Issued:
Wednesday, 29 April 2020, London U.K.
|
GSK delivers strong Q1: sales
£9.1 billion +19% AER, +19% CER (Proforma +10%
CER*)
Total EPS 31.5p; +87% AER; +89% CER; Adjusted EPS 37.7p +25% AER,
+26% CER
|
|
|
Financial and product highlights
|
|
●
|
Reported Group sales £9.1 billion +19% AER, +19% CER (Proforma
+10% CER*). Pharmaceuticals £4.4 billion +6% AER, +6% CER;
Vaccines £1.8 billion +19% AER, +19% CER; Consumer Healthcare
£2.9 billion +44% AER, +46% CER (Proforma +11%
CER*)
|
●
|
Sales growth reflects strong underlying performance and additional
impact from increased demand including stock building for many
products
|
●
|
Total Respiratory sales £871 million +38% AER, +38%
CER. Trelegy sales £193 million +>100% AER, +>100%
CER. Nucala sales £210 million +38% AER, +38%
CER
|
●
|
Total HIV sales £1.2 billion, +8% AER, +8% CER. Two-drug
regimen sales £186 million
|
●
|
Shingrix sales £647
million +81% AER, +79% CER
|
●
|
Total Group operating margin 22.2%. Adjusted Group operating margin
29.4%, reflecting strong operating leverage (Pharmaceuticals 26.9%;
Vaccines 47.5%; Consumer Healthcare 26.8%)
|
●
|
Total EPS 31.5p +87% AER, +89% CER reflecting good operating
performance and an increase in the value of shares in Hindustan
Unilever relating to the disposal of Horlicks in India
|
●
|
Adjusted EPS 37.7p +25% AER; +26% CER reflecting operating
performance and lower tax rate resulting from a non-recurring
revaluation of deferred tax assets
|
●
|
Q1 net cash flow from operations £965 million. Free cash flow
£531 million
|
●
|
19p dividend declared for the quarter
|
|
|
Guidance
|
|
●
|
Based on current assessment of COVID-19, guidance for 2020 Adjusted
EPS maintained; to be updated if needed as more information becomes
available
|
|
|
Pipeline highlights
|
|
●
|
Zejula submission accepted by
FDA and EMA in first-line maintenance treatment for women with
ovarian cancer
|
●
|
Belantamab mafodotin granted FDA priority review for patients with
relapsed or refractory multiple myeloma based on data from the
pivotal DREAMM-2 study. PDUFA date set for August 2020
|
●
|
Cabenuva, first long-acting
regimen for HIV, approved in Canada. Expect submission of reply to
FDA Complete Response Letter mid-year
|
●
|
Fostemsavir submitted for approval to EMA for the treatment of HIV
in adults
|
●
|
Multiple collaborations underway to develop adjuvanted vaccines for
use against COVID-19, including with Sanofi
|
●
|
Agreement with Vir Biotechnology to research and develop solutions
for coronaviruses, including using their monoclonal antibody
platform technology
|
|
|
|||||||||||
Q1 2020 results
|
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Q1 2020
|
|
Growth
|
||||
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|
|
|
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£m
|
|
£%
|
|
CER%
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
|
|
|
|
|
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9,090
|
|
19
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|
19
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|
|
|
|
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Total
operating profit
|
|
|
|
|
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|
2,014
|
|
41
|
|
42
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Total
earnings per share
|
|
|
|
|
|
|
31.5p
|
|
87
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|
89
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|
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|
|
|
|
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Adjusted
operating profit
|
|
|
|
|
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2,675
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|
24
|
|
24
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Adjusted
earnings per share
|
|
|
|
|
|
|
37.7p
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|
25
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26
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|
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Net
cash from operating activities
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|
|
|
|
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965
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|
46
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Free
cash flow
|
|
|
|
|
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531
|
|
>100
|
|
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|
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The
Total results are presented under ‘Financial
performance’ on page 11 and Adjusted results reconciliations
are presented on pages 21 and 22. 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 40. 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 41 and
42.
|
|
*
|
Reported
AER and CER growth rates include three months’ results of
former Pfizer consumer healthcare business. Pro-forma CER growth
rates are calculated as if the equivalent three months of Pfizer
consumer healthcare business results, as reported by Pfizer, were
included in the comparative period of Q1 2019. See ‘Pro-forma
growth’ on page 10.
|
Emma Walmsley, Chief Executive Officer, GSK said:
“Responding
to the COVID-19 pandemic is at the heart of our purpose as a
company and GSK’s portfolio is both highly relevant and
needed. We have mobilised efforts across the company and I want to
thank all the GSK teams for their outstanding work to make sure our
vital medicines, vaccines and everyday health products continue to
be available to the people who need them. We have also taken action
to deploy our science and technologies. Our primary aim is to
develop multiple adjuvanted COVID-19 vaccines, and we are working
with companies and institutions across the world to do
so.
“Our
business performed strongly in the quarter with growth in sales and
earnings reflecting good underlying performance and increased
demand, including stock-building, for many of our products. Looking
ahead, we clearly face a period of considerable uncertainty, but we
remain confident in the resilience and sustainability of
GSK’s business and our ability to deliver on our long-term
priorities of Innovation, Performance and
Trust.”
|
GSK’s response to COVID-19
|
GSK’s businesses and portfolio are highly relevant to helping
tackle the COVID-19 virus and we have mobilised across the company
to respond to the pandemic, focusing on our people, business
continuity and providing solutions to support the global
response.
We are working hard to make sure our employees stay protected and
supported, investing in high frequency employee engagement, as well
as providing technology, resources and adjusted policies to support
our people.
Our business is performing well and has demonstrated resilience in
the face of significant demands. We have implemented business
continuity plans across all our essential operations. The
liquidity position of GSK remains strong and we have sufficient
cash for our current operational needs and access to significant
additional undrawn committed sources of finance if required. In our
supply chains, we are closely
monitoring all parts of our manufacturing network and have been
able to respond quickly to fluctuations in demand. Within clinical
trials we have implemented proactive measures to protect study
participants, staff at clinical trial sites and our employees,
while ensuring that regulatory compliance and the scientific
integrity of our studies are maintained.
As we have seen elsewhere, recruitment for clinical trials has
slowed due to disruption from the pandemic and diversion of
resources to other clinical priorities. We are continuing to
support enrolment of new patients into ongoing clinical studies,
provided that investigators are confident they will be able to
conduct the protocol required. Where necessary and based on our own
assessments, we have proactively paused recruitment. We have a
number of products undergoing regulatory review and, at this time,
we do not anticipate any significant delays to regulatory approvals
due to the pandemic.
However, this is clearly a very dynamic and uncertain situation and
the ultimate severity, duration and impact of the pandemic remain
unknown at this point. Despite the measures the company has taken,
there are significant risks to business performance for the
remainder of the year, and particularly over the next few months.
These could include disruption to manufacturing activities and the
supply chain including third parties, further restrictions in our
ability to conduct clinical trials, limits on patients’ and
customers’ ability to access certain elective or
discretionary treatments, most notably vaccines such as
Shingrix, while government containment measures are in
place, and the impact of other government actions and restrictions
in response to the pandemic. We continue to monitor these risks
closely.
We are determined to support the global response to the pandemic by
offering solutions, using our science, technology, portfolio and
resources. Our primary aim is to develop multiple adjuvanted
COVID-19 vaccines, using our innovative adjuvant technology, and we
are collaborating with seven companies and institutions across the
world, including in North America and China. The use of an adjuvant
can be of particular importance in a pandemic situation since it
may reduce the amount of vaccine protein required per dose,
allowing more vaccine doses to be produced and therefore
contributing to the protection of more people, sooner.
Alongside vaccines, we are also exploring therapeutic options.
Earlier this month, we entered into a collaboration with Vir
Biotechnology to identify and accelerate new anti-viral antibodies
that could be used as therapeutic or preventative options for
COVID-19 or future coronavirus outbreaks. Additionally, we are
screening GSK marketed and pipeline assets for potential anti-viral
activity or potential use in prevention or treatment of symptoms
related to COVID-19.
Beyond vaccines and medicines, we are also making other
contributions using our capabilities and expertise, for example to
support national testing centres. In addition, we are supporting
global and local community funds, including the UN/WHO COVID-19
Solidarity Response Fund, to support distribution of essential
supplies and PPE to health workers.
|
2020 guidance
|
At the time of announcing the full-year 2019 results on 5 February
2020 we provided guidance with respect to expected full-year 2020
Adjusted EPS, being a decline in the range of -1% to -4% at CER.
This guidance reflected our expectations for growth in key new
products, and the start of a two-year period in which we would
continue to increase investment in these products and in our
R&D pipeline, alongside implementation of our new programme
which will prepare the Group for separation. This guidance excluded
any impact in 2020 from any further material divestments beyond
those previously announced and any potential impact on our business
from the Coronavirus outbreak.
At this stage, we are unable to predict the ultimate disruptive
impact of the COVID-19 pandemic on GSK’s business performance
for the full-year 2020. The company performed strongly in the first
quarter. However, as set out in ‘GSK’s response to
COVID-19’ on page 2, there are significant internal and
external risks to business performance for the remainder of the
year, and particularly over the next few months. Based on our
current assessment of the impact of COVID-19, we are
maintaining our Adjusted EPS guidance for the year at this point,
but we will, if needed, update
guidance as more information becomes available to inform our
expected financial performance for the full-year
2020.
All expectations, guidance and targets regarding future performance
and dividend payments should be read together with ‘Outlook,
assumptions and cautionary statements’ on pages 41 and
42.
If
exchange rates were to hold at the closing rates on 31 March 2020
($1.24/£1, €1.13/£1 and Yen 134/£1) for the
rest of 2020, the estimated impact on 2020 Sterling turnover growth
would be around flat and if exchange gains or losses were
recognised at the same level as in 2019, the estimated impact on
2020 Sterling Adjusted EPS growth would also be around
flat.
|
Results presentation
|
A
webcast of the quarterly results presentation hosted by Emma
Walmsley, GSK CEO, will be held at 2pm BST on 29 April 2020.
Presentation materials will be published on www.gsk.com prior to the webcast and a
transcript of the webcast will be published
subsequently.
Information
available on GSK’s website does not form part of, and is not
incorporated by reference into, this Results
Announcement.
|
Operating performance – Q1 2020
|
Turnover
|
Q1 2020
|
||||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
Pro-forma
growth
CER%
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
4,396
|
|
6
|
|
6
|
|
6
|
Vaccines
|
1,805
|
|
19
|
|
19
|
|
19
|
Consumer
Healthcare
|
2,862
|
|
44
|
|
46
|
|
11
|
|
|
|
|
|
|
|
|
|
9,063
|
|
18
|
|
19
|
|
10
|
|
|
|
|
|
|
|
|
Corporate
and other unallocated turnover
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
turnover
|
9,090
|
|
19
|
|
19
|
|
10
|
|
|
|
|
|
|
|
|
Operating profit
Total
operating profit was £2,014 million in Q1 2020 compared with
£1,428 million in Q1 2019. The Total operating margin was
22.2%. Adjusted operating profit was £2,675 million, up 24%
AER, 24% CER on a turnover increase of 19% CER. The Adjusted
operating margin was 29.4%. On a pro-forma basis, Adjusted
operating profit was 14% higher at CER on a turnover increase of
10% CER. The Adjusted pro-forma operating margin was
29.4%.
An
increase in value of the shares in Hindustan Unilever Limited to be
received in connection with the disposal of Horlicks and other Consumer Healthcare
brands as well as income from asset disposals were partly offset by
higher re-measurement charges on the contingent consideration
liabilities and increased charges for Major restructuring,
including costs to integrate the Consumer Healthcare Joint
Venture.
The
increase in pro-forma Adjusted operating profit primarily reflected
the benefit from strong sales growth across all three businesses,
including stock building as a result of the COVID-19 pandemic in
Pharmaceuticals and Consumer Healthcare, partly offset by
continuing price pressure and investment in R&D.
Earnings per share
Total
EPS was 31.5p, compared with 16.8p in Q1 2019. Adjusted EPS was
37.7p compared with 30.1p in Q1 2019, up 25% AER, 26% CER. The
improvement primarily reflected strong operating performance, an
increase in the value of the shares in Hindustan Unilever Limited
to be received in connection with the disposal of Horlicks and other Consumer Healthcare
brands and a reduced effective tax rate, partly offset by increased
re-measurement charges on the contingent consideration liabilities
and put option.
