1st Quarter Results
GlaxoSmithKline PLC
30 April 2003
Issued: 30th April 2003, London
Results Announcement for the First Quarter 2003
GSK MAKES STRONG START TO 2003
BUSINESS PERFORMANCE* EPS OF 21.8 PENCE - GROWTH OF 26% CER
GlaxoSmithKline plc (GSK) today announces its results for the first quarter ended 31st March 2003. The full UK GAAP
results (statutory results) are presented under "Profit and loss account" on page 6. The business performance and
statutory results are summarised below and the commentary which follows is on a business performance basis unless
otherwise stated.
FINANCIAL RESULTS
Q1 2003 Q1 2002 Increase
£m £m CER% £%
------ ------ ------ ------
Turnover 5,222 5,110 8 2
Business performance
Trading profit 1,807 1,615 23 12
Profit before tax 1,774 1,593 22 11
Earnings per share 21.8p 19.0p 26 15
Statutory results
Trading profit 1,702 1,440 30 18
Profit before tax 1,669 1,430 29 17
Earnings per share 20.5p 17.1p 32 20
Q1 2003 HIGHLIGHTS
• Strong start to the year with pharmaceutical turnover up 9% to nearly £4.5 billion. Consumer Healthcare
sales up 6% to £756 million.
• Broad pharmaceutical portfolio enabled GSK to deliver strong growth despite generic competition to Augmentin.
Seretide/Advair is now GSK's number one product with sales of £514 million (up 48%).
• Effective cost control resulted in trading profit growth of 23% on sales growth of 8%.
• Weak US dollar significantly impacted performance in the quarter in sterling terms.
• R&D day date set for 3rd December in the UK and 4th December in the USA.
* Business performance, which is the primary performance measure used by management, is presented after excluding
merger items, integration and restructuring costs and disposals of businesses. Management believes that exclusion of
these items provides a better comparison of business performance for the periods presented. Statutory results include
these items.
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 previous year. All commentaries are on
a business performance basis and in terms of CER unless otherwise stated.
FIRST QUARTER PERFORMANCE 2003
Commenting on the performance for the quarter, JP Garnier, Chief Executive Officer, said:
'I am delighted with the very strong start that GSK has made to the year. GSK continues to deliver extremely solid
financial performance based on a strong and broad portfolio of products. At the same time, effective cost control is
continuing to improve profitability. We remain focused on maturing our promising early stage R&D pipeline and we look
forward to giving more details of our progress in this area at our R&D day in December.
GSK has also just announced yet another reduction in the not-for-profit prices of our HIV/AIDS medicines. By working
to reduce the price of Combivir to 90 cents a day, we have again demonstrated our commitment to making vital medicines
more affordable in the developing world.'
STRONG SALES FROM BROAD PHARMACEUTICAL PRODUCT PORTFOLIO
• Overall pharmaceutical sales grew 9% to £4.5 billion.
• In the United States, which represented 53% of GSK's total pharmaceutical business, sales grew 12%. Major
therapeutic franchises delivered double-digit percentage sales growth in the USA, except
anti-bacterials owing to generic competition to Augmentin. US growth benefited from wholesaler stocking patterns
on some products. Underlying US growth is estimated to be in the high single digit percentage range.
• In Europe, sales grew 1% reflecting weak performance in several markets including Germany where de-stocking
ahead of healthcare reforms led to a 10% fall in sales. Sales in France were flat due to increased generic
competition to Augmentin in the first quarter. However this was offset by good growth in Central & Eastern Europe
(up 13%) and Southern Europe (up 9%).
• Sales in International markets increased by 9%, driven by the much improved performance in Latin America
where sales increased 33% compared with the first quarter last year due in part to a recovery in trading
conditions in Mexico. Growth was also strong in Japan (up 9%) and Canada (up 12%).
KEY PRODUCTS DRIVING GROWTH
• Seretide/Advair continued to perform exceptionally well and is now GSK's number one product, with sales of
£514 million in the first quarter. In the USA, Advair sales grew 71% to £292 million. Seretide also continued to
perform well in Europe (up 17%) and International markets (up 52%). Seretide/Advair's superior efficacy profile
continues to drive sales growth. Sales of Seretide/Advair, Flixotide/Flovent and Serevent combined grew by 22%.
