congress and simultaneously published in The New England Journal of Medicine. Regulatory submissions are on track with US submission expected before end 2019.
●	Zejula received FDA approval for an expanded indication for the treatment of advanced ovarian, fallopian tube or primary peritoneal cancer patients, who have been treated with three or more prior chemotherapy regimens and whose cancer is associated with homologous recombination deficiency positive status including a BRCA mutation.
●	The first patient was dosed in the pivotal phase II study (MOONSTONE) evaluating the combination of Zejula and dostarlimab in patients with platinum resistant ovarian cancer.

 

GSK3359609 (ICOS)
●	Data (INDUCE-1) presented at ESMO 2019 demonstrated promising anti-tumour activity with GSK3359609, an ICOS receptor agonist, in combination with pembrolizumab in head and neck squamous cell carcinoma (HNSCC). These data support initiation of a phase II/III registrational trial with pembrolizumab in first-line recurrent/ metastatic HNSCC (INDUCE-3).

 

Belantamab mafodotin (GSK2857916 BCMA ADC)
●	Positive headline results from the pivotal DREAMM-2 study for multiple myeloma were announced and will be presented at an upcoming medical congress. Regulatory submissions are on track with US submission expected before end 2019.

 

Dostarlimab (TSR-042)
●	The first patient was dosed in the pivotal RUBY study of dostarlimab plus chemotherapy versus placebo plus chemotherapy in first line treatment of endometrial cancer.
●	Final data from the pivotal GARNET study of dostarlimab are in-house. Regulatory submissions are on track with US submission expected before end 2019.

 

GSK3145095 (RIP1k inhibitor)
●	GSK’095 for pancreatic cancer was terminated as part of ongoing portfolio prioritisation.

 

HIV/Infectious diseases

 

Cabotegravir + rilpivirine
●	Positive phase III results reported from the ATLAS-2M study of cabotegravir plus rilpivirine administered every eight weeks.
●	Regulatory application was submitted to the European Medicines Agency for cabotegravir plus rilpivirine, as the first once monthly injectable treatment for HIV.

Dovato (dolutegravir + lamivudine)
●	A supplemental NDA was submitted to the US FDA for the use of Dovato in Virologically Suppressed Adults with HIV-1.

 

GSK3389404/3228836 (HBV ASO)
●	Option exercised to license Ionis’ antisense medicines for people with chronic hepatitis B virus infection following phase II results.

 

Gepotidacin (GSK2140944)
●	The first patients were dosed in the two pivotal studies of gepotidacin in uncomplicated urinary tract infection and urogenital gonorrhea.

 

Immuno-inflammation

 

Benlysta (belimumab)
●	Benlysta received European approval for intravenous use in children with lupus aged five years and older.

 

GSK2831781 (LAG3)
●	The first patient was dosed in a phase II study of GSK’781 in ulcerative colitis.

Respiratory

 

Trelegy Ellipta (FF/UMEC/VI)
●	A supplemental NDA was submitted to the US FDA seeking an additional indication for the use of Trelegy Ellipta for the treatment of asthma in adults.

 

Nucala (mepolizumab)
●	Nucala received European approval for self-administration by patients with severe eosinophilic asthma.
●	Nucala received US FDA approval for use in children as young as six years old who are living with severe eosinophilic asthma.
●	Results from interim analysis of REALITI-A, a prospective global real-world study, were presented at the 2019 European Respiratory Society Congress and showed Nucala significantly reduces exacerbations in patients with severe eosinophilic asthma.

 

GSK2292767 (PI3Kd inhibitor)
●	GSK’767 for respiratory diseases was terminated as part of ongoing portfolio prioritisation.

 

Other pharmaceuticals

 

Daprodustat
●	Japanese New Drug Application was submitted for daprodustat for the treatment of patients with renal anaemia due to chronic kidney disease.

 

Linerixibat (GSK2330672, IBAT)
●	US FDA granted Orphan Drug Designation for linerixibat for the treatment of cholestatic pruritus in primary biliary cholangitis.

 

Vaccines

 

TB vaccine
●	The New England Journal of Medicine published the final 3-year results of a phase IIb study for candidate TB vaccine M72/AS01E. Results demonstrate overall efficacy of 50% over the duration of at least three years after vaccination.

 

Ebola vaccines
●	Vaccines candidates against Ebola and Marburg viruses have been transferred to the Sabin Vaccine Institute for clinical development.

 

C. Difficile vaccine
●	First time in human trials were started for a candidate vaccine for the prevention of Clostridium difficile (C. difficile) infection using the AS01 adjuvant.

 

SAM (rabies model) vaccine
●	First time in human trials were started for self-amplifying mRNA platform technology with a rabies model antigen.