Cash flow
The net
cash inflow from operating activities for the quarter was £965
million (Q1 2019: £663 million) and free cash flow was
£531 million (Q1 2019: £165 million). The increase
primarily reflected improved operating profits and the beneficial
timing of payments for returns and rebates, partly offset by higher
working capital.
|
R&D pipeline
|
37 medicines in development, 15 Vaccines
|
Pipeline news flow highlights since Q4 2019
|
Updates relating to COVID-19
|
Collaborations
|
|
●
|
Sanofi
and GSK announced that they have signed a letter of intent to enter
into a collaboration to develop an adjuvanted candidate vaccine for
COVID-19, using innovative technology from both companies, to help
address the ongoing pandemic. The companies plan to initiate Phase
I clinical trials in the second half of 2020 and, if successful and
subject to regulatory considerations, a vaccine could be available
in H2 2021.
|
●
|
GSK and
Vir Biotechnology announced they have entered into a collaboration
to research and develop solutions for coronaviruses, including
SARS-CoV-2, the virus that causes COVID-19. The collaboration will
use Vir’s proprietary monoclonal antibody platform technology
to accelerate existing and identify new anti-viral antibodies that
could be used as therapeutic or preventative options to help
address the current COVID-19 pandemic and future
outbreaks.
|
●
|
GSK has
also entered several other collaborations on protein-based COVID-19
vaccine candidates including with the University of Queensland,
Xiamen Innovax Biotech, Clover Biopharmaceuticals and Chongqing
Zhifei. GSK has also entered into other collaborations that have
not been announced with partners featuring other technologies,
where GSK is supplying its pandemic adjuvant
technology.
|
Oncology
|
Zejula
(niraparib, PARP inhibitor)
|
|
●
|
The US
FDA and the European Medicines Agency accepted submission of
Zejula in first-line
maintenance treatment for women with platinum-responsive advanced
ovarian cancer based on data from the PRIMA study.
|
Belantamab mafodotin (GSK2857916, BCMA
immunoconjugate)
|
|
●
|
The US
FDA granted priority review of belantamab mafodotin for patients
with relapsed/refractory multiple myeloma. The PDUFA date has been
set for August 2020.
|
Dostarlimab (TSR-042, PD-1 antagonist)
|
|
●
|
The US
FDA accepted submission of dostarlimab for the second line
treatment of patients with dMMR/MSI-H recurrent endometrial
cancer.
|
GSK’762 (BET inhibitor)
|
|
●
|
GSK’762
for cancer was terminated as data did not support
progressing.
|
HIV/Infectious diseases
|
Cabenuva
(cabotegravir + rilpivirine)
|
|
●
|
Cabenuva received Health Canada approval as the first
complete, long-acting, regimen for the treatment of HIV. Submission
of a reply to the FDA’s Complete Response Letter is expected
by the middle of the year.
|
●
|
Positive
long-term data from the Phase III FLAIR study demonstrating
efficacy and safety of cabotegravir and rilpivirine in adults
living with HIV were presented at the 2020 Conference on
Retroviruses and Opportunistic Infections (CROI).
|
●
|
Positive
48-week data from the Phase III ATLAS-2M study showing the
every-two-month regimen of cabotegravir and rilpivirine has similar
efficacy to once-monthly dosing were presented at the 2020
Conference on Retroviruses and Opportunistic Infections
(CROI).
|
Fostemsavir (attachment inhibitor)
|
|
●
|
A
regulatory application was submitted to the European Medicines
Agency for fostemsavir for heavily treatment-experienced adults
with multi-drug resistant HIV-1 infection who are unable to form a
suppressive regimen.
|
QURA Therapeutics
|
|
●
|
ViiV
Healthcare and UNC-Chapel Hill announced the five-year renewal of
the innovative HIV cure partnership, QURA
Therapeutics.
|
Immuno-inflammation
|
Benlysta
(belimumab)
|
|
●
|
The US
FDA granted Breakthrough Therapy Designation for Benlysta for the treatment of lupus
nephritis. Regulatory submission is expected in Q2
2020.
|
Respiratory
|
Trelegy
Ellipta (FF/UMEC/VI)
|
|
●
|
The
European Medicines Agency accepted the regulatory submission of
Trelegy Ellipta for the
treatment of asthma in adults supported by the Phase III CAPTAIN
study.
|
Nucala
(mepolizumab)
|
|
●
|
Positive
data has been received in-house from a Phase III study of
Nucala in patients with
nasal polyps. Nucala is the
first anti-IL5 compound to show a benefit in this indication in a
Phase III study. Regulatory submission is expected in H2
2020.
|
Other pharmaceuticals
|
Tuberculosis
|
|
●
|
A
collaboration, called “PAN-TB”, with philanthropic,
non-profit and private sector organisations was launched to
accelerate the development of novel tuberculosis drug
regimens.
|
GR121619 (oxytocin)
|
|
●
|
GR121619
rights for postpartum haemorrhage were returned to Monash
University.
|
Vaccines
|
Rotarix
|
|
●
|
The
European Medicines Agency approved the “PCV (Porcine
Circovirus) free” variant of Rotarix.
|
Contents
|
Page
|
|
|
Total
and Adjusted results
|
9
|
Financial
performance
|
11
|
Cash
generation
|
26
|
Returns
to shareholders
|
27
|
|
|
Income
statement
|
28
|
Statement
of comprehensive income
|
29
|
Pharmaceuticals
turnover
|
30
|
Vaccines
turnover
|
31
|
Balance
sheet
|
32
|
Statement
of changes in equity
|
33
|
Cash
flow statement
|
34
|
Segment
information
|
35
|
Legal
matters
|
36
|
Additional
information
|
36
|
Reconciliation
of cash flow to movements in net debt
|
39
|
Net
debt analysis
|
39
|
Free
cash flow reconciliation
|
39
|
Reporting
definitions
|
40
|
Outlook,
assumptions and cautionary statements
|
41
|
Independent
review report
|
43
|
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)
|
|
Kathleen
Quinn
|
+1 202
603 5003
|
(Washington)
|
|
|
|
|
Analyst/Investor
enquiries:
|
Sarah
Elton-Farr
|
+44 (0)
20 8047 5194
|
(London)
|
|
James
Dodwell
|
+44 (0)
20 8047 2406
|
(London)
|
|
Danielle
Morris
|
+44 (0)
20 8047 7562
|
(London)
|
|
Jeff
McLaughlin
|
+1 215
751 7002
|
(Philadelphia)
|
|
Frannie
DeFranco
|
+1 215
751 4855
|
(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 40.
GSK
believes that Adjusted results, when considered together with Total
results, provide investors, analysts and other stakeholders with
helpful complementary information to understand better the
financial performance and position of the Group from period to
period, and allow the Group’s performance to be more easily
compared against the majority of its peer companies. These measures
are also used by management for planning and reporting purposes.
They may not be directly comparable with similarly described
measures used by other companies.
GSK
encourages investors and analysts not to rely on any single
financial measure but to review GSK’s quarterly results
announcements, including the financial statements and notes, in
their entirety.
GSK is
committed to continuously improving its financial reporting, in
line with evolving regulatory requirements and best practice. In
line with this practice, GSK expects to continue to review and
refine its reporting framework.
Adjusted
results exclude the following items from Total results, together
with the tax effects of all of these items:
|
●
|
amortisation
of intangible assets (excluding computer software)
|
●
|
impairment
of intangible assets (excluding computer software) and
goodwill
|
●
|
Major
restructuring costs, which include impairments of tangible assets
and computer software, (under specific Board approved programmes
that are structural, of a significant scale and where the costs of
individual or related projects exceed £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 is
undertaking a number of Major restructuring programmes in response
to significant changes in the Group’s trading environment or
overall strategy, or following material acquisitions. Costs, both
cash and non-cash, of these programmes are provided for as
individual elements are approved and meet the accounting
recognition criteria. As a result, charges may be incurred over a
number of years following the initiation of a Major restructuring
programme.
Significant
legal charges and expenses are those arising from the settlement of
litigation or government investigations that are not in the normal
course and materially larger than more regularly occurring
individual matters. They also include certain major legacy
matters.
Reconciliations
between Total and Adjusted results, providing further information
on the key Adjusting items, are set out on pages 21 and
22.
GSK
provides earnings guidance to the investor community on the basis
of Adjusted results. This is in line with peer companies and
expectations of the investor community, supporting easier
comparison of the Group’s performance with its peers. GSK is
not able to give guidance for Total results as it cannot reliably
forecast certain material elements of the Total results,
particularly the future fair value movements on contingent
consideration and put options that can and have given rise to
significant adjustments driven by external factors such as currency
and other movements in capital markets.
Pro-forma growth
The
acquisition of the Pfizer consumer healthcare business completed on
31 July 2019 and so GSK’s reported results for Q1 2020
include three months of results of the former Pfizer consumer
healthcare business from 1 January 2020.
The
Group has presented pro-forma growth rates at CER for turnover,
Adjusted operating profit and operating profit by business taking
account of this transaction. Pro-forma growth rates for the quarter
are calculated comparing reported results for Q1 2020, calculated
applying the exchange rates used in the comparative period, with
the results for Q1 2019 adjusted to include the equivalent three
months of results of the former Pfizer consumer healthcare business
during Q1 2019, as consolidated (in US$) and included in
Pfizer’s US GAAP results.
|
ViiV Healthcare
ViiV
Healthcare is a subsidiary of the Group and 100% of its operating
results (turnover, operating profit, profit after tax) are included
within the Group income statement.
Earnings
are allocated to the three shareholders of ViiV Healthcare on the
basis of their respective equity shareholdings (GSK 78.3%, Pfizer
11.7% and Shionogi 10%) and their entitlement to preferential
dividends, which are determined by the performance of certain
products that each shareholder contributed. As the relative
performance of these products changes over time, the proportion of
the overall earnings allocated to each shareholder also changes. In
particular, the increasing proportion of sales of
dolutegravir-containing products has a favourable impact on the
proportion of the preferential dividends that is allocated to GSK.
Adjusting items are allocated to shareholders based on their equity
interests. GSK was entitled to approximately 85% of the Total
earnings and 82% of the Adjusted earnings of ViiV Healthcare for
2019.
As
consideration for the acquisition of Shionogi’s interest in
the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi
received the 10% equity stake in ViiV Healthcare and ViiV
Healthcare also agreed to pay additional future cash consideration
to Shionogi, contingent on the future sales performance of the
products being developed by that joint venture, principally
dolutegravir. Under IFRS 3 ‘Business combinations’, GSK
was required to provide for the estimated fair value of this
contingent consideration at the time of acquisition and is required
to update the liability to the latest estimate of fair value at
each subsequent period end. The liability for the contingent
consideration recognised in the balance sheet at the date of
acquisition was £659 million. Subsequent re-measurements are
reflected within other operating income/expense and within
Adjusting items in the income statement in each period. At 31 March
2020, the liability, which is discounted at 8.5%, stood at
£5,325 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 Q1 2020 were £213
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 51 and 52 of the Annual Report
2019.
|
Financial performance – Q1 2020
|
Total results
|
The
Total results for the Group are set out below.
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Turnover
|
9,090
|
|
7,661
|
|
19
|
|
19
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(3,199)
|
|
(2,733)
|
|
17
|
|
18
|
|
|
|
|
|
|
|
|
Gross
profit
|
5,891
|
|
4,928
|
|
20
|
|
20
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(2,916)
|
|
(2,477)
|
|
18
|
|
19
|
Research
and development
|
(1,187)
|
|
(1,006)
|
|
18
|
|
18
|
Royalty income
|
67
|
|
73
|
|
(8)
|
|
(5)
|
Other
operating income/(expense)
|
159
|
|
(90)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
2,014
|
|
1,428
|
|
41
|
|
42
|
|
|
|
|
|
|
|
|
Finance
income
|
41
|
|
34
|
|
|
|
|
Finance
expense
|
(229)
|
|
(224)
|
|
|
|
|
Share
of after tax profits of associates and joint ventures
|
9
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
1,835
|
|
1,295
|
|
42
|
|
42
|
|
|
|
|
|
|
|
|
Taxation
|
(156)
|
|
(310)
|
|
|
|
|
Tax rate %
|
8.5%
|
|
23.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after taxation
|
1,679
|
|
985
|
|
70
|
|
71
|
|
|
|
|
|
|
|
|
Profit
attributable to non-controlling interests
|
114
|
|
155
|
|
|
|
|
Profit
attributable to shareholders
|
1,565
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,679
|
|
985
|
|
70
|
|
71
|
|
|
|
|
|
|
|
|
Earnings per share
|
31.5p
|
|
16.8p
|
|
87
|
|
89
|
|
|
|
|
|
|
|
|
Adjusted results
The
Adjusted results for the Group are set out below. Reconciliations
between Total results and Adjusted results for Q1 2020 and Q1 2019
are set out on pages 21 and 22.
|
|
Q1 2020
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Reported
growth
CER%
|
|
Pro-forma
growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
9,090
|
|
100
|
|
19
|
|
19
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(2,610)
|
|
(28.7)
|
|
18
|
|
20
|
|
9
|
Selling,
general and administration
|
(2,786)
|
|
(30.6)
|
|
16
|
|
18
|
|
8
|
Research
and development
|
(1,086)
|
|
(11.9)
|
|
12
|
|
11
|
|
9
|
Royalty
income
|
67
|
|
0.6
|
|
(8)
|
|
(5)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,675
|
|
29.4
|
|
24
|
|
24
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Adjusted
profit before tax
|
2,497
|
|
|
|
23
|
|
23
|
|
|
Adjusted
profit after tax
|
2,155
|
|
|
|
32
|
|
32
|
|
|
Adjusted
profit attributable to shareholders
|
1,873
|
|
|
|
26
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
earnings per share
|
37.7p
|
|
|
|
25
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit by business
|
Q1 2020
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Reported
growth
CER%
|
|
Pro-forma
growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
2,018
|
|
45.9
|
|
3
|
|
2
|
|
2
|
Pharmaceuticals
R&D*
|
(835)
|
|
|
|
14
|
|
14
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total
Pharmaceuticals
|
1,183
|
|
26.9
|
|
(4)
|
|
(5)
|
|
(5)
|
Vaccines
|
858
|
|
47.5
|
|
40
|
|
39
|
|
39
|
Consumer
Healthcare
|
766
|
|
26.8
|
|
78
|
|
82
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
2,807
|
|
30.9
|
|
23
|
|
23
|
|
14
|
Corporate
& other unallocated costs
|
(132)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,675
|
|
29.4
|
|
24
|
|
24
|
|
14
|
|
|
|
|
|
|
|
|
|
|
*
|
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
|
|
Q1 2020
|
||||
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
Respiratory
|
871
|
|
38
|
|
38
|
HIV
|
1,207
|
|
8
|
|
8
|
Immuno-inflammation
|
151
|
|
25
|
|
24
|
Oncology
|
81
|
|
88
|
|
88
|
Established
Pharmaceuticals
|
2,086
|
|
(7)
|
|
(6)
|
|
|
|
|
|
|
|
4,396
|
|
6
|
|
6
|
|
|
|
|
|
|
US
|
1,758
|
|
4
|
|
3
|
Europe
|
1,142
|
|
14
|
|
15
|
International
|
1,496
|
|
2
|
|
4
|
|
|
|
|
|
|
|
4,396
|
|
6
|
|
6
|
|
|
|
|
|
|
Pharmaceuticals
turnover in the quarter was £4,396 million, up 6% AER, 6% CER.
Respiratory sales were up 38% AER, 38% CER to £871 million on
growth of Trelegy Ellipta
and Nucala. HIV sales of
£1,207 million grew 8% AER, 8% CER, with growth of
Juluca and Dovato exceeding the decline of
Triumeq. Sales of
Established Pharmaceuticals declined 7% AER, 6% CER to £2,086
million, reflecting lower Advair sales in the US.
Towards
the end of the quarter, additional demand and customer stock
building in Europe and the US related to the COVID-19 pandemic had
a positive impact on the growth of HIV and Respiratory products.
This was partly offset by lower sales in China, reflecting
different stages in the progress of the pandemic and different
government and market responses.
In the
US, sales grew 4% AER, 3% CER. Continued growth of Nucala, Trelegy Ellipta and Benlysta was partly offset by the
decline in Established Products, including the ongoing impact of
the loss of exclusivity of Advair. In Europe, sales grew 14% AER,
15% CER, with strong growth in Respiratory and HIV, including the
impact of COVID-19 related customer stock building. International
grew 2% AER, 4% CER, with Respiratory and HIV growth partly offset
by lower Established Pharmaceutical sales, including the impact of
a weaker allergy season in Japan and market disruption from
COVID-19 in China.