GSK continues to progress applications for the use of Seretide/Advair to treat Chronic Obstructive Pulmonary Disease
(COPD), with EU approval expected shortly. In the USA, following an encouraging meeting with the FDA this quarter, GSK
will submit additional data in the next few weeks. In addition, GSK expects to file for approval of a paediatric
indication for Advair in the USA around mid-year.
• Seroxat/Paxil, GSK's leading product for depression and anxiety disorders, continued to drive growth in the
CNS therapy area, with sales of £490 million, up 20% globally and 25% in the USA (helped by wholesaler stocking
patterns). Successful conversion to Paxil CR continued, with the product now representing 35% of new prescriptions for
Paxil in the US market.
International sales of Seroxat grew 23%, helped by the product's continued success in the Japanese market.
• Avandia and Avandamet, GSK's oral anti-diabetes products, continued to grow well with global sales up 28% to
£226 million in the quarter.
In the USA, the launch of Avandamet has helped increase GSK's share of the oral diabetes market to approximately 10%.
The use of Avandia in combination with insulin was approved in Q1 2003, which means Avandia now has the full range of
indications in the US market.
• HIV products performed well, with sales growing 13% to £375 million. Sales of Trizivir, GSK's triple
combination therapy, grew 43% to £94 million.
• Augmentin sales declined 42% to £218 million. In the USA sales declined by 64% due to generic competition
from July last year. The decline has been mitigated by the strong performances of Augmentin ES and XR, which now
represent more than 30% of the total number of prescriptions being written for branded and generic Augmentin.
• GSK has received positive news on several of its fastest growing products this quarter. An FDA approvable
letter has been received for the use of Lamictal (sales of £130 million, up 37%) to treat bipolar disorder and approval
is expected in the next few months. The FDA has also approved Valtrex (£110 million, up 23%) for the suppression of
recurrent genital herpes in HIV-infected individuals and Coreg (£84 million, up 57%) for reducing the risk of death
among heart attack patients with impaired cardiac function.
• Other key products that are performing well and contributing to growth include Wellbutrin (sales of
£216 million, up 30%), and Zofran (£182 million, up 24%).
NEW PRODUCT GROWTH OPPORTUNITIES
• Levitra. Following European approval, Levitra - the PDE-5 inhibitor for the treatment of erectile
dysfunction being co-promoted by GSK and Bayer - was launched late in the quarter in several key markets, including the
UK and Germany. GSK continues to work with the FDA with a view to launching in the USA later in the year.
• Avodart, a DHT inhibitor for the treatment of symptomatic benign prostatic hyperplasia was launched in the
USA and some European markets in Q1. In the USA, Avodart has reached an 11% share of new prescriptions in the 5-alpha
reductase inhibitor class. The first patients were enrolled in March for the REDUCE multi-national Phase III trial for
the use of Avodart in reducing the risk of prostate cancer.
• Pediarix, the first 5-in-1 vaccine introduced in the USA, was launched in January. In February, the Centers
for Disease Control and Prevention Advisory Committee on Immunisation Practices voted unanimously to include Pediarix
in the Vaccine for Children programme.
• Wellbutrin XL is on track for launch in the USA in the second half of 2003. GSK believes that XL's sales
will be driven by its differentiated profile as the first and only once-daily anti-depressant with a low incidence of
sexual dysfunction and weight gain, two of the most common side effects of other anti-depressants.
• During the quarter, the FDA accepted filings for Ariflo, a new treatment for COPD, and 908, a new protease
inhibitor for the treatment of HIV.
CONSUMER HEALTHCARE IMPROVES PERFORMANCE
Consumer Healthcare recorded sales of £756 million, up 6%, reflecting stronger demand for the Group's products and also
helped by the acquisition of a number of dermatological products. Sales in North America rose 6%; Europe 3% and
International 10%.
Oral care sales were up 2% to £252 million, a 5% fall in Aquafresh sales being offset by sales growth from Macleans,
Sensodyne, Polident and Corega. Nutritional healthcare products grew 2% to £135 million, driven by a 7% rise in
Lucozade sales. Over-the-counter medicine sales were £369 million up 10%.