 

 

Contents	Page
Total and Adjusted results	9
Financial performance – Q3 2019	11
Financial performance – nine months ended 30 September 2019	24
Cash generation	38
Returns to shareholders	39
Income statements	41
Statement of comprehensive income – three months ended 30 September 2019	42
Statement of comprehensive income – nine months ended 30 September 2019	43
Pharmaceuticals turnover – three months ended 30 September 2019	44
Pharmaceuticals turnover – nine months ended 30 September 2019	45
Vaccines turnover – three months ended 30 September 2019	46
Vaccines turnover – nine months ended 30 September 2019	47
Balance sheet	48
Statement of changes in equity	49
Cash flow statement – nine months ended 30 September 2019	50
Segment information	51
Legal matters	53
Additional information	54
Reconciliation of cash flow to movements in net debt	57
Net debt analysis	57
Free cash flow reconciliation	57
Reporting definitions	58
Outlook, assumptions and cautionary statements	59
Independent review report	61

 

 

Contacts

 

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 pro-forma growth and other non-IFRS measures are defined on page 58.   GSK believes that Adjusted results, when considered together with Total results, provide investors, analysts and other stakeholders with helpful complementary information to understand better the financial performance and position of the Group from period to period, and allow the Group’s performance to be more easily compared against the majority of its peer companies. These measures are also used by management for planning and reporting purposes. They may not be directly comparable with similarly described measures used by other companies.   GSK encourages investors and analysts not to rely on any single financial measure but to review GSK’s quarterly results announcements, including the financial statements and notes, in their entirety.   GSK is committed to continuously improving its financial reporting, in line with evolving regulatory requirements and best practice and has made a number of changes in recent years. In line with this practice, GSK expects to continue to review its reporting framework.   Adjusted results exclude the following items from Total results, together with the tax effects of all of these items:

 

●	amortisation of intangible assets (excluding computer software)
●	impairment of intangible assets (excluding computer software) and goodwill
●	Major restructuring costs, which include impairments of tangible assets and computer software, (under specific Board approved programmes that are structural, of a significant scale and where the costs of individual or related projects exceed £25 million), including integration costs following material acquisitions
●	transaction-related accounting or other adjustments related to significant acquisitions
●	proceeds and costs of disposal of associates, products and businesses; significant legal charges (net of insurance recoveries) and expenses on the settlement of litigation and government investigations; other operating income other than royalty income, and other items

 

Costs for all other ordinary course smaller scale restructuring and legal charges and expenses are retained within both Total and Adjusted results.   As Adjusted results include the benefits of Major restructuring programmes but exclude significant costs (such as significant legal, major restructuring and transaction items) they should not be regarded as a complete picture of the Group’s financial performance, which is presented in Total results. The exclusion of other Adjusting items may result in Adjusted earnings being materially higher or lower than Total earnings. In particular, when significant impairments, restructuring charges and legal costs are excluded, Adjusted earnings will be higher than Total earnings.   GSK has undertaken a number of Major restructuring programmes in recent years in response to significant changes in the Group’s trading environment or overall strategy, or following material acquisitions. Costs, both cash and non-cash, of these programmes are provided for as individual elements are approved and meet the accounting recognition criteria. As a result, charges may be incurred over a number of years following the initiation of a Major restructuring programme.   Significant legal charges and expenses are those arising from the settlement of litigation or government investigations that are not in the normal course and materially larger than more regularly occurring individual matters. They also include certain major legacy matters.   Reconciliations between Total and Adjusted results, providing further information on the key Adjusting items, are set out on pages 20, 21, 34 and 35.   GSK provides earnings guidance to the investor community on the basis of Adjusted results. This is in line with peer companies and expectations of the investor community, supporting easier comparison of the Group’s performance with its peers. GSK is not able to give guidance for Total results as it cannot reliably forecast certain material elements of the Total results, particularly the future fair value movements on contingent consideration and put options that can and have given rise to significant adjustments driven by external factors such as currency and other movements in capital markets.   Pro-forma growth The acquisition of the Pfizer consumer healthcare business completed on 31 July 2019 and so GSK’s reported results include two months of results of the former Pfizer consumer healthcare business from 1 August 2019.   The Group has presented pro-forma growth rates at CER for turnover, Adjusted operating profit and operating profit by business taking account of this transaction. Pro-forma growth rates for the quarter are calculated comparing reported results for Q3 2019, calculated applying the exchange rates used in the comparative period, with the results for Q3 2018 adjusted to include the equivalent two months of results of the former Pfizer consumer healthcare business during Q3 2018, as consolidated (in US$) and included in Pfizer’s US GAAP results. Similarly, pro-forma growth rates at CER for the nine months to 30 September 2019 are calculated comparing reported results for the nine months to 30 September 2019, calculated applying the exchange rates used in the comparative period, with the results for the nine months to 30 September 2018, adjusted to include the equivalent two months of results of the former Pfizer consumer healthcare business, as consolidated (in US$) and included in Pfizer’s US GAAP results.

