UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Adjusted results 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 July, 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, 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 Dovatosales £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		7		5		15,470		6		5
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		3		(1)		4,334		8		4
Adjusted earnings per share	30.5p		9		4		60.6p		15		11
Net cash from operating activities	1,389		2				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		4
Group turnover	7,809		7		5

 

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 Shingrix.  Meningitis 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 informat Pharmaceutical turnoverion 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)		2
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		7		5
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		3		(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				9		4

 

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		8
	2,259		28.9		3		(1)
Corporate & other unallocated costs	(88)
Adjusted operating profit	2,171		27.8		3		(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		(2)
Immuno-inflammation	151		32		26
Oncology	57		-		-
Established Pharmaceuticals	2,138		(6)		(7)
	4,307		2		(1)
US	1,783		(5)		(10)
Europe The reconciliations between Total results and Adjusted results	1,034		5		4
International	1,490		9		8
	4,307		2		(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, Boostrixdriven 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		5		3
Oral health	651		7		5
Nutrition	164		6		5
Skin health	153		(6)		(5)
	1,917		5		4
US	475		11		5
Europe	578		1		-
International	864		4		5
	1,917		5		4

 

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						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