EXCELLENT PROGRESS ON COST CONTROL
Trading profit and earnings per share
Business performance trading profit grew 23% to £1,807 million on turnover growth of 8%. The trading margin improved
three percentage points to 34.6% compared with 31.6% in Q1 2002. This improvement came principally from cost of sales,
which declined by 4%, and selling general and administration (S,G&A) costs, which increased 5% while turnover grew 8%.
Cost of sales reduced by 1.5 percentage points on sales, this benefit coming from continued merger, manufacturing
restructuring and other cost savings and a more favourable product mix than in the comparative period. S,G&A
expenditure reduced by 0.9 percentage points on sales as a result of cost savings arising from merger implementation
and the operational excellence cost saving programme.
Net other operating expense was £20 million in the period compared with £5 million in first quarter of 2002. This
included the profit from the sale of GSK's holding in Affymetrix, which was more than offset by additional provisions
for legal matters.
Business performance EPS of 21.8 pence increased 26% in CER terms and 15% in sterling terms. The adverse currency
impact on EPS of 11% in the period reflected the significant weakening of the US dollar relative to last year.
Statutory results, which include merger and manufacturing restructuring costs, delivered a trading profit of £1,702
million on turnover of £5,222 million. Taken together with other expenses, taxation and product divestments this
resulted in EPS of 20.5 pence compared with 17.1 pence in the first quarter of 2002. Merger and manufacturing
restructuring costs were lower in the period than in Q1 2002, reflecting movement towards the completion of these
programmes. The sterling based growth in EPS of 20% was lower than the CER based growth in business performance EPS as
a result of the overall negative impact of currencies.
Merger and restructuring
Costs of £99 million were incurred in the period in respect of merger and manufacturing restructuring compared with
£165 million in the same quarter last year. GSK remains on track to deliver forecast total annual merger and
manufacturing restructuring savings of £1.8 billion by the end of the year. These costs and benefits exclude the
effect of the Block Drug acquisition.
Currencies
The first quarter 2003 results are based on average exchange rates of £1/$1.60 and £1/Euro 1.49 which compare with
average rates for the first quarter of 2002 of £1/$1.43 and £1/Euro 1.64. Exchange rates at the end of the quarter
were £1/$1.58 and £1/Euro 1.45. If exchange rates were to hold at 31st March 2003 levels for the remainder of 2003 the
negative currency impact on earnings per share growth would be approximately
3-4% for the full year.
Dividend
The Board has declared a first interim dividend of 9 pence per share. This compares with a dividend of 9 pence per
share for Q1 2002. The equivalent dividend receivable by ADR holders is 28.506 cents per ADS based on an exchange rate
of £1/$1.58364. The dividend will have an ex-dividend date of 7th May 2003 and will be paid on 3rd July 2003 to
shareholders and to ADR holders of record on 9th May 2003.
Earnings guidance for 2003
GSK's published earnings guidance for 2003 is for high single digit percentage growth in business performance earnings
per share at constant exchange rates, assuming there is no generic competition to Paxil in the USA (see "Legal
proceedings" on page 15). If a generic launch became imminent, GSK would reassess this guidance.
Share buy-back programme
In October 2002 GSK commenced a new £4 billion share buy-back programme. Of this new programme,
£219 million was spent in 2002 and £262 million in the first quarter of 2003. The exact amount and timing of future
purchases will be determined by the company and is dependent on market conditions and other factors.
GSK's CONTINUING GLOBAL COMMITMENT TO IMPROVING ACCESS TO MEDICINES
During the quarter, GSK published its "Corporate and Social Responsibility Report 2002 - The Impact of Medicines"
confirming the diverse and extensive contribution the company is making to meet the needs of society across the globe.
Key highlights of progress noted in the Report include:
• GSK's global investment of £239 million in 2002 in community activities, product donations and charitable
contributions - more than any other UK company.
• GSK's donation of 66 million tablets of albendazole to 31 countries in 2002, as part of the company's
$1 billion commitment to eliminate lymphatic filariasis (elephantiasis).
• Increased shipments of Combivir HIV/AIDS treatment at preferential prices to the developing world to nearly 6
million tablets (up from 2.2 million in 2001). To date, GSK now has 131 arrangements to supply preferentially priced
ARVs to 55 countries (49 of these arrangements were made during 2002).