 

ViiV Healthcare ViiV Healthcare is a subsidiary of the Group and 100% of its operating results (turnover, operating profit, profit after tax) are included within the Group income statement.   Earnings are allocated to the three shareholders of ViiV Healthcare on the basis of their respective equity shareholdings (GSK 78.3%, Pfizer 11.7% and Shionogi 10%) and their entitlement to preferential dividends, which are determined by the performance of certain products that each shareholder contributed. As the relative performance of these products changes over time, the proportion of the overall earnings allocated to each shareholder also changes. In particular, the increasing sales of dolutegravir-containing products have a favourable impact on the proportion of the preferential dividends that is allocated to GSK. Adjusting items are allocated to shareholders based on their equity interests. GSK was entitled to approximately 85% of the Total earnings and 82% of the Adjusted earnings of ViiV Healthcare for 2018.   As consideration for the acquisition of Shionogi’s interest in the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received the 10% equity stake in ViiV Healthcare and ViiV Healthcare also agreed to pay additional future cash consideration to Shionogi, contingent on the future sales performance of the products being developed by that joint venture, principally dolutegravir. Under IFRS 3 ‘Business combinations’, GSK was required to provide for the estimated fair value of this contingent consideration at the time of acquisition and is required to update the liability to the latest estimate of fair value at each subsequent period end. The liability for the contingent consideration recognised in the balance sheet at the date of acquisition was £659 million. Subsequent re-measurements are reflected within other operating income/expense and within Adjusting items in the income statement in each period. At 30 September 2019, the liability, which is discounted at 8.5%, stood at £5,713 million, on a post-tax basis.   Cash payments to settle the contingent consideration are made to Shionogi by ViiV Healthcare each quarter, based on the actual sales performance of the relevant products in the previous quarter. These payments reduce the balance sheet liability and hence are not recorded in the income statement. The cash payments made to Shionogi by ViiV Healthcare in the nine months to September 2019 were £645 million.   Because the liability is required to be recorded at the fair value of estimated future payments, there is a significant timing difference between the charges that are recorded in the Total income statement to reflect movements in the fair value of the liability and the actual cash payments made to settle the liability.   Further explanation of the acquisition-related arrangements with ViiV Healthcare are set out on pages 41 and 42 of the Annual Report 2018.

 

 

Financial performance – Q3 2019

 

Total results

 

The Total results for the Group are set out below.

 

	Q3 2019 £m		Q3 2018 £m		Growth £%		Growth CER%
Turnover	9,385		8,092		16		11
Cost of sales	(3,245)		(2,636)		23		21
Gross profit	6,140		5,456		13		7
Selling, general and administration	(2,892)		(2,527)		14		11
Research and development	(1,206)		(988)		22		18
Royalty income	118		94		26		24
Other operating expense	(13)		(125)
Operating profit	2,147		1,910		12		3
Finance income	32		10
Finance expense	(245)		(233)
Profit on disposal of associates	-		3
Share of after tax profits of associates and joint ventures	17		15
Profit before taxation	1,951		1,705		14		4
Taxation	(235)		(193)
Tax rate %	12.0%		11.3%
Profit after taxation	1,716		1,512		13		3
Profit attributable to non-controlling interests	164		94
Profit attributable to shareholders	1,552		1,418
	1,716		1,512		13		3
Earnings per share	31.4p		28.8p		9		(1)

 

 

Adjusted results   The Adjusted results for the Group are set out below. Reconciliations between Total results and Adjusted results for Q3 2019 and Q3 2018 are set out on pages 20 and 21.

 

	Q3 2019
	£m		% of turnover		Growth £%		Reported growth CER%		Pro-forma growth CER%
Turnover	9,385		100		16		11		6
Cost of sales	(2,785)		(29.7)		17		15		8
Selling, general and administration	(2,768)		(29.5)		20		16		8
Research and development	(1,164)		(12.4)		21		17		15
Royalty income	118		1.3		26		24		25
Adjusted operating profit	2,786		29.7		10		3		(1)
Adjusted profit before tax	2,597				12		4
Adjusted profit after tax	2,186				16		8
Adjusted profit attributable to shareholders	1,911				9		1
Adjusted earnings per share	38.6				9		1

 

 

Operating profit by business	Q3 2019
	£m		% of turnover		Growth £%		Reported growth CER%		Pro-forma growth CER%
Pharmaceuticals	1,986		43.8		(2)		(7)		(7)
Pharmaceuticals R&D*	(893)				34		28		28
Total Pharmaceuticals	1,093		24.1		(20)		(24)		(24)
Vaccines	1,162		50.3		41		30		30
Consumer Healthcare	613		24.3		43		34		8
	2,868		30.6		10		3		(1)
Corporate & other unallocated costs	(82)
Adjusted operating profit	2,786		29.7		10		3		(1)