Respiratory
Total
Respiratory sales were up 38% AER, 38% CER, with strong growth from
Nucala, Trelegy and
Relvar/Breo in all regions.
In the US, Trelegy and
Nucala growth continued and
Relvar/Breo benefited from
the impact of a prior period RAR adjustment. In Europe, Respiratory
sales growth of 40% AER, 42% CER, reflected strong growth of
Relvar/Breo, Trelegy and
Nucala. International
Respiratory sales grew 36% AER, 36% CER, including Nucala, up 50% AER, 55% CER, and
Relvar/Breo, up 19% AER,
16% CER to £83 million.
Sales
of Nucala were £210
million in the quarter and grew 38% AER, 38% CER, with US sales up
35% AER, 33% CER to £115 million. Europe sales of £62
million grew 38% AER, 38% CER and International sales of £33
million grew 50% AER, 55% CER, benefiting from new at-home use
application launches worldwide.
Sales
of Ellipta products were up
38% AER, 38% CER to £661 million, driven by growth in all
regions. In the US, sales grew 38% AER, 37% CER, reflecting
continued strong growth of Trelegy
Ellipta and the benefit of a prior period RAR adjustment to
Relvar/Breo. In Europe,
Ellipta products grew 41%
AER, 44% CER. Sales of Trelegy
Ellipta contributed £193 million globally in the
quarter, driven by an increase in US market share.
Relvar/Breo Ellipta sales were up 33% AER, 32% CER to
£285 million. In the US, Relvar/Breo grew 47% AER, 45% CER,
benefiting from a prior period RAR adjustment. In Europe and
International, Relvar/Breo
continued to grow strongly, up 30% AER, 33% CER and 19% AER, 16%
CER, respectively.
HIV
HIV
sales were £1,207 million with growth of 8% AER, 8% CER in the
quarter. The dolutegravir franchise grew 9% AER, 9% CER to
£1,161 million. The remaining portfolio, with sales of
£46 million, 4% of total HIV sales, declined 15% AER, 13% CER
and reduced the overall growth of total HIV by one percentage
point.
Sales
of dolutegravir products were £1,161 million. Sales benefited
from customer stock building due to COVID-19, mainly on
Tivicay and Triumeq, with Tivicay delivering sales of £412
million, up 8% AER, 8% CER. Sales of Triumeq declined 8% AER, 8% CER to
£563 million. The two-drug regimens, Juluca and Dovato, delivered combined sales of
£186 million, with growth more than offsetting the decline in
Triumeq.
In the
US, total dolutegravir sales grew 3% AER, 2% CER and in Europe
dolutegravir sales grew 16% AER, 18% CER. The growth was driven by
two-drug regimen share growth and increased COVID-19 related
customer stock building. Following recent launches of Dovato, sales of the two-drug regimens
were £139 million in the US and £43 million in Europe,
with combined growth offsetting the decline in Triumeq. International continued to
grow strongly with total dolutegravir sales growth of 22% AER, 25%
CER, driven by Tivicay
tender business.
Oncology
Sales
of Zejula were £81
million in the quarter, with growth of 93% AER, 93% CER benefiting
from a favourable comparison with Q1 2019 as the product was
acquired part way through that quarter. Sales comprised £48
million in the US and £33 million in Europe.
Immuno-inflammation
Sales
of Benlysta in the quarter
were up 25% AER, 24% CER to £151 million, including sales of
the sub-cutaneous formulation of £67 million. In the US,
Benlysta grew 20% AER, 18%
CER to £126 million.
Established
Pharmaceuticals
Sales
of Established Pharmaceuticals were £2,086 million, down 7%
AER, 6% CER.
Established
Respiratory products declined 11% AER, 11% CER to £965
million. The rate of decline of US Advair sales reduced to 40% AER, 40%
CER, reflecting the start of generic competition in Q1 2019. Also
in the US, Ventolin sales
were up 1% AER, but down 1% CER to £147 million, including the
benefit of strong uptake of the authorised generic version launched
in Q1 2019. Established Respiratory sales in the US were adversely
impacted by prior period RAR adjustments in the quarter, but the
overall, impact on total Pharmaceuticals growth from US prior
period RAR adjustments was not significant. In Europe, Seretide sales were £127 million,
with the decline slowing to 5% AER, 3% CER, reflecting continued
competition from generic products partly offset by increased
COVID-19 related demand. Ventolin sales grew 15% AER, 18% CER to
£38 million. In International, sales of Seretide were down 8% AER, 7%
CER.
The
remainder of the Established Pharmaceuticals portfolio declined by
3% AER, 2% CER to £1,121 million, including the impact of
Zantac withdrawal, declines
in Viread and Tykerb in China and the impact of a
European Relenza tender in
Q1 2019. These declines were partly offset by growth in
Augmentin in Europe and
International and in Dermatology products in
International.
|
Vaccines turnover
|
|
Q1 2020
|
||||
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
Meningitis
|
225
|
|
8
|
|
11
|
Influenza
|
21
|
|
40
|
|
53
|
Shingles
|
647
|
|
81
|
|
79
|
Established
Vaccines
|
912
|
|
(3)
|
|
(3)
|
|
|
|
|
|
|
|
1,805
|
|
19
|
|
19
|
|
|
|
|
|
|
US
|
1,013
|
|
30
|
|
29
|
Europe
|
348
|
|
3
|
|
4
|
International
|
444
|
|
9
|
|
13
|
|
|
|
|
|
|
|
1,805
|
|
19
|
|
19
|
|
|
|
|
|
|
Vaccines
turnover grew 19% AER, 19% CER to £1,805 million, primarily
driven by growth in sales of Shingrix. Meningitis vaccines also
contributed to growth, with strong demand for Bexsero and Menveo. Established Vaccines declined
3% AER, 3% CER to £912 million, primarily due to lower channel
inventory and unfavourable year-on-year US CDC stockpile movements
for Hepatitis vaccines together with the divestment of Rabipur and Encepur, partly offset by
favourable phasing on Rotarix in Emerging Markets and
stronger demand elsewhere in International.
Meningitis
Meningitis
sales grew 8% AER, 11% CER to £225 million. Bexsero sales grew 5% AER, 8% CER to
£164 million, driven by strong demand and favourable timing of
tenders in Europe together with market growth in the US.
Menveo grew 21% AER, 24%
CER, reflecting higher demand and favourable phasing in Europe and
strong demand in the US.
Influenza
Fluarix/FluLaval sales were £21 million, up 40% AER,
53% CER, reflecting favourable phasing and higher demand in
International.
Shingles
Shingrix sales grew 81% AER, 79% CER to £647 million,
primarily 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) declined by 5% AER, 4% CER.
Infanrix/Pediarix sales
declined 2% AER, 1% CER to £180 million, reflecting lower
channel inventory and unfavourable year-on-year CDC stockpile
movements in the US, partly offset by the favourable timing of
tenders in Europe, together with stronger demand and favourable
phasing in International. Boostrix sales were down 9% AER, 9% CER
to £112 million primarily due to unfavourable phasing in
International and lower channel inventory in the US.
Hepatitis vaccines
declined 11% AER, 11% CER to £213 million, primarily due to
lower channel inventory and unfavourable year-on-year US CDC
stockpile movements, partly offset by lower returns and rebates in the US and improved supply
in Europe.
Synflorix sales grew 2% AER, 3% CER to £123 million,
primarily due to stronger demand in International and the
favourable timing of tenders in Europe.
Rotarix sales were up 13% AER, 13% CER to £151 million,
reflecting favourable phasing in Emerging Markets and stronger
demand elsewhere in International.
MMRV
vaccines sales grew 4% AER, 7% CER to £57 million, largely
driven by improved supply in Europe.
|
Consumer Healthcare turnover
|
|
|
|
Q1 2020
|
||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Oral
health
|
|
|
733
|
|
11
|
|
13
|
Pain
relief
|
|
|
611
|
|
65
|
|
68
|
Vitamins,
minerals and supplements
|
|
|
363
|
|
>100
|
|
>100
|
Respiratory
health
|
|
|
439
|
|
51
|
|
51
|
Digestive
health and other
|
|
|
452
|
|
29
|
|
31
|
|
|
|
2,598
|
|
53
|
|
55
|
|
|
|
|
|
|
|
|
Brands
divested/under review
|
|
|
264
|
|
(6)
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
2,862
|
|
44
|
|
46
|
|
|
|
|
|
|
|
|
US
|
|
|
969
|
|
98
|
|
96
|
Europe
|
|
|
746
|
|
25
|
|
27
|
International
|
|
|
1,147
|
|
28
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
2,862
|
|
44
|
|
46
|
|
|
|
|
|
|
|
|
Pro-forma
growth
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
On a
reported basis, sales grew 44% AER, 46% CER to £2,862 million,
largely driven by the inclusion of the Pfizer portfolio. On a
pro-forma basis, sales grew 11% CER and 14% CER excluding brands
divested/under review. Overall growth was heavily impacted by
consumer and government responses to the COVID-19
pandemic.
The
impact of COVID-19 varied across regions as a result of differing
government actions and consumer behaviour. The US, UK, Australia
and a number of other markets benefited from increased demand and
shopper activity in both traditional retail and e-commerce channels
which resulted in accelerated purchases across all categories,
while some markets, including India and China, were negatively
impacted by mandated retailer shut-downs.
Oral
health
Oral
health sales grew 11% AER, 13% CER to £733 million in the
quarter. Sensodyne
continued to perform strongly, reporting mid-teens growth.
This primarily reflected the
underlying strength of the brand, but also benefited from increased
shopper activity across both traditional retail and e-commerce
channels in the US. Gum health grew in double digits, with
broad-based growth, while Denture care grew in mid-single
digits.
Pain
relief
Pain
relief grew 65% AER, 68% CER to £611 million. On a pro-forma
basis, sales grew in the mid-teens per cent, with significant
growth of Advil and
Panadol reflecting
accelerated purchases as a result of COVID-19. This was partly
offset by Voltaren, which
was flat for the quarter.
Vitamins, minerals and
supplements
Vitamins,
minerals and supplements more than doubled to £363 million. On
a pro-forma basis, sales grew in the high-teens per cent, with
strong performances from Centrum and Emergen-C, reflecting increased demand
for wellbeing products.
Respiratory
health
Respiratory
health sales grew 51% AER, 51% CER to £439 million in the
quarter. On a pro-forma basis, sales grew in the mid-twenties per
cent, with broad-based growth across the category, primarily
reflecting a combination of accelerated purchases and increased
consumption in response to the COVID-19 pandemic.
Digestive health and other
Digestive
health and other brands grew 29% AER, 31% CER to £452 million.
On a pro-forma basis, sales grew in low-single digits. The strong
performance of Digestive health, with growth driven largely by
Tums in the US, was partly
offset by a weaker Skin health performance.
|
Operating
performance
|
Cost of sales
Total
cost of sales as a percentage of turnover was 35.2%, 0.5 percentage
points lower at AER and 0.5 percentage points lower in CER terms
compared with Q1 2019. This reflected a reduction in the costs of
Major restructuring programmes, primarily as a result of lower
write downs in a number of manufacturing sites, partly offset by
the unwinding of the fair market value uplift on inventory arising
on completion of the Consumer Healthcare Joint Venture with
Pfizer.
Excluding
these and other Adjusting items, Adjusted cost of sales as a
percentage of turnover was 28.7%, flat at AER, flat at CER compared
with Q1 2019. On a pro-forma basis, Adjusted cost of sales as a
percentage of turnover was 28.7%, 0.3 percentage points lower at
CER, compared with Q1 2019. This reflected a more favourable
product mix in Vaccines, primarily due to the growth of
Shingrix in the US and a
further contribution from integration and restructuring savings in
Pharmaceuticals and Consumer Healthcare, offset by unfavourable
product mix and continued adverse pricing pressure in
Pharmaceuticals, particularly in Respiratory.
Selling, general and administration
Total
SG&A costs as a percentage of turnover were 32.1%, 0.3
percentage points lower at AER and 0.1 percentage points lower at
CER compared with Q1 2019. This included increased major
restructuring costs partly offset by lower significant legal and
transaction costs.
Excluding
these and other Adjusting items, Adjusted SG&A costs as a
percentage of turnover were 30.6%, 0.6 percentage points lower at
AER than in Q1 2019 and 0.4 percentage points lower on a CER basis.
On a pro-forma basis, Adjusted SG&A costs as a percentage of
turnover were 30.6%, 0.6 percentage points lower at CER, compared
with Q1 2019.
The
growth in Adjusted SG&A costs of 16% AER, 18% CER and 8% CER on
a pro-forma basis reflected increased investment resulting from the
acquisition of Tesaro and in promotional product support,
particularly for new launches in Vaccines, Respiratory and HIV as
well as increased costs for a number of legal settlements. This was
partly offset by the continuing benefit of restructuring in
Pharmaceuticals and Consumer Healthcare and the tight control of
ongoing costs, particularly in non-promotional spending across all
three businesses.
Research and development
Total
R&D expenditure was £1,187 million (13.1% of turnover), up
18% AER, 18% CER, including an increase in major restructuring
costs. Adjusted R&D expenditure was £1,086 million (11.9%
of turnover), 12% higher at AER, 11% higher at CER than in Q1 2019.
On a pro-forma basis, Adjusted R&D expenditure grew 9% CER
compared with Q1 2019.
Pharmaceuticals
R&D expenditure was £853 million, up 14% AER, 13% CER,
reflecting a continued significant increase in Oncology investment
across multiple mid and late-stage assets including the legacy
Tesaro portfolio and a number of other programmes, including
belantamab mafodotin, ICOS and bintrafusp alfa. In addition to the
Oncology investment there has also been increased spending on the
progression of key assets in the specialty and primary care
portfolio, including otilimab for rheumatoid arthritis, mepolizumab
for COPD and gepotidacin for urogenital gonorrhoea and
uncomplicated urinary tract infection. These increases in
investment were partly offset by reduced spend in ViiV Healthcare
and on daprodustat, where the significant costs related to clinical
trial materials have now ended. R&D expenditure in Vaccines and
Consumer Healthcare was £158 million and £75 million,
respectively.
Royalty income
Royalty
income was £67 million (Q1 2019: £73 million), down 8%
AER, 5% CER, primarily reflecting adverse movements in Consumer
Healthcare.
|
Other operating income/(expense)
Net
other operating income of £159 million (Q1 2019: £90
million expense) primarily reflected an increase in value of the
shares in Hindustan Unilever Limited to be received in connection
with the disposal of Horlicks and other Consumer Healthcare
brands. The cumulative increase in value since the signing of the
proposed transaction was £780 million. The majority of this
transaction completed on 1 April 2020. Other operating income also
included an increase in profit and milestone income from a number
of asset disposals.