On 28th April 2003, GSK announced a further reduction of up to 47% on the not-for-profit prices of its HIV/AIDS
medicines for the world's poorest countries. The latest reduction lowers the not-for-profit price of Combivir - the
backbone of WHO-recommended HIV/AIDS treatment regimens - to 90 cents per day.
GlaxoSmithKline - 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 company
information including a copy of this announcement and details of the company's updated product development pipeline,
visit GSK at www.gsk.com.
Enquiries: UK Media Martin Sutton (020) 8047 5502
Siobhan Lavelle (020) 8047 5502
David Mawdsley (020) 8047 5502
US Media Nancy Pekarek (215) 751 7709
Mary Anne Rhyne (919) 483 2839
Patricia Seif (215) 751 7709
European Analyst / Investor Duncan Learmouth (020) 8047 5540
Philip Thomson (020) 8047 5543
Anita Kidgell (020) 8047 5542
US Analyst / Investor Frank Murdolo (215) 751 7002
Tom Curry (215) 751 5419
Brand names appearing in italics throughout this document are trade marks of GSK or associated companies with the
exception of Levitra, a trade mark of Bayer AG, which is used under licence by the Group.
Cautionary statement regarding forward-looking statements
Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, the company cautions
investors that any forward-looking statements or projections made by the company, including those made in this
Announcement, are subject to risks and uncertainties that may cause actual results to differ materially from those
projected. Factors that may affect the Group's operations are described under 'Risk Factors' in the Operating and
Financial Review and Prospects in the company's Annual Report on Form 20-F for 2002.
PROFIT AND LOSS ACCOUNT
Three months ended 31st March 2003
Merger, restructuring
and disposal of
businesses
Business performance Statutory
-------------------- -------------- -------------
2003 2002 Growth 2003 2002 2003 2002
£m £m CER% £m £m £m £m
--- --- --- --- --- --- ---
Turnover:
Pharmaceuticals 4,466 4,361 9 - - 4,466 4,361
Consumer Healthcare 756 749 6 - - 756 749
--- --- --- --- --- ---
TURNOVER 5,222 5,110 8 - - 5,222 5,110
Cost of sales (1,019) (1,075) (4) (91) (42) (1,110) (1,117)
--- --- --- --- --- ---
Gross profit 4,203 4,035 11 (91) (42) 4,112 3,993
Selling, general and administration (1,766) (1,770) 5 (10) (117) (1,776) (1,887)
Research and development (630) (650) 1 (4) (16) (634) (666)
--- --- --- --- --- ---
Trading profit:
Pharmaceuticals 1,700 1,521 23 (99) (165) 1,601 1,356
Consumer Healthcare 107 94 23 (6) (10) 101 84
--- --- --- --- --- ---
TRADING PROFIT 1,807 1,615 23 (105) (175) 1,702 1,440
Other operating income/(expense) (20) (5) - - (20) (5)
--- --- --- --- --- ---
Operating profit 1,787 1,610 22 (105) (175) 1,682 1,435
Product divestments - - - 12 - 12
Profits of associates 22 17 - - 22 17
--- --- --- --- --- ---
Profit before interest 1,809 1,627 (105) (163) 1,704 1,464
Net interest payable (35) (34) - - (35) (34)
--- --- --- --- --- ---
PROFIT BEFORE TAXATION 1,774 1,593 22 (105) (163) 1,669 1,430
Taxation (479) (430) 28 50 (451) (380)
--- --- --- --- --- ---
Profit after taxation 1,295 1,163 22 (77) (113) 1,218 1,050
Minority interests (20) (24) - - (20) (24)
Preference share dividends (4) (5) - - (4) (5)
--- --- --- --- --- ---
EARNINGS 1,271 1,134 23 (77) (113) 1,194 1,021
--- --- --- --- --- ---
EARNINGS PER SHARE 21.8p 19.0p 26 20.5p 17.1p
--- --- --- ---
Diluted earnings per share 20.4p 17.0p
--- ---
Weighted average number of shares 5,838 5,981 5,838 5,981
(millions) --- --- --- ---
To illustrate "Business performance", which is the primary measure used by management, merger items, integration and
restructuring costs and disposals of businesses have been excluded and an adjusted EPS presented. Statutory results
include these items. Appropriations of profit attributable to shareholders are set out under "Appropriations" on page
11.