 

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

 

 

Turnover

 

Pharmaceuticals turnover

 

	Q3 2019
	£m		Growth £%		Growth CER%
Respiratory	806		25		19
HIV	1,267		5		-
Immuno-inflammation	171		40		33
Oncology	64		-		-
Established Pharmaceuticals	2,223		(1)		(5)
	4,531		7		3
US	1,972		4		(2)
Europe	1,040		9		9
International	1,519		10		5
	4,531		7		3

 

Pharmaceuticals turnover in the quarter was £4,531 million, up 7% AER, 3% CER. Respiratory sales were up 25% AER, 19% CER to £806 million, on growth of Trelegy Ellipta and Nucala. HIV sales of £1,267 million were up 5% AER but flat at CER, with growth in Juluca and Dovato offset by declines in Tivicay and Triumeq. Sales of Established Pharmaceuticals declined 1% AER, 5% CER to £2,223 million, with lower Advair sales offset by favourable prior period payer rebate adjustments and higher Ventolin authorised generic sales in the US, and a European Relenza tender.   In the US, sales grew 4% AER, but declined 2% CER. Excluding Advair and Relvar/Breo Ellipta, impacted by genericisation of the ICS/LABA market, growth was 21% AER, 14% CER. Continued growth of Nucala, Trelegy Ellipta and Benlysta was offset by the decline in Established Products, including the loss of exclusivity of Advair. In Europe, sales grew 9% AER, 9% CER, with strong growth in Respiratory and from Zejula. International grew 10% AER, 5% CER, with growth in all therapy areas.   Respiratory Total Respiratory sales were up 25% AER, 19% CER, with strong growth in Europe and International, which both saw growth in Ellipta products, including Relvar/Breo and Trelegy, and Nucala, up 29% AER and CER in Europe and 82% AER, 65% CER in International. In the US, Trelegy Ellipta and Nucala growth was partly offset by a decline in Relvar/Breo Ellipta as a result of post-generic ICS/LABA price pressure.   Sales of Nucala were £203 million in the quarter and grew 40% AER, 33% CER, continuing to benefit from the global rollout of the product. US sales of Nucala grew 37% AER, 29% CER to £119 million.   Sales of Ellipta products were up 21% AER, 15% CER to £603 million driven by growth in Europe and International regions. In the US, sales grew 12% AER, 5% CER, reflecting growth in Trelegy Ellipta and Anoro Ellipta, partly offset by continued competitive pricing pressures for ICS/LABAs. In Europe, Ellipta product sales grew 34% AER, 33% CER. Sales of Trelegy Ellipta contributed £139 million globally in the quarter, driven by an increase in US market share.   Relvar/Breo Ellipta sales were down 3% AER, 8% CER. In the US, Relvar/Breo Ellipta declined 26% AER, 32% CER impacted by US competitive pricing pressures and the impact of generic Advair on the US ICS/LABA market. In Europe and International, Relvar/Breo Ellipta continued to grow, up 20% AER, 19% CER and 25% AER, 22% CER respectively.   HIV HIV sales of £1,267 million grew 5% AER but were flat at CER in the quarter. The dolutegravir franchise grew 6% AER, 2% CER, delivering sales of £1,211 million in the quarter. The remaining portfolio, with sales of £56 million (4% of total HIV sales), declined 21% AER, 23% CER and reduced the overall growth of total HIV sales by two percentage points in the quarter.   Sales of dolutegravir products were £1,211 million in the quarter, with Triumeq and Tivicay delivering sales of £651 million and £441 million, respectively. The two-drug regimens, Juluca and Dovato, delivered sales of £119 million in the quarter, with combined growth more than offsetting the decline in the three-drug regimen, Triumeq, as the business transitions to the new portfolio.   In the US, following the launch of Dovato in April 2019, combined sales of the two-drug regimens were £98 million. Total dolutegravir sales grew 6% AER but were flat at CER, reflecting a year-on-year share decline as the business transitions to the new two-drug portfolio, offset by a net price benefit. In Europe, Dovato was launched in the quarter and, combined with Juluca, recorded sales of £19 million. Total dolutegravir sales grew 3% AER, 3% CER, driven by Tivicay and our two-drug regimens. International continued to grow strongly with total dolutegravir sales growth of 13% AER, 9% CER, driven by Triumeq.   Oncology Sales of Zejula, the newly acquired PARP inhibitor asset, were £64 million in the quarter, comprising £38 million in the US and £26 million in Europe.   Immuno-inflammation Sales of Benlysta in the quarter were up 42% AER, 35% CER to £172 million, including sales of the sub-cutaneous formulation of £78 million. In the US, Benlysta grew 39% AER, 29% CER to £150 million.   Established Pharmaceuticals Sales of Established Pharmaceuticals in the quarter were £2,223 million, down 1% AER, 5% CER.   Established Respiratory products declined 8% AER, 12% CER to £939 million. Advair in the US experienced its second full quarter of generic competition, resulting in a 62% AER, 64% CER decline. Also in the US, Ventolin benefited from strong uptake of an authorised generic version launched in the year. In Europe, Seretide sales were down 8% AER, 9% CER to £121 million, reflecting continued competition from generic products and the transition of the Respiratory portfolio to newer products. In International, sales of Seretide were up 1% AER but down 2% CER.   The remainder of the Established Pharmaceuticals portfolio grew by 5% AER, 1% CER to £1,284 million with Lamictal down 1% AER, 4% CER to £147 million on generic competition in the US and International, more than offset by growth in Dermatology and Augmentin in the quarter, and a European Relenza tender.