This
was partly offset by accounting charges of £473 million (Q1
2019: £85 million credit) 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 £435 million (Q1 2019: £60 million credit) for the
contingent consideration liability due to Shionogi, primarily
arising from changes in exchange rate assumptions as well as the
unwind of the discounting.
|
Operating profit
Total
operating profit was £2,014 million in Q1 2020 compared with
£1,428 million in Q1 2019. An increase in value of the shares
in Hindustan Unilever Limited to be received in connection with the
disposal of Horlicks and
other Consumer Healthcare brands as well as income from asset
disposals were partly offset by higher re-measurement charges on
the contingent consideration liabilities and increased charges for
Major restructuring, primarily arising from restructuring in the
Vaccines business and costs to integrate the Consumer Healthcare
Joint Venture.
Excluding
these and other Adjusting items, Adjusted operating profit was
£2,675 million, 24% higher than Q1 2019 at AER and 24% higher
at CER on a turnover increase of 19% CER. The Adjusted operating
margin of 29.4% was 1.2 percentage points higher at AER, and 1.1
percentage points higher on a CER basis than in Q1 2019. On a
pro-forma basis, Adjusted operating profit was 14% higher at CER on
a turnover increase of 10% CER. The Adjusted pro-forma operating
margin of 29.4% was 0.9 percentage points higher on a CER basis
than in Q1 2019.
The
increase in pro-forma Adjusted operating profit primarily reflected
the benefit from strong sales growth across all three businesses,
including an uplift from the impact of increased customer demand
and stock building as a result of the COVID-19 pandemic in
Pharmaceuticals and Consumer Healthcare, a more favourable mix in
Vaccines, the continued benefit of restructuring and tight control
of ongoing costs across all three businesses. This was partly
offset by continuing price pressure, particularly in Respiratory,
including the impact of the launch of a generic version of
Advair in the US in
February 2019, investment in R&D including a significant
increase in Oncology investment, partly on the assets from the
Tesaro acquisition, and investments in promotional product support,
particularly for new launches in Vaccines, HIV and
Respiratory.
Contingent
consideration cash payments which are made to Shionogi and other
companies reduce the balance sheet liability and hence are not
recorded in the income statement. Total contingent consideration
cash payments in Q1 2020 amounted to £215 million (Q1 2019:
£217 million). This included cash payments made to Shionogi of
£213 million (Q1 2019: £219 million).
Operating profit by business
Pharmaceuticals
operating profit was £1,183 million, down 4% AER, 5% CER on a
turnover increase of 6% at CER. The operating margin of 26.9% was
2.9 percentage points lower at AER than in Q1 2019 and 3.1
percentage points lower on a CER basis. This primarily reflected
the increase in cost of sales percentage due to the continued
impact of lower prices, particularly in Respiratory, including the
impact of the launch of a generic version of Advair in the US in February 2019, a
significant increase in Oncology R&D and investment in new
product support and targeted priority markets, together with higher
provisions for legal settlements and costs in the quarter. This was
partly offset by the continued benefit of restructuring and tight
control of ongoing costs.
Vaccines operating profit was £858 million, up 40% AER, 39%
CER on a turnover increase of 19% CER. The operating margin of
47.5% was 7.2 percentage points higher at AER than in Q1 2019 and
6.7 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 and higher royalty
income.
Consumer
Healthcare operating profit was £766 million, up 78% AER, 82%
CER on a turnover increase of 46% CER. On a pro-forma basis,
operating profit was £766 million, 26% CER higher on a
turnover increase of 11% CER. The operating margin of 26.8% was 5.1
percentage points higher at AER and 5.3 percentage points higher on
a CER basis than in Q1 2019. The pro-forma operating margin of
26.8% was 3.2 percentage points higher on a CER basis. The higher
margins were primarily driven by significantly higher than normal
sales growth due to COVID-19 buying patterns, as well as strong
sales performance from a number of power brands. This growth was
partially reduced by increased promotional investment and
unfavourable movements in other income.
Net finance costs
Total
net finance costs were £188 million compared with £190
million in Q1 2019. Adjusted net finance costs were £187
million compared with £187 million in Q1 2019. During Q1 2020,
favourable fair value gains on interest rate swaps more than offset
lower interest income on cash and adverse foreign exchange. The
impact of higher debt levels was offset by favourable refinancing
of term debt during 2019.
Share of after tax profits of associates and joint
ventures
The
share of after tax profits of associates was £9 million (Q1
2019: £57 million). Q1 2019 included a one-off adjustment of
£51 million to reflect GSK’s share of increased after
tax profits of Innoviva primarily as a result of a non-recurring
income tax benefit.
Taxation
The
charge of £156 million represented an effective tax rate on
Total results of 8.5% (Q1 2019: 23.9%) 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 in connection with the
disposal of Horlicks and
other Consumer Healthcare brands. Tax on Adjusted profit amounted
to £342 million and represented an effective Adjusted tax rate
of 13.7% (Q1 2019: 19.7%), primarily reflecting the cancellation by
the UK Government of a reduction in the UK corporation tax rate
from 19% to 17% resulting in an increase in the value of balance
sheet deferred tax assets.
Issues
related to taxation are described in Note 14,
‘Taxation’ in the Annual Report 2019. The Group
continues to believe it has made adequate provision for the
liabilities likely to arise from periods which are open and not yet
agreed by tax authorities. The ultimate liability for such matters
may vary from the amounts provided and is dependent upon the
outcome of agreements with relevant tax authorities.
Non-controlling interests
The
allocation of Total earnings to non-controlling interests amounted
to £114 million (Q1 2019: £155 million). The reduction
was primarily due to a reduced allocation of ViiV Healthcare
profits of £40 million (Q1 2019: £129 million), including
increased charges for re-measurement of contingent consideration
liabilities. This was partly offset by an increased allocation of
Consumer Healthcare profits of £59 million (Q1 2019:
£nil) following the completion of the new Consumer Healthcare
Joint Venture with Pfizer on 31 July 2019, and which included the
unwind of the fair value uplift on acquired inventory and major
restructuring costs.
The
allocation of Adjusted earnings to non-controlling interests
amounted to £282 million (Q1 2019: £149 million). The
increase in allocation primarily reflected an increased allocation
of Consumer Healthcare profits of £139 million (Q1 2019:
£nil) following the buyout of Novartis’ interest in June
2018 and the completion of the new Consumer Healthcare Joint
Venture with Pfizer on 31 July 2019 as well as an increased
allocation of ViiV Healthcare profits of £128 million (Q1
2019: £123 million), partly offset by lower net profits in
some of the Group’s other entities with non-controlling
interests.
Earnings per share
Total
earnings per share was 31.5p, compared with 16.8p in Q1 2019. The
increase in earnings per share primarily reflected strong operating
performance, an increase in the value of the shares in Hindustan
Unilever Limited to be received in connection with the disposal of
Horlicks and other Consumer
Healthcare brands and a reduced effective tax rate, partly offset
by increased re-measurement charges on the contingent consideration
liabilities and put options and a one-off benefit in Q1 2019 from
increased share of after tax profits of the associate
Innoviva.
Adjusted
EPS was 37.7p compared with 30.1p in Q1 2019, up 25% AER, 26% CER,
on a 24% CER increase in Adjusted operating profit. The improvement
primarily resulted from a reduced effective tax rate partly offset
by reduced share of after tax profits of associates resulting from
a non-recurring income tax benefit in Innoviva and a higher
non-controlling interest allocation of Consumer Healthcare
profits.
Currency impact on Q1 2020 results
The
results for Q1 2020 are based on average exchange rates,
principally £1/$1.29, £1/€1.17 and £1/Yen 140.
Comparative exchange rates are given on page 37. The period-end
exchange rates were £1/$1.24, £1/€1.13 and
£1/Yen 134.
In the
quarter, turnover increased 19% AER, 19% CER. Total EPS was 31.5p
compared with 16.8p in Q1 2019. Adjusted EPS was 37.7p compared
with 30.1p in Q1 2019, up 25% AER, 26% CER. The marginally negative
currency impact primarily reflected the weakness in Euro and
emerging market currencies offset by weakness of Sterling,
particularly against the US$ and Yen, relative to Q1 2019. Exchange
gains or losses on the settlement of intercompany transactions had
a negligible impact on the negative currency impact of one
percentage point on Adjusted EPS.
|
Adjusting items
The
reconciliations between Total results and Adjusted results for Q1
2020 and Q1 2019 are set out below.
|
Three months ended 31 March 2020
|
|
Total
results
£m
|
Intangible
amortisation
£m
|
Intangible
impairment
£m
|
Major
restructuring
£m
|
Transaction-
related
£m
|
Divestments, significant
legal andother items
£m
|
Adjusted
results
£m
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Turnover
|
9,090
|
|
|
|
|
|
9,090
|
Cost of sales
|
(3,199)
|
171
|
29
|
293
|
96
|
|
(2,610)
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Gross profit
|
5,891
|
171
|
29
|
293
|
96
|
|
6,480
|
|
|
|
|
|
|
|
|
Selling, general and administration
|
(2,916)
|
|
14
|
106
|
|
10
|
(2,786)
|
Research and development
|
(1,187)
|
17
|
|
84
|
|
|
(1,086)
|
Royalty income
|
67
|
|
|
|
|
|
67
|
Other operating income/(expense)
|
159
|
|
|
|
473
|
(632)
|
-
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Operating profit
|
2,014
|
188
|
43
|
483
|
569
|
(622)
|
2,675
|
|
|
|
|
|
|
|
|
Net finance costs
|
(188)
|
|
|
1
|
|
|
(187)
|
Share of after tax profits of associates and joint
ventures
|
9
|
|
|
|
|
|
9
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Profit before taxation
|
1,835
|
188
|
43
|
484
|
569
|
(622)
|
2,497
|
|
|
|
|
|
|
|
|
Taxation
|
(156)
|
(39)
|
(6)
|
(105)
|
(58)
|
22
|
(342)
|
Tax rate %
|
8.5%
|
|
|
|
|
|
13.7%
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Profit after taxation
|
1,679
|
149
|
37
|
379
|
511
|
(600)
|
2,155
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Profit
attributable to non-controlling interests
|
114
|
|
|
|
168
|
|
282
|
|
|
|
|
|
|
|
|
Profit attributable to shareholders
|
1,565
|
149
|
37
|
379
|
343
|
(600)
|
1,873
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
Earnings per share
|
31.5p
|
3.0p
|
0.8p
|
7.6p
|
6.9p
|
(12.1)p
|
37.7p
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (millions)
|
4,965
|
|
|
|
|
|
4,965
|
|
––––––––––––
|
|
|
|
|
|
––––––––––––
|
Three months ended 31 March 2019
|
|
Total
results
£m
|
Intangible
amortisation
£m
|
Intangible
impairment
£m
|
Major
restructuring
£m
|
Transaction-
related
£m
|
Divestments, significant
legal and other items
£m
|
Adjusted
results
£m
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Turnover
|
7,661
|
|
|
|
|
|
7,661
|
Cost of sales
|
(2,733)
|
171
|
13
|
341
|
5
|
|
(2,203)
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Gross profit
|
4,928
|
171
|
13
|
341
|
5
|
|
5,458
|
|
|
|
|
|
|
|
|
Selling, general and administration
|
(2,477)
|
|
4
|
25
|
29
|
22
|
(2,397)
|
Research and development
|
(1,006)
|
17
|
2
|
15
|
|
1
|
(971)
|
Royalty income
|
73
|
|
|
|
|
|
73
|
Other operating (expense)/income
|
(90)
|
|
|
(1)
|
(87)
|
178
|
-
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Operating profit
|
1,428
|
188
|
19
|
380
|
(53)
|
201
|
2,163
|
|
|
|
|
|
|
|
|
Net finance costs
|
(190)
|
|
|
1
|
(3)
|
2
|
(187)
|
Share of after tax profits of associates and joint
ventures
|
57
|
|
|
|
|
|
57
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Profit before taxation
|
1,295
|
188
|
19
|
381
|
(53)
|
203
|
2,033
|
|
|
|
|
|
|
|
|
Taxation
|
(310)
|
(37)
|
(3)
|
(58)
|
8
|
|
(400)
|
Tax rate %
|
23.9%
|
|
|
|
|
|
19.7%
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Profit after taxation
|
985
|
151
|
16
|
323
|
(45)
|
203
|
1,633
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Profit
attributable to non-controlling interests
|
155
|
|
|
|
(6)
|
|
149
|
|
|
|
|
|
|
|
|
Profit attributable to shareholders
|
830
|
151
|
16
|
323
|
(39)
|
203
|
1,484
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
Earnings per share
|
16.8p
|
3.1p
|
0.3p
|
6.5p
|
(0.7)p
|
4.1p
|
30.1p
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (millions)
|
4,936
|
|
|
|
|
|
4,936
|
|
––––––––––––
|
|
|
|
|
|
––––––––––––
|
Major restructuring and integration
Within
the Pharmaceuticals sector, the highly regulated manufacturing
operations and supply chains and long lifecycle of the business
mean that restructuring programmes, particularly those that involve
the rationalisation or closure of manufacturing or R&D sites
are likely to take several years to complete.
|
Total
Major restructuring charges incurred in Q1 2020 were £483
million (Q1 2019: £380 million), analysed as
follows:
|
|
Q1 2020
|
|
Q1
2019
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
£m
|
|
Non-cash
£m
|
|
Total
£m
|
|
Cash
£m
|
|
Non-cash
£m
|
|
Total
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
major restructuring programme (incl. Tesaro)
|
26
|
|
155
|
|
181
|
|
24
|
|
312
|
|
336
|
Consumer
Healthcare Joint Venture integration programme
|
57
|
|
2
|
|
59
|
|
10
|
|
-
|
|
10
|
Separation
Preparation restructuring programme
|
237
|
|
-
|
|
237
|
|
-
|
|
-
|
|
-
|
Combined
restructuring and integration programme
|
3
|
|
3
|
|
6
|
|
22
|
|
12
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323
|
|
160
|
|
483
|
|
56
|
|
324
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
charges primarily arose from restructuring of Vaccines
Manufacturing and R&D functions as well as commercial
pharmaceuticals restructuring under the Separation Preparation
programme, integration costs under the Consumer Healthcare Joint
Venture integration programme and restructuring of the
manufacturing organisation, R&D and some administrative
functions as well as the integration of Tesaro under the 2018 major
restructuring programme. Non-cash charges under the 2018 major
restructuring programme primarily related to write down of sites on
disposal of sites as part of plans to restructure the manufacturing
network.