PHARMACEUTICAL TURNOVER
Three months ended 31st March 2003
Total USA Europe International
-------------- -------------- ------------- -------------
£m CER% £m CER% £m CER% £m CER%
----- ----- ----- ----- ----- ----- ----- -----
CENTRAL NERVOUS SYSTEM 1,095 19 787 24 204 3 104 17
Depression 706 23 537 27 97 3 72 24
Seroxat/Paxil 490 20 327 25 97 3 66 23
Wellbutrin 216 30 210 30 - - 6 27
Migraine 204 6 151 9 40 (11) 13 14
Imigran/Imitrex 183 8 139 11 33 (9) 11 15
Naramig/Amerge 21 (9) 12 (6) 7 (21) 2 12
Lamictal 130 37 76 52 44 18 10 14
Requip 22 22 11 36 10 4 1 43
Zyban 20 (28) 9 (26) 8 (10) 3 (51)
RESPIRATORY 1,093 19 571 31 354 2 168 17
Seretide/Advair,
Flixotide/Flovent, Serevent 814 22 444 33 276 5 94 21
Seretide/Advair 514 48 292 71 178 17 44 52
Flixotide/Flovent 180 (5) 88 (3) 52 (13) 40 (1)
Serevent 120 (7) 64 (10) 46 (8) 10 18
Flixonase/Flonase 159 27 118 33 13 (4) 28 18
Ventolin 64 (3) 2 (72) 33 (5) 29 14
Becotide 29 (15) - - 24 (11) 5 (29)
ANTI-VIRALS 571 9 292 11 171 3 108 13
HIV 375 13 213 16 128 7 34 14
Combivir 144 5 79 6 49 1 16 15
Trizivir 94 43 58 46 33 38 3 49
Epivir 74 8 41 14 25 (1) 8 5
Retrovir 11 (16) 5 (6) 4 (37) 2 15
Ziagen 43 14 24 13 15 16 4 11
Agenerase 9 (7) 6 (12) 2 (4) 1 18
Herpes 151 2 71 3 37 1 43 -
Valtrex 110 23 71 25 19 9 20 29
Zovirax 41 (32) - - 18 (7) 23 (16)
Zeffix 31 10 2 (10) 4 (8) 25 15
ANTI-BACTERIALS 467 (25) 138 (53) 205 (1) 124 10
Augmentin 218 (42) 83 (64) 94 (4) 41 12
Zinnat/Ceftin 64 (7) 8 (30) 37 6 19 (11)
Fortum 46 (8) 8 5 24 (14) 14 (5)
Amoxil 32 5 7 17 10 (32) 15 37
METABOLIC AND GASTRO-INTESTINAL 360 10 216 26 56 (20) 88 -
Avandia, Avandamet 226 28 191 28 12 16 23 32
Zantac 83 (15) 23 7 25 (31) 35 (16)
VACCINES 264 9 73 - 107 9 84 20
Hepatitis 107 (5) 45 (8) 44 (10) 18 14
Infanrix, Pediarix 75 18 28 15 30 11 17 42
ONCOLOGY AND EMESIS 248 17 187 20 39 (1) 22 17
Zofran 182 24 136 31 30 - 16 13
Hycamtin 26 13 17 15 6 (9) 3 66
CARDIOVASCULAR AND UROGENITAL 172 27 110 33 42 13 20 24
Coreg 84 57 81 58 - - 3 35
OTHER 196 (10) 5 (62) 63 (1) 128 (9)
------------- ------------- ------------- -------------
4,466 9 2,379 12 1,241 1 846 9
------------- ------------- ------------- -------------
Pharmaceutical turnover includes co-promotion income.