 

 

Vaccines turnover

 

	Q3 2019
	£m		Growth £%		Growth CER%
Meningitis	371		13		9
Influenza	371		22		15
Shingles	535		87		76
Established Vaccines	1,031		3		(1)
	2,308		20		15
US	1,441		36		28
Europe	396		(1)		(2)
International	471		2		-
	2,308		20		15

 

Vaccines turnover grew 20% AER, 15% CER to £2,308 million, primarily driven by growth in sales of Shingrix. Meningitis vaccines also contributed to growth, mainly due to Bexsero demand across all regions. Influenza vaccines sales grew 22% AER, 15% CER to £371 million, primarily due to share gains, phasing and the favourable impact of a prior-year returns provision reversal in the US. Established Vaccines grew 3% AER but declined 1% CER to £1,031 million, reflecting lower demand for Cervarix in International and supply constraints in MMRV vaccines, partly offset by favourable Infanrix, Pediarix US CDC stockpile movements and strong demand and favourable phasing of Boostrix in International.   Meningitis Meningitis sales grew 13% AER, 9% CER to £371 million. Bexsero sales grew 23% AER, 19% CER to £255 million, driven by strong demand across all regions and share gains in the US. Menveo grew 4% AER but declined 1% CER, primarily reflecting lower demand in International.   Influenza Fluarix/FluLaval sales were up 22% AER, 15% CER to £371 million, primarily due to share gains, phasing and the favourable impact of a prior-year returns provision reversal in the US.   Shingles Shingrix recorded sales of £535 million in the quarter, driven by continued strong uptake in the US. Germany and Canada also contributed to growth.   Established Vaccines Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) grew 22% AER, 17% CER. Infanrix, Pediarix sales were up 24% AER, 19% CER to £199 million, reflecting favourable year-on-year CDC stockpile movements and increased channel inventory in the US, partly offset by competitive pressures in Europe.   Boostrix sales grew 19% AER, 15% CER to £187 million, mainly due to strong demand and favourable phasing in International, together with share gains and higher demand in the US.   Hepatitis vaccines grew 1% AER but declined 2% CER to £216 million, primarily due to the comparison with a strong Q3 2018, which benefited from a competitor supply shortage, and lower demand in Europe.   Rotarix sales were up 10% AER, 7% CER to £167 million, reflecting stronger demand and favourable phasing in International.   Synflorix sales declined 3% AER, 4% CER to £116 million due to lower demand in International.   MMRV vaccines sales declined 30% AER, 31% CER to £57 million, mainly driven by supply constraints in Europe and International.   Cervarix sales were down 73% AER, 73% CER to £15 million, mainly reflecting competitive pressure in China and lower demand elsewhere in International.

 

 

Consumer Healthcare turnover

 

			Q3 2019
			£m		Growth £%		Growth CER%
Wellness			1,277		26		22
Oral health			709		14		10
Nutrition			382		>100		>100
Skin health			158		14		9
			2,526		30		25
US			730		62		52
Europe			658		10		10
International			1,138		27		23
			2,526		30		25
Pro-forma growth							3

 