Total
cash payments made in Q1 2020 were £168 million (Q1 2019:
£174 million), £34 million for the existing Combined
restructuring and integration programme (Q1 2019: £121
million), £53 million (Q1 2019: £53 million) under the
2018 major restructuring programme including the settlement of
certain charges accrued in previous quarters, a further £70
million relating to the Consumer Healthcare Joint Venture
integration programme and £11 million relating to the
Separation Preparation restructuring programme.
The
analysis of Major restructuring charges by business was as
follows:
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
Pharmaceuticals
|
172
|
|
336
|
Vaccines
|
210
|
|
-
|
Consumer
Healthcare
|
74
|
|
21
|
|
|
|
|
|
456
|
|
357
|
Corporate
& central functions
|
27
|
|
23
|
|
|
|
|
Total
Major restructuring costs
|
483
|
|
380
|
|
|
|
|
The
analysis of Major restructuring charges by Income statement line
was as follows:
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
Cost of
sales
|
293
|
|
341
|
Selling,
general and administration
|
106
|
|
25
|
Research
and development
|
84
|
|
15
|
Other
operating expense
|
-
|
|
(1)
|
|
|
|
|
Total
Major restructuring costs
|
483
|
|
380
|
|
|
|
|
The
benefit in the quarter from the 2018 major restructuring programme
was £0.1 billion. Given their early stages, the benefits from
the Consumer Healthcare Joint Venture integration and Separation
Preparation restructuring programmes were less than £0.1
billion.
The
2018 major restructuring programme, including Tesaro, is expected
to cost £1.75 billion over the period to 2021, with cash costs
of £0.85 billion and non-cash costs of £0.9 billion, and
is expected to deliver annual savings of around £450 million
by 2021 (at 2019 rates). These savings are intended to be fully
re-invested to help fund targeted increases in R&D and
commercial support of new products.
The
completion of the new Consumer Healthcare Joint Venture with Pfizer
is expected to realise substantial cost synergies, generating total
annual cost savings of £0.5 billion by 2022 for expected cash
costs of £0.7 billion and non-cash charges of £0.3
billion, plus additional capital expenditure of £0.2 billion.
Up to 25% of the cost savings are intended to be reinvested in the
business to support innovation and other growth
opportunities.
The
Group initiated in Q1 2020 a two-year Separation Preparation
programme to prepare for the separation of GSK into two companies:
New GSK, a biopharma company with an R&D approach focused on
science related to the immune system, the use of genetics and new
technologies, and a new leader in Consumer Healthcare. The
programme aims to:
|
●
|
Drive a
common approach to R&D with improved capital
allocation
|
●
|
Align
and improve the capabilities and efficiency of global support
functions to support New GSK
|
●
|
Further
optimise the supply chain and product portfolio, including the
divestment of non-core assets. A strategic review of prescription
dermatology is underway
|
●
|
Prepare
Consumer Healthcare to operate as a standalone company
|
The
programme will target delivery of £0.7 billion of annual
savings by 2022 and £0.8 billion by 2023, with total costs
estimated at £2.4 billion, of which £1.6 billion is
expected to be cash costs. The proceeds of anticipated divestments
are largely expected to cover the cash costs of the
programme.
Additional
one-time costs to prepare Consumer Healthcare for separation are
estimated at £600-700 million, excluding transaction
costs.
|
Transaction-related adjustments
Transaction-related
adjustments resulted in a net charge of £569 million (Q1 2019:
£53 million credit). This included a net £473 million
accounting charge for the re-measurement of the contingent
consideration liabilities related to the acquisitions of the former
Shionogi-ViiV Healthcare joint venture and the former Novartis
Vaccines business and the liabilities for the Pfizer put option and
Pfizer and Shionogi preferential dividends in ViiV
Healthcare.
|
Charge/(credit)
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
Contingent
consideration on former Shionogi-ViiV Healthcare joint venture
(including Shionogi preferential dividends)
|
435
|
|
(60)
|
ViiV
Healthcare put options and Pfizer preferential
dividends
|
49
|
|
(24)
|
Contingent
consideration on former Novartis Vaccines business
|
(11)
|
|
(1)
|
Release
of fair value uplift on acquired Pfizer inventory
|
91
|
|
-
|
Other
adjustments
|
5
|
|
32
|
|
|
|
|
Total
transaction-related charges
|
569
|
|
(53)
|
|
|
|
|
The
£435 million charge relating to the contingent consideration
for the former Shionogi-ViiV Healthcare joint venture represented
an increase in the valuation of the contingent consideration due to
Shionogi, primarily as a result of a £94 million unwind of the
discount and £341 million primarily from updated exchange rate
assumptions as well as adjustments to sales forecasts. The £49
million charge relating to the ViiV Healthcare put options and
Pfizer preferential dividends represented an increase in the
valuation of the put option as a result of updated exchange rate
assumptions as well as adjustments to multiples and sales
forecasts.
The
ViiV Healthcare contingent consideration liability is valued on a
long-term basis. The potential impact of the COVID-19 pandemic
remains uncertain and at 31 March 2020, it has been assumed that
there will be no significant impact on the long-term value of the
liability. This position remains under review and the amount of the
liability will be updated in future quarters as further information
on the impact of the pandemic becomes available. An explanation of
the accounting for the non-controlling interests in ViiV Healthcare
is set out on page 10.
Divestments, significant legal charges and other items
Divestments
and other items included a gain in the period of £536 million
arising from the increase in value of the shares in Hindustan
Unilever Limited to be received in connection with the disposal of
Horlicks and other Consumer
Healthcare brands, as well as milestone income and certain other
Adjusting items. A charge of £5 million (Q1 2019: £22
million) for significant legal matters included the settlement of
existing matters as well as provisions for ongoing litigation.
Significant legal cash payments were £5 million (Q1 2019:
£4 million).
|
Cash generation
|
Cash flow
|
|
|
|
Q1 2020
|
|
Q1
2019
|
|
|
|
|
|
|
Net
cash inflow from operating activities (£m)
|
|
|
965
|
|
663
|
Free
cash flow* (£m)
|
|
|
531
|
|
165
|
Free
cash flow growth (%)
|
|
|
>100%
|
|
(50)%
|
Free
cash flow conversion* (%)
|
|
|
34%
|
|
20%
|
Net
debt** (£m)
|
|
|
26,668
|
|
27,058
|
*
|
Free
cash flow and free cash flow conversion are defined on page
40.
|
**
|
Net
debt is analysed on page 39.
|
Q1 2020
The net
cash inflow from operating activities for the quarter was £965
million (Q1 2019: £663 million). The increase primarily
reflected improved operating profits, the beneficial timing of
payments for returns and rebates and reduced inventory, partly
offset by a higher increase in trade receivables as a result of
strong sales in the quarter.
Total
cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were £213
million (Q1 2019: £219 million), of which £185 million
was recognised in cash flows from operating activities and £28
million was recognised in contingent consideration paid within
investing cash flows. These payments are deductible for tax
purposes.
Free
cash flow was £531 million for the quarter (Q1 2019: £165
million). The increase primarily reflected improved operating
profits, the beneficial timing of payments for returns and rebates,
reduced inventory and the receipt of milestone income, partly
offset by a higher increase in trade receivables as a result of
strong sales in the quarter and higher dividends to non-controlling
interests.
|
Net debt
At 31
March 2020, net debt was £26.7 billion, compared with
£25.2 billion at 31 December 2019, comprising gross debt of
£32.0 billion and cash and liquid investments of £5.3
billion, including £0.5 billion reported within Assets held
for sale. Net debt increased due to £1.2 billion of net
adverse exchange impacts from the translation of non-Sterling
denominated debt and exchange on other financing items and the
dividend paid to shareholders of £0.9 billion, partly offset
by £0.5 billion of free cash flow and £0.2 billion of
income from disposals of businesses and investments.
At 31
March 2020, GSK had short-term borrowings (including overdrafts and
lease liabilities) repayable within 12 months of £7.3 billion
with loans of £3.4 billion repayable in the subsequent
year.
The
potential impact of the COVID-19 pandemic remains uncertain but at
31 March 2020, the Group had sufficient cash for its operational
needs and continues to fund its global operations effectively. GSK
also has access to significant additional undrawn committed sources
of finance if required.
|
Returns to shareholders
|
Quarterly dividends
The
Board has declared a first interim dividend for 2020 of 19 pence
per share (Q1 2019: 19 pence per share).
GSK
recognises the importance of dividends to shareholders and aims to
distribute regular dividend payments that will be determined
primarily with reference to the free cash flow generated by the
business after funding the investment necessary to support the
Group’s future growth.
The
Board currently intends to maintain the dividend for 2020 at the
current level of 80p per share, subject to any material change in
the external environment or performance expectations. Over time, as
free cash flow strengthens, it intends to build free cash flow
cover of the annual dividend to a target range of 1.25-1.50x,
before returning the dividend to growth.
Payment of dividends
The
equivalent interim dividend receivable by ADR holders will be
calculated based on the exchange rate on 7 July 2020. An annual fee
of $0.03 per ADS (or $0.0075 per ADS per quarter) is charged by the
Depositary.
The
ex-dividend date will be 14 May 2020, with a record date of 15 May
2020 and a payment date of 9 July 2020.
|
|
Paid/payable
|
|
Pence
per share
|
|
£m
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
First
interim
|
9 July
2020
|
|
19
|
|
946
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
First
interim
|
11 July
2019
|
|
19
|
|
940
|
Second
interim
|
10 October
2019
|
|
19
|
|
941
|
Third
interim
|
9 January
2020
|
|
19
|
|
941
|
Fourth
interim
|
9 April
2020
|
|
23
|
|
1,144
|
|
|
|
|
|
|
|
|
|
80
|
|
3,966
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
Q1 2020
millions
|
|
Q1
2019
millions
|
|
|
|
|
|
|
Weighted
average number of shares – basic
|
|
|
4,965
|
|
4,936
|
Dilutive
effect of share options and share awards
|
|
|
45
|
|
42
|
|
|
|
|
|
|
Weighted
average number of shares – diluted
|
|
|
5,010
|
|
4,978
|
|
|
|
|
|
|
At 31
March 2020, 4,976 million shares (Q1 2019: 4,946 million) were in
free issue (excluding Treasury shares and shares held by the ESOP
Trusts). GSK made no share repurchases during the period. The
company issued 1.6 million shares under employee share schemes in
the year for proceeds of £23 million (Q1 2019: £27
million).
|
At 31 March 2020, the ESOP Trust held 40.5 million GSK shares
against the future exercise of share options and share awards. The
carrying value of £385 million has been deducted from other
reserves. The market value of these shares was
£610 million.
At 31 March 2020, the company held 367.7 million Treasury shares at
a cost of £5,144 million, which has been deducted from
retained earnings.