CONSUMER HEALTHCARE TURNOVER
Three months ended 31st March 2003
£m CER%
--------- ---------
Over-the-counter medicines 369 10
Analgesics 80 5
Dermatological 57 53
Gastro-intestinal 71 5
Respiratory tract 36 13
Smoking control 72 2
Natural wellness support 40 12
Oral care 252 2
Nutritional healthcare 135 2
--------- ---------
Total 756 6
--------- ---------
FINANCIAL REVIEW - PROFIT AND LOSS ACCOUNT
Pharmaceutical turnover
Turnover in the period increased by 9% compared with the first quarter of 2002, which in CER terms represented
additional turnover of £375 million. An analysis of turnover between new products (those launched in a major market
within the last five years), franchise products (established products), and older products (now less actively promoted)
is set out below:
Q1 2003
----------------------------------------------
£m % total CER% CER £m
--------- --------- --------- ---------
New 1,091 24 34 293
Franchise 2,439 55 6 142
Other 936 21 (6) (60)
--------- --------- --------- ---------
4,466 100 9 375
--------- --------- --------- ---------
The growth of the new products, notably Avandia, Seretide/Advair and Trizivir, and the franchise products, Seroxat/
Paxil, Wellbutrin, Imigran/Imitrex, Zofran and Coreg, more than offset the decline of older products such as Zantac.
New products accounted for 24% of total pharmaceutical turnover.
Accounting for co-promotional and co-marketing activities
Where GSK co-promotes a product and the third party records the sale, GSK records its share of revenue as co-promotion
income within turnover. The nature of the co-promotion activities are such that GSK records no cost of sales.
Co-promotion income relating to Levitra, which GSK promotes with Bayer AG, amounted to £2 million in the quarter.
Where GSK co-markets, sales will be recorded by GSK in turnover as sales of GSK products. Cost of sales will reflect
the purchase cost of the product sold.
GSK's development costs and amortisation of intangible rights will be charged to research and development, and costs
related to selling and marketing will be charged to selling, general and administration expenses.
Trading profit - business performance
Q1 2003 Q1 2002 2002
------------------- ------------------ Growth ------
£m % of turnover £m % of turnover CER% £m
------ ------ ------ ------ ------ ------
Turnover 5,222 100.0 5,110 100.0 8 21,212
Cost of sales (1,019) (19.5) (1,075) (21.0) (4) (4,243)
Selling, general and administration (1,766) (33.8) (1,770) (34.7) 5 (7,543)
Research and development (630) (12.1) (650) (12.7) 1 (2,732)
------ ------ ------ ------ ------ ------
Trading profit - business
performance 1,807 34.6 1,615 31.6 23 6,694
------ ------ ------ ------ ------ ------
Overall the trading margin improved 3% and trading profit grew 23%. The improvement in margin came principally from
cost of sales, which declined by 4% and from selling, general and administration costs, which increased 5%, while
turnover grew 8%.
Cost of sales reduced as a percentage of turnover as a result of benefits arising from merger, manufacturing
restructuring and other savings and a favourable product mix.
Selling, general and administration costs also benefited from cost savings arising from merger integration
implementation and other initiatives. Together these produced a reduction of 0.9 percentage points relative to 2002
for the expenses expressed as a percentage of turnover.
Research and development (R&D) increased only 1% reflecting a write-off of an intangible asset and a number of other
non-recurring costs in Q1 2002; excluding these items underlying growth was 8%. Pharmaceuticals R&D expenditure
represented 13.6% of pharmaceutical turnover in the period.
Profit before tax - business performance
Q1 2003 Q1 2002 2002
£m £m £m
---- ---- ----
Trading profit 1,807 1,615 6,694
Other operating income/(expense) (20) (5) (111)
Profits of associates 22 17 75
Net interest payable (35) (34) (141)
---- ---- ----
Profit before tax - business performance 1,774 1,593 6,517
---- ---- ----
Other operating income/(expense) includes litigation costs and provisions for legal matters including product liability
claims, product withdrawals and antitrust matters, equity investment write-downs due to adverse stock market
conditions, royalty income, product disposals and equity investment sales.
Merger items, integration and restructuring costs and disposal of subsidiaries
Q1 2003 Q1 2002 2002
£m £m £m
---- ---- ----
Manufacturing and other restructuring (11) (21) (121)
Merger integration costs (88) (144) (851)
Block Drug integration costs (6) (10) (60)
---- ---- ----
Effect on operating profit (105) (175) (1,032)
Product divestments - 12 11
Disposal of businesses - - 10
---- ---- ----
Effect on profit before tax (105) (163) (1,011)
---- ---- ----
Taxation - total
Q1 2003 Q1 2002 2002
£m £m £m
---- ---- ----
Business performance (479) (430) (1,760)
Merger items, integration and restructuring costs
and disposal of subsidiaries 28 50 299
---- ---- ----
Taxation - total (451) (380) (1,461)
---- ---- ----
The charge for taxation on business performance profit amounting to £479 million represents an effective tax rate of
27.0% which is the expected rate for the year.