Consumer Healthcare turnover grew 30% AER, 25% CER in the quarter to £2,526 million. On a pro-forma basis, sales grew 3% CER, driven by strong performance in the Oral health category, partly offset by a decline in the Skin health category.   Divestments and the phasing out of low margin contract manufacturing had a negative impact of approximately one percentage point on pro-forma growth in the quarter.   Sales of the Consumer Healthcare business include nine weeks of legacy Pfizer brand sales arising after the creation of the Joint Venture. The legacy Pfizer brands have been included in the existing categories and geographic regions used to report Consumer Healthcare sales. GSK expects to revise this category structure for reporting from Q1 2020 onwards.   Wellness Wellness sales grew 26% AER, 22% CER to £1,277 million in the quarter. On a pro-forma basis, sales grew in low single digits, with strong performance in Pain relief partly offset by a decline in Respiratory and the phasing out of low margin contract manufacturing. In the Pain relief category, Panadol continued to perform strongly, particularly in the Middle East and Africa, and benefited from 2018 regulatory and distribution changes. Voltaren grew in mid-single digits, while Advil was flat, reflecting a partial recovery from historical supply issues.   Oral health Oral health sales grew 14% AER, 10% CER to £709 million. Sensodyne delivered double-digit, broad based growth, led by the US, with some benefit from prior-year destocking in China. Double-digit growth in Gum health was achieved, while Denture care grew in mid-single digits. Oral health growth was also impacted by a decline in non-strategic brands.   Nutrition Nutrition sales more than doubled to £382 million, largely due to the inclusion of the Pfizer vitamins, minerals and supplements portfolio. On a pro-forma basis, sales grew in low single digits, reflecting strong performances of Horlicks and Caltrate, partly offset by a decline in Centrum.   Skin health Skin health sales grew 14% AER, 9% CER to £158 million, largely due to the addition of Chapstick from the Pfizer portfolio. On a pro-forma basis, sales declined in mid-single digits, largely due to divestments of small tail brands in the US and UK, which had a negative impact on pro-forma growth of the category of six percentage points.

 

 

Operating performance

 

Cost of sales Total cost of sales as a percentage of turnover was 34.6%, 2.0 percentage points higher at AER and 2.8 percentage points higher in CER terms compared with Q3 2018. This reflected the unwind of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer as well as an increase in the costs of manufacturing restructuring programmes, primarily as a result of write downs in a number of manufacturing sites, and increased amortisation of intangible assets.   Excluding these and other Adjusting items, Adjusted cost of sales as a percentage of turnover was 29.7%, 0.2 percentage points higher at AER, and 0.9 percentage points higher at CER compared with Q3 2018. On a pro-forma basis, Adjusted cost of sales as a percentage of turnover was 29.7%, 0.5% percentage points higher at CER compared with Q3 2018. The increase reflected continued adverse pricing pressure in Pharmaceuticals, particularly in Respiratory, an unfavourable product mix in Pharmaceuticals and a non-restructuring related write down in a manufacturing site. This was partly offset by a more favourable product mix in Vaccines, primarily due to the growth of Shingrix in the US, and favourable year-on-year inventory adjustments.   Selling, general and administration Total SG&A costs as a percentage of turnover were 30.8%, 0.4 percentage points lower at AER and 0.2 percentage points lower on a CER basis compared with Q3 2018. This included reduced major restructuring costs partly offset by acquisition costs related to the Consumer Healthcare Joint Venture with Pfizer.   Excluding these and other Adjusting items, Adjusted SG&A costs as a percentage of turnover were 29.5%, 0.9 percentage points higher at AER than in Q3 2018 and 1.1 percentage points higher on a CER basis. On a pro-forma basis, Adjusted SG&A costs as a percentage of turnover were 29.5%, 0.7 percentage points higher at CER compared with Q3 2018. The growth in Adjusted SG&A costs of 20% AER, 16% CER, (8% CER pro-forma) reflected increased investment resulting from the acquisition of Tesaro and in promotional product support, particularly for new launches in Respiratory, HIV and Vaccines, as well as increased costs for a number of legal settlements in the quarter. This was partly offset by the continuing benefit of restructuring in Pharmaceuticals and the tight control of ongoing costs, particularly in non-promotional spending across all three businesses.   Research and development Total R&D expenditure was £1,206 million (12.9 % of turnover), up 22% AER, 18% CER. Adjusted R&D expenditure was £1,164 million (12.4% of turnover), 21% higher at AER, 17% higher at CER than Q3 2018. On a pro-forma basis, Adjusted R&D expenditure was 15% higher at CER compared with Q3 2018.   Pharmaceuticals R&D expenditure was £899 million, up 24% AER, 19% CER, reflecting a significant increase in Oncology study and clinical trial material investments including on the assets from the Tesaro acquisition, primarily Zejula and TSR-042, and a number of other mid and late-stage programmes, including BCMA, NY-ESO and ICOS, as well as increased spending on the progression of key assets such as aGM-CSF for rheumatoid arthritis. This was partly offset by a favourable comparison with Q3 2018, which included a provision for costs payable to a third party relating to the use of a Priority Review Voucher for Dovato and other projects that were terminated as part of the R&D prioritisation at the end of 2018, including danirixin and nemiralisib. R&D expenditure in Vaccines and Consumer Healthcare was £191 million and £74 million, respectively.