|
Financial information
|
Income statement
|
|
|
|
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
|
|
|
|
TURNOVER
|
|
|
|
|
9,090
|
|
7,661
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
|
|
(3,199)
|
|
(2,733)
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
5,891
|
|
4,928
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
|
|
|
|
(2,916)
|
|
(2,477)
|
Research
and development
|
|
|
|
|
(1,187)
|
|
(1,006)
|
Royalty income
|
|
|
|
|
67
|
|
73
|
Other
operating income/(expense)
|
|
|
|
|
159
|
|
(90)
|
|
|
|
|
|
|
|
|
OPERATING PROFIT
|
|
|
|
|
2,014
|
|
1,428
|
|
|
|
|
|
|
|
|
Finance
income
|
|
|
|
|
41
|
|
34
|
Finance
expense
|
|
|
|
|
(229)
|
|
(224)
|
Share
of after tax profits of associates and joint ventures
|
|
|
|
|
9
|
|
57
|
|
|
|
|
|
|
|
|
PROFIT BEFORE TAXATION
|
|
|
|
|
1,835
|
|
1,295
|
|
|
|
|
|
|
|
|
Taxation
|
|
|
|
|
(156)
|
|
(310)
|
Tax rate %
|
|
|
|
|
8.5%
|
|
23.9%
|
|
|
|
|
|
|
|
|
PROFIT AFTER TAXATION
|
|
|
|
|
1,679
|
|
985
|
|
|
|
|
|
|
|
|
Profit
attributable to non-controlling interests
|
|
|
|
|
114
|
|
155
|
Profit
attributable to shareholders
|
|
|
|
|
1,565
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,679
|
|
985
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE
|
|
|
|
|
31.5p
|
|
16.8p
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
31.2p
|
|
16.7p
|
|
|
|
|
|
|
|
|
Statement of comprehensive
income
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
Profit
for the period
|
1,679
|
|
985
|
|
|
|
|
Items that may be reclassified subsequently to income
statement:
|
|
|
|
Exchange
movements on overseas net assets and net investment
hedges
|
178
|
|
75
|
Fair
value movements on cash flow hedges
|
(18)
|
|
-
|
Reclassification
of cash flow hedges to income statement
|
1
|
|
1
|
Deferred
tax on fair value movements on cash flow hedges
|
-
|
|
(1)
|
|
|
|
|
|
161
|
|
75
|
|
|
|
|
Items that will not be reclassified to income
statement:
|
|
|
|
Exchange
movements on overseas net assets of non-controlling
interests
|
53
|
|
(18)
|
Fair
value movements on equity investments
|
(39)
|
|
38
|
Deferred
tax on fair value movements on equity investments
|
10
|
|
(10)
|
Re-measurement
gains/(losses) on defined benefit plans
|
1,000
|
|
(442)
|
Tax on
re-measurement gains/(losses) on defined benefit plans
|
(187)
|
|
75
|
|
|
|
|
|
837
|
|
(357)
|
|
|
|
|
Other
comprehensive expense for the period
|
998
|
|
(282)
|
|
|
|
|
Total
comprehensive income for the period
|
2,677
|
|
703
|
|
|
|
|
|
|
|
|
Total
comprehensive income for the period attributable to:
|
|
|
|
Shareholders
|
2,510
|
|
566
|
Non-controlling
interests
|
167
|
|
137
|
|
|
|
|
|
2,677
|
|
703
|
|
|
|
|
Pharmaceuticals turnover –
three months ended 31 March 2020
|
|
Total
|
US
|
Europe
|
International
|
||||||||
|
–––––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––––
|
||||||||
|
|
Growth
|
|
Growth
|
|
Growth
|
|
Growth
|
||||
|
|
––––––––––––––––––––––––
|
|
––––––––––––––––––––––––
|
|
––––––––––––––––––––––––
|
|
––––––––––––––––––––––––
|
||||
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Respiratory
|
871
|
38
|
38
|
464
|
38
|
36
|
247
|
40
|
42
|
160
|
36
|
36
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Ellipta
products
|
661
|
38
|
38
|
349
|
38
|
37
|
185
|
41
|
44
|
127
|
32
|
32
|
Anoro Ellipta
|
117
|
15
|
16
|
63
|
9
|
9
|
36
|
33
|
33
|
18
|
6
|
12
|
Arnuity Ellipta
|
9
|
29
|
29
|
7
|
17
|
17
|
-
|
-
|
-
|
2
|
100
|
100
|
Incruse Ellipta
|
57
|
(16)
|
(16)
|
30
|
(32)
|
(32)
|
20
|
11
|
11
|
7
|
17
|
17
|
Relvar/Breo Ellipta
|
285
|
33
|
32
|
115
|
47
|
45
|
87
|
30
|
33
|
83
|
19
|
16
|
Trelegy Ellipta
|
193
|
>100
|
>100
|
134
|
>100
|
>100
|
42
|
>100
|
>100
|
17
|
>100
|
>100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nucala
|
210
|
38
|
38
|
115
|
35
|
33
|
62
|
38
|
38
|
33
|
50
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HIV
|
1,207
|
8
|
8
|
705
|
2
|
1
|
320
|
15
|
17
|
182
|
18
|
21
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Dolutegravir
products
|
1,161
|
9
|
9
|
691
|
3
|
2
|
305
|
16
|
18
|
165
|
22
|
25
|
Tivicay
|
412
|
8
|
8
|
214
|
(4)
|
(5)
|
106
|
13
|
15
|
92
|
39
|
42
|
Triumeq
|
563
|
(8)
|
(8)
|
338
|
(12)
|
(13)
|
156
|
(3)
|
(1)
|
69
|
1
|
4
|
Juluca
|
120
|
71
|
69
|
94
|
54
|
51
|
24
|
>100
|
>100
|
2
|
100
|
100
|
Dovato
|
66
|
-
|
-
|
45
|
-
|
-
|
19
|
-
|
-
|
2
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Epzicom/Kivexa
|
9
|
(53)
|
(47)
|
1
|
-
|
-
|
3
|
(50)
|
(50)
|
5
|
(58)
|
(50)
|
Selzentry
|
26
|
13
|
13
|
11
|
(15)
|
(15)
|
8
|
14
|
14
|
7
|
>100
|
>100
|
Other
|
11
|
(8)
|
(8)
|
2
|
(60)
|
(60)
|
4
|
33
|
33
|
5
|
25
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immuno-inflammation
|
151
|
25
|
24
|
126
|
20
|
18
|
14
|
27
|
36
|
11
|
>100
|
>100
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Benlysta
|
151
|
25
|
24
|
126
|
20
|
18
|
14
|
27
|
36
|
11
|
>100
|
>100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oncology
|
81
|
88
|
88
|
48
|
85
|
81
|
33
|
94
|
100
|
-
|
-
|
-
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Zejula
|
81
|
93
|
93
|
48
|
85
|
81
|
33
|
>100
|
>100
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established Pharmaceuticals
|
2,086
|
(7)
|
(6)
|
415
|
(22)
|
(23)
|
528
|
1
|
2
|
1,143
|
(4)
|
(2)
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Established Respiratory
|
965
|
(11)
|
(11)
|
303
|
(24)
|
(25)
|
220
|
1
|
2
|
442
|
(5)
|
(4)
|
Seretide/Advair
|
395
|
(19)
|
(18)
|
106
|
(40)
|
(40)
|
127
|
(5)
|
(3)
|
162
|
(8)
|
(7)
|
Flixotide/Flovent
|
123
|
(16)
|
(16)
|
50
|
(36)
|
(37)
|
28
|
8
|
8
|
45
|
7
|
10
|
Ventolin
|
253
|
3
|
4
|
147
|
1
|
(1)
|
38
|
15
|
18
|
68
|
3
|
6
|
Avamys/Veramyst
|
109
|
(5)
|
(5)
|
-
|
-
|
-
|
19
|
-
|
5
|
90
|
(6)
|
(7)
|
Other
Respiratory
|
85
|
(7)
|
(8)
|
-
|
-
|
-
|
8
|
14
|
-
|
77
|
(8)
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dermatology
|
111
|
3
|
6
|
-
|
-
|
-
|
38
|
-
|
-
|
73
|
7
|
12
|
Augmentin
|
169
|
6
|
8
|
-
|
-
|
-
|
57
|
16
|
18
|
112
|
1
|
3
|
Avodart
|
141
|
(1)
|
-
|
1
|
-
|
-
|
49
|
(13)
|
(11)
|
91
|
6
|
7
|
Imigran/Imitrex
|
34
|
10
|
13
|
15
|
25
|
25
|
13
|
-
|
8
|
6
|
-
|
-
|
Lamictal
|
137
|
4
|
5
|
69
|
6
|
5
|
32
|
28
|
32
|
36
|
(14)
|
(12)
|
Seroxat/Paxil
|
36
|
(10)
|
(10)
|
-
|
-
|
-
|
10
|
11
|
11
|
26
|
(16)
|
(16)
|
Valtrex
|
28
|
4
|
4
|
4
|
(20)
|
(20)
|
9
|
29
|
29
|
15
|
-
|
-
|
Others
|
465
|
(10)
|
(9)
|
23
|
(51)
|
(51)
|
100
|
(6)
|
(7)
|
342
|
(6)
|
(4)
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Pharmaceuticals
|
4,396
|
6
|
6
|
1,758
|
4
|
3
|
1,142
|
14
|
15
|
1,496
|
2
|
4
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vaccines turnover – three
months ended 31 March 2020
|
|
Total
|
US
|
Europe
|
International
|
||||||||
|
–––––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––––
|
–––––––––––––––––––––––––––––––––––––––
|
||||||||
|
|
Growth
|
|
Growth
|
|
Growth
|
|
Growth
|
||||
|
|
––––––––––––––––––––––––
|
|
––––––––––––––––––––––––
|
|
––––––––––––––––––––––––
|
|
––––––––––––––––––––––––
|
||||
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
£m
|
£%
|
CER%
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meningitis
|
225
|
8
|
11
|
80
|
13
|
11
|
95
|
14
|
17
|
50
|
(9)
|
-
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Bexsero
|
164
|
5
|
8
|
54
|
12
|
13
|
84
|
9
|
12
|
26
|
(16)
|
(10)
|
Menveo
|
40
|
21
|
24
|
26
|
13
|
9
|
9
|
>100
|
>100
|
5
|
(17)
|
17
|
Other
|
21
|
5
|
10
|
-
|
-
|
-
|
2
|
-
|
-
|
19
|
6
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Influenza
|
21
|
40
|
53
|
2
|
>100
|
>100
|
-
|
-
|
-
|
19
|
36
|
50
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Fluarix, FluLaval
|
21
|
40
|
53
|
2
|
>100
|
>100
|
-
|
-
|
-
|
19
|
36
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shingles
|
647
|
81
|
79
|
600
|
83
|
80
|
20
|
>100
|
>100
|
27
|
13
|
17
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Shingrix
|
647
|
81
|
79
|
600
|
83
|
80
|
20
|
>100
|
>100
|
27
|
13
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established Vaccines
|
912
|
(3)
|
(3)
|
331
|
(12)
|
(13)
|
233
|
(7)
|
(5)
|
348
|
11
|
13
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Infanrix, Pediarix
|
180
|
(2)
|
(1)
|
88
|
(15)
|
(16)
|
54
|
15
|
15
|
38
|
15
|
21
|
Boostrix
|
112
|
(9)
|
(9)
|
58
|
(5)
|
(5)
|
35
|
(5)
|
(3)
|
19
|
(24)
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hepatitis
|
213
|
(11)
|
(11)
|
128
|
(18)
|
(19)
|
55
|
10
|
12
|
30
|
(6)
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rotarix
|
151
|
13
|
13
|
41
|
(9)
|
(9)
|
31
|
7
|
10
|
79
|
32
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synflorix
|
123
|
2
|
3
|
-
|
-
|
-
|
19
|
6
|
11
|
104
|
1
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priorix, Priorix Tetra, Varilrix
|
57
|
4
|
7
|
-
|
-
|
-
|
29
|
7
|
7
|
28
|
-
|
7
|
Cervarix
|
12
|
(40)
|
(40)
|
-
|
-
|
-
|
4
|
(20)
|
(20)
|
8
|
(47)
|
(47)
|
Other
|
64
|
(3)
|
(5)
|
16
|
33
|
17
|
6
|
(84)
|
(84)
|
42
|
>100
|
>100
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
Vaccines
|
1,805
|
19
|
19
|
1,013
|
30
|
29
|
348
|
3
|
4
|
444
|
9
|
13
|
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
–––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
|
31 March 2020
£m
|
|
31
December 2019
£m
|
ASSETS
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
10,427
|
|
10,348
|
Right
of use assets
|
|
|
975
|
|
966
|
Goodwill
|
|
|
10,899
|
|
10,562
|
Other
intangible assets
|
|
|
31,499
|
|
30,955
|
Investments
in associates and joint ventures
|
|
|
367
|
|
314
|
Other
investments
|
|
|
1,824
|
|
1,837
|
Deferred
tax assets
|
|
|
4,165
|
|
4,096
|
Derivative
financial instruments
|
|
|
166
|
|
103
|
Other
non-current assets
|
|
|
2,037
|
|
1,020
|
|
|
|
|
|
|
Total non-current assets
|
|
|
62,359
|
|
60,201
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Inventories
|
|
|
5,952
|
|
5,947
|
Current
tax recoverable
|
|
|
365
|
|
262
|
Trade
and other receivables
|
|
|
8,530
|
|
7,202
|
Derivative
financial instruments
|
|
|
1,242
|
|
421
|
Liquid
investments
|
|
|
86
|
|
79
|
Cash
and cash equivalents
|
|
|
4,769
|
|
4,707
|
Assets
held for sale
|
|
|
1,079
|
|
873
|
|
|
|
|
|
|
Total current assets
|
|
|
22,023
|
|
19,491
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
84,382
|
|
79,692
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Short-term
borrowings
|
|
|
(7,265)
|
|
(6,918)
|
Contingent
consideration liabilities
|
|
|
(796)
|
|
(755)
|
Trade
and other payables
|
|
|
(15,310)
|
|
(14,939)
|
Derivative
financial instruments
|
|
|
(381)
|
|
(188)
|
Current
tax payable
|
|
|
(815)
|
|
(629)
|
Short-term
provisions
|
|
|
(768)
|
|
(621)
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(25,335)
|
|
(24,050)
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
Long-term
borrowings
|
|
|
(24,741)
|
|
(23,590)
|
Corporation
tax payable
|
|
|
(195)
|
|
(189)
|
Deferred
tax liabilities
|
|
|
(3,903)
|
|
(3,810)
|
Pensions
and other post-employment benefits
|
|
|
(3,663)
|
|
(3,457)
|
Other
provisions
|
|
|
(775)
|
|
(670)
|
Derivative
financial instruments
|
|
|
-
|
|
(1)
|
Contingent
consideration liabilities
|
|
|
(4,904)
|
|
(4,724)
|
Other
non-current liabilities
|
|
|
(769)
|
|
(844)
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
(38,950)
|
|
(37,285)
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
(64,285)
|
|
(61,335)
|
|
|
|
|
|
|
NET ASSETS
|
|
|
20,097
|
|
18,357
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
Share
capital
|
|
|
1,346
|
|
1,346
|
Share
premium account
|
|
|
3,275
|
|
3,174
|
Retained
earnings
|
|
|
6,353
|
|
4,530
|
Other
reserves
|
|
|
2,120
|
|
2,355
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
13,094
|
|
11,405
|
|
|
|
|
|
|
Non-controlling
interests
|
|
|
7,003
|
|
6,952
|
|
|
|
|
|
|
TOTAL EQUITY
|
|
|
20,097
|
|
18,357
|
|
|
|
|
|
|
Statement of changes in
equity
|
|
Share
capital
£m
|
Share
premium
£m
|
Retained
earnings
£m
|
Other
reserves
£m
|
Shareholder’s
equity
£m
|
Non-controlling
interests
£m
|
Total
equity
£m
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
At 1
January 2020
|
1,346
|
3,174
|
4,530
|
2,355
|
11,405
|
6,952
|
18,357
|
|
|
|
|
|
|
|
|
Profit
for the period
|
|
|
1,565
|
|
1,565
|
114
|
1,679
|
Other
comprehensive (expense)/income for the period
|
|
|
998
|
(53)
|
945
|
53
|
998
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Total
comprehensive income/(expense) for the period
|
|
|
2,563
|
(53)
|
2,510
|
167
|
2,677
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Distributions
to non-controlling interests
|
|
|
|
|
|
(119)
|
(119)
|
Contribution
from non-controlling interests
|
|
|
|
|
|
3
|
3
|
Dividends
to shareholders
|
|
|
(941)
|
|
(941)
|
|
(941)
|
Shares
issued
|
-
|
23
|
|
|
23
|
|
23
|
Realised
after tax losses on disposal of equity investments
|
|
|
(41)
|
41
|
-
|
|
-
|
Shares
acquired by ESOP Trusts
|
|
78
|
362
|
(440)
|
-
|
|
-
|
Write-down
on shares held by ESOP Trusts
|
|
|
(217)
|
217
|
-
|
|
-
|
Share-based
incentive plans
|
|
|
97
|
|
97
|
|
97
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
At 31 March 2020
|
1,346
|
3,275
|
6,353
|
2,120
|
13,094
|
7,003
|
20,097
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
previously reported
|
1,345
|
3,091
|
(2,137)
|
2,061
|
4,360
|
(688)
|
3,672
|
Adjustment
to non-controlling interest
|
-
|
-
|
(579)
|
-
|
(579)
|
579
|
-
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
As
revised
|
1,345
|
3,091
|
(2,716)
|
2,061
|
3,781
|
(109)
|
3,672
|
Implementation
of IFRS16
|
|
|
(93)
|
|
(93)
|
|
(93)
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
At 1
January 2019, as adjusted
|
1,345
|
3,091
|
(2,809)
|
2,061
|
3,688
|
(109)
|
3,579
|
Profit
for the period
|
|
|
830
|
|