The credit for taxation on merger, restructuring and business disposals amounting to £28 million reflects the estimated
actual tax rate applicable to the transactions in the territories in which they arise.
Transfer pricing issues are described in the 'Taxation' note to the Financial Statements included in the Annual Report
2002. There has been no significant change since the date of the Annual Report.
GlaxoSmithKline uses the best advice in determining its transfer pricing methodology and in seeking to manage transfer
pricing issues to a satisfactory conclusion and, on the basis of external professional advice, continues to believe
that it has made adequate provision for the liabilities likely to arise from open assessments.
Earnings
Q1 2003 Q1 2002 2002
£m £m £m
Net profit attributable to shareholders ---- ---- ----
Earnings 1,194 1,021 3,915
Adjustment for merger items, integration and restructuring costs and
disposal of businesses 77 113 712
---- ---- ----
Adjusted earnings 1,271 1,134 4,627
---- ---- ----
pence pence pence
Earnings per share ---- ---- ----
Basic earnings per share 20.5 17.1 66.2
Adjustment for merger items, integration and restructuring costs and
disposal of businesses 1.3 1.9 12.1
---- ---- ----
Adjusted earnings per share 21.8 19.0 78.3
---- ---- ----
In order to illustrate business performance, which is the primary performance measure used by management, adjusted
earnings and adjusted earnings per share are presented after excluding merger items, integration and restructuring
costs and disposal of businesses.
Q1 2003 Q1 2002 2002
£m £m £m
Appropriations ---- ---- ----
Net profit attributable to shareholders 1,194 1,021 3,915
Dividends (524) (535) (2,346)
---- ---- ----
Retained profit 670 486 1,569
---- ---- ----
pence per 2003 pence per 2002
share share
£m £m
Dividends ---- ---- ---- ----
First interim - payable 3rd July 2003 9 524 9 535
Second interim 9 530
Third interim 9 527
Fourth interim 13 754
---- ----
40 2,346
---- ----
The number of shares in issue, excluding those held by the ESOP Trusts, at 31st March 2003 was
5,821 million (31st March 2002: 5,957 million).
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Q1 2003 Q1 2002 2002
£m £m £m
---- ---- ----
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 1,194 1,021 3,915
Exchange movements on overseas net assets 155 (8) (154)
UK tax on exchange movements 43 - (67)
Unrealised gains on equity investments 1 2 7
---- ---- ----
TOTAL RECOGNISED GAINS AND LOSSES 1,393 1,015 3,701
---- ---- ----
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
Three months ended 31st March 2003
Q1 2003 Q1 2002 2002
£m £m £m
---- ---- ----
BUSINESS PERFORMANCE OPERATING PROFIT 1,787 1,610 6,583
Depreciation and other non-cash items 163 249 909
Increase in working capital (139) (242) (98)
(Decrease)/increase in net liabilities (61) (15) 530
---- ---- ----
1,750 1,602 7,924
Restructuring/integration costs paid (87) (153) (669)
---- ---- ----
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,663 1,449 7,255
Dividends received from associates - - 2
Returns on investment and servicing of finance (99) (107) (237)
Taxation paid (490) (209) (1,633)
---- ---- ----
FREE CASH FLOW 1,074 1,133 5,387
---- ---- ----
Purchase of tangible fixed assets (153) (176) (1,044)
Sale of tangible fixed assets 14 8 59
Purchase of intangible fixed assets (37) (32) (182)
---- ---- ----
(176) (200) (1,167)
Product divestments - - (1)
Proceeds from own shares for employee share options 1 27 58
Purchase of equity investments (9) (7) (75)
Sale of equity investments 42 9 65
---- ---- ----
Capital expenditure and financial investment (142) (171) (1,120)
---- ---- ----