 

Royalty income Royalty income was £118 million (Q3 2018: £94 million), up 26% AER, 24% CER, primarily reflecting increased royalties on sales of Gardasil.   Other operating expense Net other operating expense of £13 million (Q3 2018: £125 million) primarily reflected accounting charges of £305 million (Q3 2018: £248 million) arising from the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.   This included a re-measurement charge of £255 million (Q3 2018: £214 million) for the contingent consideration liability due to Shionogi, primarily arising from changes in exchange rate assumptions and the unwind of the discount. These accounting charges were partly offset by an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands of £295 million in the quarter. The cumulative increase in value since the signing of the proposed transaction was £345 million.

 

Operating profit Total operating profit was £2,147 million in Q3 2019 compared with £1,910 million in Q3 2018. The unwind of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer as well as increased re-measurement charges on the contingent consideration liabilities and reduced profit on disposals were partly offset by an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands and reduced restructuring costs.   Excluding these and other Adjusting items, Adjusted operating profit was £2,786 million, 10% higher than Q3 2018 at AER and 3% higher at CER on a turnover increase of 11% CER. The Adjusted operating margin of 29.7% was 1.5 percentage points lower at AER, 2.4 percentage points lower on a CER basis than in Q3 2018. On a pro-forma basis, Adjusted operating profit was 1% lower at CER on a turnover increase of 6% CER. The Adjusted pro-forma operating margin of 29.7% was 2.0 percentage points lower on a CER basis than in Q3 2018.   The reduction in Adjusted operating profit primarily reflected continuing price pressure, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, investment in R&D, including a significant increase in Oncology investment, partly on the assets from the Tesaro acquisition, investments in promotional product support, particularly for new launches in Vaccines, HIV and Respiratory as well as increased costs for a number of legal settlements in the quarter. This was partly offset by the benefit from sales growth, particularly in Vaccines, a more favourable mix in Vaccines and continued tight control of ongoing costs across all three businesses.   Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in the quarter amounted to £217 million (Q3 2018: £213 million). This included cash payments made to Shionogi of £206 million (Q3 2018: £208 million).   Operating profit by business Pharmaceuticals operating profit was £1,093 million, down 20% AER, 24% CER on a turnover increase of 3% CER. The operating margin of 24.1% was 8.1 percentage points lower at AER than in Q3 2018 and 8.5 percentage points lower on a CER basis. This primarily reflected the continued impact of lower prices, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, an unfavourable product mix, primarily as a result of the growth in some lower margin established products and a non-restructuring related write down in a manufacturing site together with a significant increase in Oncology R&D investment and investment in new product support and targeted priority markets as well as increased costs for a number of legal settlements in the quarter. This was partly offset by continued benefit of restructuring and tight control of ongoing costs and the benefits of re-prioritisation of the R&D portfolio.   Vaccines operating profit was £1,162 million, 41% higher than Q3 2018 at AER and 30% higher at CER on a turnover increase of 15% CER. The operating margin of 50.3% was 7.4 percentage points higher than in Q3 2018 at AER and 5.7 percentage points higher on a CER basis. This was primarily driven by enhanced operating leverage from strong sales growth, particularly Shingrix in the US, improved product mix, favourable year-on-year inventory adjustments and higher royalty income.   Consumer Healthcare operating profit was £613 million, up 43% AER, 34% CER on a turnover increase of 25% CER. On a pro-forma basis operating profit of £613 million was up 8% CER on a turnover increase of 3% CER. The operating margin of 24.3% was 2.2 percentage points higher at AER and 1.6 percentage points higher on a CER basis. The pro-forma operating margin of 24.3% was 1.2 percentage points higher on a CER basis than in Q3 2018. This primarily reflected continued manufacturing restructuring savings, improved growth from higher margin power brands, which included some seasonal sell-ins, and tight control of promotional and other operating expenses.   Net finance costs Total net finance costs were £213 million compared with £223 million in Q3 2018. Adjusted net finance costs were £206 million compared with £221 million in Q3 2018. The decrease primarily reflected a favourable comparison with Q3 2018, which included interest of £23 million on an historic tax settlement, together with a fair value gain on interest rate swaps in Q3 2019, partly offset by higher debt levels reflecting the acquisition of Tesaro in January 2019. Following the introduction of IFRS 16, ‘Leases’, finance costs included an unwind of the discount on the lease liability of £9 million in the quarter.   Share of after tax profits of associates and joint ventures The share of after tax profits of associates was £17 million (Q3 2018: £15 million).   Taxation The charge of £235 million represented an effective tax rate on Total results of 12.0% (Q3 2018: 11.3%) and reflected the different tax effects of the various Adjusting items, including the non-taxable gain arising from the increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands. Tax on Adjusted profit amounted to £411 million and represented an effective Adjusted tax rate of 15.8% (Q3 2018: 18.6%), reflecting the impact of the settlement of a number of open issues with tax authorities.   Issues related to taxation are described in Note 14, ‘Taxation’ in the Annual Report 2018. The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.   Non-controlling interests The allocation of Total earnings to non-controlling interests amounted to £164 million (Q3 2018: £94 million). The increase was primarily due to the allocation of Pfizer’s interest in the profits of the Consumer Healthcare Joint Venture (£47 million), an increased allocation of ViiV Healthcare profits to £86 million (Q3 2018: £78 million) including charges for movements in contingent consideration liabilities and higher net profits in some of the Group’s other entities with non-controlling interests.   The allocation of Adjusted earnings to non-controlling interests amounted to £275 million (Q3 2018: £141 million). The increase in allocation was primarily due to the allocation of Pfizer’s interest in the profits of the Consumer Healthcare Joint Venture (£103 million), an increased allocation of ViiV Healthcare profits of £141 million (Q3 2018: £125 million) and higher net profits in some of the Group’s other entities with non-controlling interests.   Earnings per share Total earnings per share was 31.4p, compared with 28.8p in Q3 2018. The increase in earnings per share primarily reflected an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands, a reduced effective tax rate and reduced restructuring costs.   Adjusted EPS of 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER, on a 3% CER increase in Adjusted operating profit. This reflected a reduced effective tax rate and reduced net finance costs partly offset by an increased non-controlling interest allocation of Consumer Healthcare profits following the creation of the new Consumer Healthcare Joint Venture in Q3 2019.   Currency impact on Q3 2019 results The Q3 2019 results are based on average exchange rates, principally £1/$1.23, £1/€1.11 and £1/Yen 133. Comparative exchange rates are given on page 55. The period-end exchange rates were £1/$1.23, £1/€1.13 and £1/Yen 133.   In the quarter, turnover increased 16% AER, 11% CER. Total EPS was 31.4p compared with 28.8p in Q3 2018. Adjusted EPS was 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER. The positive currency impact primarily reflected the weakness of Sterling, particularly against the US$ and Yen, partly offset by weakness in emerging market currencies, relative to Q3 2018. Exchange gains or losses on the settlement of intercompany transactions had a negligible impact on the positive currency impact of eight percentage points on Adjusted EPS.