830
|
155
|
985
|
Other
comprehensive income/(expense) for the period
|
|
|
(302)
|
38
|
(264)
|
(18)
|
(282)
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Total
comprehensive income for the period
|
|
|
528
|
38
|
566
|
137
|
703
|
|
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Distributions
to non-controlling interests
|
|
|
|
|
|
(92)
|
(92)
|
Dividends
to shareholders
|
|
|
(935)
|
|
(935)
|
|
(935)
|
Shares
issued
|
-
|
27
|
|
|
27
|
|
27
|
Realised
after tax profits on disposal of equity investments
|
|
|
6
|
(6)
|
-
|
|
-
|
Shares
acquired by ESOP Trusts
|
|
33
|
295
|
(328)
|
-
|
|
-
|
Write-down
on shares held by ESOP Trusts
|
|
|
(191)
|
191
|
-
|
|
-
|
Share-based
incentive plans
|
|
|
89
|
-
|
89
|
|
89
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
At 31
March 2019
|
1,345
|
3,151
|
(3,017)
|
1,956
|
3,435
|
(64)
|
3,371
|
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
––––––––––––
|
Cash flow statement – three
months ended 31 March 2020
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
Profit after tax
|
1,679
|
|
985
|
Tax on
profits
|
156
|
|
310
|
Share
of after tax profits of associates and joint ventures
|
(9)
|
|
(57)
|
Net
finance expense
|
188
|
|
190
|
Depreciation,
amortisation and other adjusting items
|
194
|
|
1,183
|
Increase
in working capital
|
(1,340)
|
|
(789)
|
Contingent
consideration paid
|
(186)
|
|
(194)
|
Increase/(decrease)
in other net liabilities (excluding contingent
consideration
paid)
|
544
|
|
(771)
|
|
|
|
|
Cash generated from operations
|
1,226
|
|
857
|
Taxation
paid
|
(261)
|
|
(194)
|
|
|
|
|
Net cash inflow from operating activities
|
965
|
|
663
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
Purchase
of property, plant and equipment
|
(197)
|
|
(222)
|
Proceeds
from sale of property, plant and equipment
|
6
|
|
7
|
Purchase
of intangible assets
|
(147)
|
|
(82)
|
Proceeds
from sale of intangible assets
|
113
|
|
8
|
Purchase
of equity investments
|
(26)
|
|
(14)
|
Proceeds
from sale of equity investments
|
45
|
|
20
|
Purchase
of businesses, net of cash acquired
|
-
|
|
(3,642)
|
Contingent
consideration paid
|
(29)
|
|
(23)
|
Disposal
of businesses
|
146
|
|
(23)
|
Investment
in associates and joint ventures
|
(1)
|
|
(4)
|
Interest
received
|
18
|
|
23
|
Dividends
from associates and joint ventures
|
14
|
|
-
|
|
|
|
|
Net cash outflow from investing activities
|
(58)
|
|
(3,952)
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
Issue
of share capital
|
23
|
|
27
|
Increase
in short-term loans
|
-
|
|
5,711
|
Increase
in long-term loans
|
-
|
|
2,622
|
Repayment
of short-term loans
|
(116)
|
|
(3,502)
|
Repayment
of lease liabilities
|
(53)
|
|
(49)
|
Interest
paid
|
(96)
|
|
(117)
|
Dividends
paid to shareholders
|
(941)
|
|
(935)
|
Distributions
to non-controlling interests
|
(119)
|
|
(92)
|
Contribution
from non-controlling interest
|
3
|
|
-
|
Other
financing items
|
247
|
|
(4)
|
|
|
|
|
Net cash (outflow)/inflow from financing activities
|
(1,052)
|
|
3,661
|
|
|
|
|
(Decrease)/increase in cash and bank overdrafts in the
period
|
(145)
|
|
372
|
|
|
|
|
Cash
and bank overdrafts at beginning of the period
|
4,831
|
|
4,087
|
Exchange
adjustments
|
42
|
|
(40)
|
(Decrease)/increase
in cash and bank overdrafts
|
(145)
|
|
372
|
|
|
|
|
Cash and bank overdrafts at end of the period
|
4,728
|
|
4,419
|
|
|
|
|
Cash
and bank overdrafts at end of the period comprise:
|
|
|
|
Cash
and cash equivalents
|
4,769
|
|
4,132
|
Cash
and cash equivalents reported in assets held for sale
|
483
|
|
486
|
|
|
|
|
|
5,252
|
|
4,618
|
Overdrafts
|
(524)
|
|
(199)
|
|
|
|
|
|
4,728
|
|
4,419
|
|
|
|
|
Segment
information
|
|
Operating
segments are reported based on the financial information provided
to the Chief Executive Officer and the responsibilities of the
Corporate Executive Team (CET). GSK reports results under four
segments: Pharmaceuticals; Pharmaceuticals R&D; Vaccines and
Consumer Healthcare, and individual members of the CET are
responsible for each segment.
The
Pharmaceuticals R&D segment is the responsibility of the Chief
Scientific Officer and President, R&D and is reported as a
separate segment. The operating profit of this segment excludes the
ViiV Healthcare operating profit (including R&D expenditure)
that is reported within the Pharmaceuticals segment.
The
Group’s management reporting process allocates intra-Group
profit on a product sale to the market in which that sale is
recorded, and the profit analyses below have been presented on that
basis.
Corporate
and other unallocated turnover and costs include the results of
certain Consumer Healthcare products which are being held for sale
in a number of markets in order to meet anti-trust approval
requirements, together with the costs of corporate
functions.
|
Turnover by
segment
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
4,396
|
|
4,158
|
|
6
|
|
6
|
Vaccines
|
1,805
|
|
1,522
|
|
19
|
|
19
|
Consumer
Healthcare
|
2,862
|
|
1,981
|
|
44
|
|
46
|
|
|
|
|
|
|
|
|
|
9,063
|
|
7,661
|
|
18
|
|
19
|
Corporate
and other unallocated turnover
|
27
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
turnover
|
9,090
|
|
7,661
|
|
19
|
|
19
|
|
|
|
|
|
|
|
|
Operating profit by
segment
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
2,018
|
|
1,968
|
|
3
|
|
2
|
Pharmaceuticals
R&D
|
(835)
|
|
(730)
|
|
14
|
|
14
|
|
|
|
|
|
|
|
|
Pharmaceuticals
including R&D
|
1,183
|
|
1,238
|
|
(4)
|
|
(5)
|
Vaccines
|
858
|
|
614
|
|
40
|
|
39
|
Consumer
Healthcare
|
766
|
|
430
|
|
78
|
|
82
|
|
|
|
|
|
|
|
|
Segment
profit
|
2,807
|
|
2,282
|
|
23
|
|
23
|
Corporate
and other unallocated costs
|
(132)
|
|
(119)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,675
|
|
2,163
|
|
24
|
|
24
|
Adjusting
items
|
(661)
|
|
(735)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating profit
|
2,014
|
|
1,428
|
|
41
|
|
42
|
|
|
|
|
|
|
|
|
Finance
income
|
41
|
|
34
|
|
|
|
|
Finance
costs
|
(229)
|
|
(224)
|
|
|
|
|
Share
of after tax profits of associates and joint ventures
|
9
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
before taxation
|
1,835
|
|
1,295
|
|
42
|
|
42
|
|
|
|
|
|
|
|
|
Legal matters
The Group is involved in significant legal and
administrative proceedings, principally product liability,
intellectual property, tax, anti-trust, consumer fraud and
governmental investigations, which are more fully described in the
‘Legal Proceedings’ note in the Annual Report 2019. At
31 March 2020, the Group’s aggregate provision for legal and
other disputes (not including tax matters described on page 19 was
£0.3 billion (31 December 2019: £0.2
billion).
The
Group may become involved in significant legal proceedings in
respect of which it is not possible to make a reliable estimate of
the expected financial effect, if any, that could result from
ultimate resolution of the proceedings. In these cases, the Group
would provide appropriate disclosures about such cases, but no
provision would be made.
A
significant development since the date of the Annual Report 2019 is
as follows:
In
February 2020, the Group reached a settlement with respect to the
claims brought by the US Securities and Exchange Commission (the
SEC) against the Group, relating to the Group’s acquisition
of Stiefel Laboratories, Inc., in 2009. Accordingly, the trial
scheduled in US federal court for 7 July 2020 will not go forward,
and the matter is now concluded.
The
ultimate liability for legal claims may vary from the amounts
provided and is dependent upon the outcome of litigation
proceedings, investigations and possible settlement negotiations.
The Group’s position could change over time, and, therefore,
there can be no assurance that any losses that result from the
outcome of any legal proceedings will not exceed by a material
amount the amount of the provisions reported in the Group’s
financial accounts.
|
Additional
information
|
Accounting policies and basis of preparation
|
This
unaudited Results Announcement contains condensed financial
information for the three months ended
31 March 2020, and should be read in conjunction with the Annual
Report 2019, which was prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union. This Results Announcement has been prepared
applying consistent accounting policies to those applied by the
Group in the Annual Report 2019.
|
This
Results Announcement does not constitute statutory accounts of the
Group within the meaning of sections 434(3) and 435(3) of the
Companies Act 2006. The full Group accounts for 2019 were published
in the Annual Report 2019, which has been delivered to the
Registrar of Companies and on which the report of the independent
auditors was unqualified and did not contain a statement under
section 498 of the Companies Act 2006.
|
Exchange rates
|
GSK
operates in many countries, and earns revenues and incurs costs in
many currencies. The results of the Group, as reported in Sterling,
are affected by movements in exchange rates between Sterling and
other currencies. Average exchange rates, as modified by specific
transaction rates for large transactions, prevailing during the
period, are used to translate the results and cash flows of
overseas subsidiaries, associates and joint ventures into Sterling.
Period-end rates are used to translate the net assets of those
entities. The currencies which most influenced these translations
and the relevant exchange rates were:
|
|
|
|
|
|
Q1 2020
|
|
Q1
2019
|
|
2019
|
||
|
|
|
|
|
|
|
|
|
|
||
Average
rates:
|
|
|
|
|
|
|
|
|
|
||
|
US$/£
|
|
|
|
|
1.29
|
|
1.31
|
|
1.28
|
|
|
Euro/£
|
|
|
|
|
1.17
|
|
1.15
|
|
1.14
|
|
|
Yen/£
|
|
|
|
|
|
140
|
|
144
|
|
139
|
|
|
|
|
|
|
|
|
|
|
||
Period-end
rates:
|
|
|
|
|
|
|
|
|
|
||
|
US$/£
|
|
|
|
|
|
1.24
|
|
1.31
|
|
1.32
|
|
Euro/£
|
|
|
|
|
|
1.13
|
|
1.17
|
|
1.18
|
|
Yen/£
|
|
|
|
|
|
134
|
|
145
|
|
143
|
During Q1 2020 average Sterling exchange rates were weaker against
the US Dollar and Yen but stronger against the Euro compared with
the same period in 2019. Period-end Sterling exchange rates were
weaker against the US Dollar, the Euro and Yen compared with the
2019 period-end rates.
|
Net assets
|
The
book value of net assets increased by £1,740 million from
£18,357 million at 31 December 2019 to £20,097 million at
31 March 2020. This primarily reflected the Total profit for the
period and the re-measurement gains on defined benefit plans
exceeding the dividend paid in the period.
The
carrying value of investments in associates and joint ventures at
31 March 2020 was £367 million (31 December 2019: £314
million), with a market value of £385 million (31 December
2019: £396 million).
At 31
March 2020, the net deficit on the Group’s pension plans was
£946 million compared with £1,921 million at 31 December
2019. The decrease in the net deficit primarily arose from
increases in the rate used to discount UK pension liabilities from
2.0% to 2.4%, and a reduction in the UK inflation rate from 3.0% to
2.6%, partly offset by a decrease in the rate used to discount US
pension liabilities from 3.2% to 3.1%. The values of the UK and US
assets also reduced, primarily as a result of the impact of the
COVID-19 pandemic.
The
estimated present value of the potential redemption amount of the
Pfizer put option related to ViiV Healthcare, recorded in Other
payables in Current liabilities, was £1,060 million (31
December 2019: £1,011 million).
|
The
contingent consideration liability amounted to £5,700 million
at 31 March 2020 (31 December 2019: £5,479 million), of which
£5,325 million (31 December 2019: £5,103 million)
represented the estimated present value of amounts payable to
Shionogi relating to ViiV Healthcare and £338 million (31
December 2019: £339 million) represented the estimated present
value of contingent consideration payable to Novartis related to
the Vaccines acquisition.
Of the contingent consideration payable (on a post-tax basis) to
Shionogi at 31 March 2020, £764 million (31 December 2019:
£730 million) is expected to be paid within one
year.
|
Movements in contingent consideration were as follows:
|
Q1
2020
|
ViiV Healthcare
£m
|
|
Group
£m
|
|
|
|
|
Contingent
consideration at beginning of the period
|
5,103
|
|
5,479
|
Re-measurement
through income statement
|
435
|
|
436
|
Cash
payments: operating cash flows
|
(185)
|
|
(186)
|
Cash
payments: investing activities
|
(28)
|
|
(29)
|
|
|
|
|
Contingent
consideration at end of the period
|
5,325
|
|
5,700
|
|
|
|
|
Q1 2019
|
ViiV
Healthcare
£m
|
|
Group
£m
|
|
|
|
|
Contingent
consideration at beginning of the period
|
5,937
|
|
6,286
|
Re-measurement
through income statement
|
(60)
|
|
(69)
|
Cash
payments: operating cash flows
|
(195)
|
|
(194)
|
Cash
payments: investing activities
|
(24)
|
|
(23)
|
|
|
|
|
Contingent
consideration at end of the period
|
5,658
|
|
6,000
|
|
|
|
|
Contingent liabilities
|
There
were contingent liabilities at 31 March 2020 in respect of
guarantees and indemnities entered into as part of the ordinary
course of the Group’s business. No material losses are
expected to arise from such contingent liabilities. Provision is
made for the outcome of legal and tax disputes where it is both
probable that the Group will suffer an outflow of funds and it is
possible to make a reliable estimate of that outflow. Descriptions
of the significant legal disputes to which the Group is a party are
set out on page 36.
|
Business acquisitions/disposals
|
On 30
March 2020, GSK completed the sale of the ThermaCare business
worldwide, excluding North America, for proceeds of £142
million. This disposal was required as part of the European
Commission’s antitrust approval of GSK’s acquisition of
Pfizer’s consumer healthcare business which completed in July
2019.
On 1
April 2020, GSK completed its divestment of Horlicks and other
Consumer Healthcare nutrition products in India and a number of
other countries (excluding Bangladesh) to Unilever and the merger
of GSK’s Indian listed Consumer Healthcare entity with
Hindustan Unilever Limited, an Indian listed public company. GSK
received a 5.7% equity stake in Hindustan Unilever Limited and
approximately £400 million in cash. The divestment in
Bangladesh is expected to close later this year.
|
Reconciliation of cash flow to
movements in net debt
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
Net
debt, as previously reported
|
(25,215)
|
|
(21,621)
|
Implementation
of IFRS 16
|
-
|
|
(1,303)
|
|
|
|
|
Net
debt at beginning of the period, as adjusted
|
(25,215)
|
|
(22,924)
|
|
|
|
|
Increase
in cash and bank overdrafts
|
(145)
|
|
372
|
Net
decrease in short-term loans
|
116
|
|
(2,209)
|
Increase
in long-term loans
|
-
|
|
(2,622)
|
Repayment
of lease liabilities
|
53
|
|
49
|
Debt of
subsidiary undertakings acquired
|
-
|
|
(482)
|
Exchange
adjustments
|
(1,454)
|
|
763
|
Other
non-cash movements
|
(23)
|
|
(5)
|
|
|
|
|
Increase
in net debt
|
(1,453)
|
|
(4,134)
|
|
|
|
|
Net
debt at end of the period
|
(26,668)
|
|
(27,058)
|
|
|
|
|
Net debt analysis
|
|
|
|
31 March 2020
£m
|
|
31
December 2019
£m
|
|
|
|
|
|
|
Liquid
investments
|
|
|
86
|
|
79
|
Cash
and cash equivalents
|
|
|
4,769
|
|
4,707
|
Cash
and cash equivalents reported in assets
held
for sale
|
|
|
483
|
|
507
|
Short-term
borrowings
|
|
|
(7,265)
|
|
(6,918)
|
Long-term
borrowings
|
|
|
(24,741)
|
|
(23,590)
|
|
|
|
|
|
|
Net
debt at end of the period
|
|
|
(26,668)
|
|
(25,215)
|
|
|
|
|
|
|
Free cash flow
reconciliation
|
|
|
|
Q1 2020
£m
|
|
Q1
2019
£m
|
|
|
|
|
|
|
Net
cash inflow from operating activities
|
|
|
965
|
|
663
|
Purchase
of property, plant and equipment
|
|
|
(197)
|
|
(222)
|
Proceeds
from sale of property, plant and equipment
|
|
|
6
|
|
7
|
Purchase
of intangible assets
|
|
|
(147)
|
|
(82)
|
Proceeds
from disposals of intangible assets
|
|
|
113
|
|
8
|
Net
finance costs
|
|
|
(78)
|
|
(94)
|
Dividends
from joint ventures and associates
|
|
|
14
|
|
-
|
Contingent
consideration paid (reported in investing activities)
|
|
|
(29)
|
|
(23)
|
Distributions
to non-controlling interests
|
|
|
(119)
|
|
(92)
|
Contribution
from non-controlling interest
|
|
|
3
|
|
-
|
|
|
|
|
|
|
Free
cash flow
|
|
|
531
|
|
165
|
Reporting definitions
|
Total and Adjusted results
Total
reported results represent the Group’s overall
performance.
GSK
also uses a number of adjusted, non-IFRS, measures to report the
performance of its business. Adjusted results and other non-IFRS
measures may be considered in addition to, but not as a substitute
for or superior to, information presented in accordance with IFRS.
Adjusted results are defined on page 9 and other non-IFRS measures
are defined below.
Free cash flow
Free
cash flow is defined as the net cash inflow from operating
activities less capital expenditure on property, plant and
equipment and intangible assets, contingent consideration payments,
net finance costs, and dividends paid to non-controlling interests
plus proceeds from the sale of property, plant and equipment and
intangible assets, and dividends received from joint ventures and
associates. It is used by management for planning and reporting
purposes and in discussions with and presentations to investment
analysts and rating agencies. Free cash flow growth is calculated
on a reported basis. A reconciliation of net cash inflow from
operations to free cash flow is set out on page 39.
Free cash flow conversion
Free
cash flow conversion is free cash flow as a percentage of
earnings.
Working capital
Working
capital represents inventory and trade receivables less trade
payables.
CER and AER growth
In
order to illustrate underlying performance, it is the Group’s
practice to discuss its results in terms of constant exchange rate
(CER) growth. This represents growth calculated as if the exchange
rates used to determine the results of overseas companies in
Sterling had remained unchanged from those used in the comparative
period. CER% represents growth at constant exchange rates. £%
or AER% represents growth at actual exchange rates.
Pro-forma growth
The
acquisition of the Pfizer consumer healthcare business completed on
31 July 2019 and so GSK’s reported results for Q1 2020
include three months of results of the former Pfizer consumer
healthcare business from 1 January 2020.
The
Group has presented pro-forma growth rates at CER for turnover,
Adjusted operating profit and operating profit by business taking
account of this transaction. Pro-forma growth rates at CER for the
quarter are calculated comparing reported results for Q1 2020,
calculated applying the exchange rates used in the comparative
period, with the results for Q1 2019 adjusted to include the
equivalent three months of results of the former Pfizer consumer
healthcare business during Q1 2019, as consolidated (in US$) and
included in Pfizer’s US GAAP results.
|
Brand names and partner acknowledgements
Brand
names appearing in italics throughout this document are trademarks
of GSK or associated companies or used under licence by the
Group.
|
Outlook, assumptions and cautionary statements
|
2020 guidance
As set out in ‘GSK’s response to COVID-19’ on
page 2, there are significant internal and external risks to
business performance for the remainder of the year, and
particularly over the next few months. Based on our current
assessment of the impact of COVID-19, we are maintaining our
Adjusted EPS guidance for the year at this point, but we will, if needed, update guidance as more
information becomes available to inform our expected financial
performance for the full-year 2020.
2016-2020 outlook
In May
2015, GSK announced that it expected Group sales to grow at CER at
a low-to-mid single digits percentage CAGR and Adjusted EPS to grow
at CER at a mid-to-high single digit percentage CAGR for the period
2016-2020. On 3 December 2018, GSK announced that it continued to
expect to deliver on its previously published Group outlooks to
2020, but, following the acquisition of Tesaro, expected Adjusted
EPS growth at CER for the period 2016-2020 to be at the bottom end
of the mid-to-high single digit percentage CAGR range. These
outlooks are based on 2015 exchange rates.
Assumptions related to 2020 guidance and 2016-2020
outlook
In
outlining the expectations for 2020 and the five-year period
2016-2020, the Group has made certain assumptions about the
healthcare sector, the different markets in which the Group
operates and the delivery of revenues and financial benefits from
its current portfolio, pipeline and restructuring
programmes.
For the
Group specifically, over the period to the end of 2020, GSK expects
further declines in sales of Seretide/Advair. The introduction of a
generic alternative to Advair in the US has been factored into
the Group’s assessment of its future performance. The Group
assumes no premature loss of exclusivity for other key products
over the period.
The
assumptions for the Group’s revenue, earnings and dividend
expectations assume no material interruptions to supply of the
Group’s products, no material mergers, acquisitions or
disposals, except for the acquisition of Tesaro, the divestment of
Horlicks and other Consumer
Healthcare products to Unilever and the formation of a new Consumer
Healthcare Joint Venture with Pfizer, all announced in December
2018, no material litigation or investigation costs for the Company
(save for those that are already recognised or for which provisions
have been made), no share repurchases by the Company, and no change
in the Group’s shareholdings in ViiV Healthcare. The
assumptions also assume no material changes in the macro-economic
and healthcare environment over the period. The 2020 guidance and
2016-2020 outlook have factored in all divestments and product
exits since 2015, including the divestment and exit of more than
130 non-core tail brands (£0.5 billion in annual sales) as
announced on 26 July 2017 and the product divestments planned in
connection with the formation of the Consumer Healthcare Joint
Venture with Pfizer.
The
Group’s expectations assume successful delivery of the
Group’s integration and restructuring plans over the period
2016-2020, including the extension and enhancement to the combined
programme announced on 26 July 2017, the new Major restructuring
plan announced on 25 July 2018, the Consumer Healthcare Joint
Venture integration programme and the new Separation Preparation
programme. They also assume that the integration and investment
programmes following the Tesaro acquisition and the Consumer
Healthcare Joint Venture with Pfizer over this period are delivered
successfully. Material costs for investment in new product launches
and R&D have been factored into the expectations given. Given
the potential development options in the Group’s pipeline,
the outlook may be affected by additional data-driven R&D
investment decisions. The expectations are given on a constant
currency basis (2016-2020 outlook at 2015 CER).
Assumptions and cautionary statement regarding forward-looking
statements
The
Group’s management believes that the assumptions outlined
above are reasonable, and that the aspirational targets described
in this report are achievable based on those assumptions. However,
given the longer term nature of these expectations and targets,
they are subject to greater uncertainty, including potential
material impacts if the above assumptions are not realised, and
other material impacts related to foreign exchange fluctuations,
macro-economic activity, the impact of outbreaks, epidemics or
pandemics, such as the COVID-19 pandemic and ongoing challenges and
uncertainties posed by the COVID-19 pandemic for businesses and
governments around the world, changes in regulation, government
actions or intellectual property protection, actions by our
competitors, and other risks inherent to the industries in which we
operate.
This
document contains statements that are, or may be deemed to be,
“forward-looking statements”. Forward-looking
statements give the Group’s current expectations or forecasts
of future events. An investor can identify these statements by the
fact that they do not relate strictly to historical or current
facts. They use words such as ‘anticipate’,
‘estimate’, ‘expect’, ‘intend’,
‘will’, ‘project’, ‘plan’,
‘believe’, ‘target’ and other words and
terms of similar meaning in connection with any discussion of
future operating or financial performance. In particular, these
include statements relating to future actions, prospective products
or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, the outcome of
contingencies such as legal proceedings, dividend payments and
financial results. Other than in accordance with its legal or
regulatory obligations (including under the Market Abuse
Regulation, the UK Listing Rules and the Disclosure and
Transparency Rules of the Financial Conduct Authority), the Group
undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
The reader should, however, consult any additional disclosures that
the Group may make in any documents which it publishes and/or files
with the SEC. All readers, wherever located, should take note of
these disclosures. Accordingly, no assurance can be given that any
particular expectation will be met and investors are cautioned not
to place undue reliance on the forward-looking
statements.
Forward-looking
statements are subject to assumptions, inherent risks and
uncertainties, many of which relate to factors that are beyond the
Group’s control or precise estimate. The Group cautions
investors that a number of important factors, including those in
this document, could cause actual results to differ materially from
those expressed or implied in any forward-looking statement. Such
factors include, but are not limited to, those discussed under Item
3.D ‘Risk Factors’ in the Group’s Annual Report
on Form 20-F for 2019 and any impacts of the COVID-19 pandemic. Any
forward looking statements made by or on behalf of the Group speak
only as of the date they are made and are based upon the knowledge
and information available to the Directors on the date of this
report.
Cautionary statement regarding pro-forma growth rates
The
pro-forma growth rates at CER in this Results Announcement have
been provided to illustrate the position in Q1 2020 relative to the
position in Q1 2019 as if, for the purposes of the Q1 2019 results,
the acquisition of the Pfizer consumer healthcare business had
taken place as at 31 July 2018 and that, accordingly, three months
of results of the former Pfizer consumer healthcare business were
included in Q1 2019. The results of the former Pfizer consumer
healthcare business included for Q1 2019 are as consolidated (in
US$) and included in Pfizer’s US GAAP results. The results
for Q1 2020 used to calculate the pro-forma growth rates are as
reported at CER.
The
pro-forma growth rates have been provided for illustrative purposes
only and, by their nature, address a hypothetical situation and
therefore do not represent the Group’s actual growth rates.
The pro-forma growth rates do not purport to represent what the
Group’s results of operations actually would have been if the
Pfizer acquisition had been completed on the date indicated, nor do
they purport to represent the results of operations at any future
date. In addition, the pro-forma growth rates do not reflect the
effect of anticipated synergies and efficiencies or accounting and
reporting differences associated with the acquisition of the Pfizer
consumer healthcare business.
|
Independent review report to
GlaxoSmithKline plc
|
We have
been engaged by GlaxoSmithKline plc (“the Company”) to
review the condensed financial information in the Results
Announcement for the three months ended 31 March 2020.
|
What we have reviewed
|
|
The
condensed financial information comprises:
|
|
●
|
the
income statement and statement of comprehensive income for the
three month period ended 31 March 2020 on pages 28 to
29;
|
●
|
the
balance sheet as at 31 March 2020 on page 32;
|
●
|
the
statement of changes in equity for the three month period then
ended on page 33;
|
●
|
the
cash flow statement for the three month period then ended on page
34; and
|
●
|
the
accounting policies and basis of preparation and the explanatory
notes to the condensed financial information on pages 35 to 39 that
have been prepared applying consistent accounting policies to those
applied by the Group in the Annual Report 2019, which was prepared
in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union.
|
|
|
We have
read the other information contained in the Results Announcement,
including the non-IFRS measures contained on pages 35 to 39, and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This
report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
“Review of Interim Financial Information Performed by the
Independent Auditor of the Entity” issued by the Auditing
Practices Board. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this report, or for the conclusions we have
formed.
Directors’ responsibilities
The
Results Announcement of GlaxoSmithKline plc, including the
condensed financial information, is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the Results Announcement by applying consistent
accounting policies to those applied by the Group in the Annual
Report 2019, which was prepared in accordance with IFRS as adopted
by the European Union.
Our responsibility
Our
responsibility is to express to the Company a conclusion on the
interim financial information in the Results Announcement based on
our review.
Scope of review
We
conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 “Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity” issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based
on our review, nothing has come to our attention that causes us to
believe that the condensed interim financial information in the
Results Announcement for the three months ended 31 March 2020 is
not prepared, in all material respects in accordance with the
accounting policies set out in the accounting policies and basis of
preparation section on page 36.
Deloitte LLP
Statutory
Auditor
London,
United Kingdom
29
April 2020
|
|
GlaxoSmithKline plc
|
|
(Registrant)
|
|
|
Date: April
29, 2020
|
|
|
|
|
By:/s/ VICTORIA
WHYTE
--------------------------
|
|
|
|
Victoria Whyte
|
|
Authorised
Signatory for and on
|
|
behalf
of GlaxoSmithKline plc
|