 

 

Adjusting items The reconciliations between Total results and Adjusted results for Q3 2019 and Q3 2018 are set out below.

 

Three months ended 30 September 2019

 

	Total 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	9,385						9,385
Cost of sales	(3,245)	191	10	108	151		(2,785)
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Gross profit	6,140	191	10	108	151		6,600
Selling, general and administration	(2,892)		(1)	77	30	18	(2,768)
Research and development	(1,206)	14	17	12		(1)	(1,164)
Royalty income	118						118
Other operating (expense)/income	(13)			2	300	(289)	-
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Operating profit	2,147	205	26	199	481	(272)	2,786
Net finance costs	(213)			3		4	(206)
Share of after tax profits of   associates and joint ventures	17						17
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Profit before taxation	1,951	205	26	202	481	(268)	2,597
Taxation	(235)	(39)	(6)	(33)	(86)	(12)	(411)
Tax rate %	12.0%						15.8%
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Profit after taxation	1,716	166	20	169	395	(280)	2,186
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Profit attributable to   non-controlling interests	164				111		275
Profit attributable to   shareholders	1,552	166	20	169	284	(280)	1,911
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Earnings per share	31.4p	3.4p	0.4p	3.4p	5.7p	(5.7)p	38.6p
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Weighted average number of shares (millions)	4,951						4,951
	––––––––––––						––––––––––––

 

 

Three months ended 30 September 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	8,092						8,092
Cost of sales	(2,636)	133	41	69	5		(2,388)
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Gross profit	5,456	133	41	69	5		5,704
Selling, general and administration	(2,527)			209	(9)	14	(2,313)
Research and development	(988)	10	8	4		5	(961)
Royalty income	94						94
Other operating (expense)/income	(125)			1	251	(127)	-
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Operating profit	1,910	143	49	283	247	(108)	2,524
Net finance costs	(233)					2	(221)
Profit on disposal of associates	3					(3)	-
Share of after tax profits of   associates and joint ventures	15						15
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Profit before taxation	1,705	143	49	283	247	(109)	2,318
Taxation	(193)	(29)	(6)	(67)	(24)	(111)	(430)
Tax rate %	11.3%						18.6%
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Profit after taxation	1,512	114	43	216	223	(220)	1,888
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Profit attributable to   non-controlling interests	94				47		141
Profit attributable to   shareholders	1,418	114	43	216	176	(220)	1,747
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Earnings per share	28.8p	2.3p	0.9p	4.4p	3.6p	(4.5)p	35.5p
	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––	––––––––––––
Weighted average number of shares (millions)	4,917						4,917
	––––––––––––						––––––––––––