Purchase of businesses - - (21)
Business disposals - - 6
Investment in joint ventures and associates - - (5)
---- ---- ----
Acquisitions and disposals - - (20)
---- ---- ----
Equity dividends paid (527) (545) (2,327)
---- ---- ----
NET CASH INFLOW 405 417 1,920
Issue of ordinary share capital 7 18 56
Purchase of shares for cancellation (241) (504) (2,220)
Net non-cash funds of subsidiary acquired - - (4)
Other financing cash flows 63 (43) 135
Exchange movements 50 (8) (121)
---- ---- ----
DECREASE/(INCREASE) IN NET DEBT IN PERIOD 284 (120) (234)
NET DEBT AT BEGINNING OF PERIOD (2,335) (2,101) (2,101)
---- ---- ----
NET DEBT AT END OF PERIOD (2,051) (2,221) (2,335)
---- ---- ----
BALANCE SHEET
Q1 2003 Q1 2002 2002
£m £m £m
---- ---- ----
Goodwill 159 170 171
Intangible fixed assets 1,704 1,664 1,637
Tangible fixed assets 6,695 6,866 6,649
Investments 3,128 3,195 3,121
---- ---- ----
FIXED ASSETS 11,686 11,895 11,578
---- ---- ----
Equity investments 152 184 161
Stocks 2,165 2,144 2,080
Debtors 6,417 6,248 6,200
Liquid investments 1,327 1,364 1,256
Cash at bank 903 935 1,052
---- ---- ----
CURRENT ASSETS 10,964 10,875 10,749
---- ---- ----
Loans and overdrafts (1,327) (2,051) (1,551)
Other creditors (7,152) (7,463) (7,257)
---- ---- ----
CREDITORS: amounts due within one year (8,479) (9,514) (8,808)
---- ---- ----
NET CURRENT ASSETS 2,485 1,361 1,941
---- ---- ----
TOTAL ASSETS LESS CURRENT LIABILITIES 14,171 13,256 13,519
---- ---- ----
Loans (2,954) (2,469) (3,092)
Other creditors (220) (201) (206)
---- ---- ----
CREDITORS: amounts due after one year (3,174) (2,670) (3,298)
---- ---- ----
PROVISIONS FOR LIABILITIES AND CHARGES (3,032) (2,414) (2,833)
---- ---- ----
NET ASSETS 7,965 8,172 7,388
---- ---- ----
Called up share capital 1,500 1,536 1,506
Share premium account 231 187 224
Other reserves 1,911 1,874 1,905
Profit and loss account 3,541 3,741 2,946
---- ---- ----
EQUITY SHAREHOLDERS' FUNDS 7,183 7,338 6,581
Non-equity minority interest 570 634 559
Equity minority interests 212 200 248
---- ---- ----
CAPITAL EMPLOYED 7,965 8,172 7,388
---- ---- ----
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
Q1 2003 Q1 2002
£m £m 2002
£m
---- ---- ----
Equity shareholders' funds at beginning of period 6,581 7,390 7,390
Total recognised gains and losses for the period 1,393 1,015 3,701
Dividends (524) (535) (2,346)
Ordinary shares issued 7 18 56
Ordinary shares purchased and cancelled (262) (549) (2,220)
Exchange movements on goodwill written off to reserves (12) (1) -
---- ---- ----
Equity shareholders' funds 7,183 7,338 6,581
---- ---- ----
FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET
Cash flow
Operating cash flow, after restructuring and integration payments of £87 million, was £1,663 million in Q1 2003. This
represents an increase of £214 million over Q1 2002 and is well in excess of the funds needed for the routine cash
flows of tax, capital expenditure on tangible assets and dividend payments, together amounting to £1,170 million.
Receipts of £8 million arose from the exercise of share options: £1 million from shares held by the Employee Share
Ownership Trusts (ESOTs) and £7 million from new shares. In addition, £241 million was spent on purchasing the
company's own shares for cancellation.
Net assets
The book value of net assets increased by £577 million from £7,388 million at 31st December 2002 to
£7,965 million at 31st March 2003. This principally reflects a reduction in net debt arising from the positive cash
flow in the quarter.
Fixed asset investments comprise investments in associates, long-term equity investments and an investment in own
shares held by the ESOTs. At 31st March 2003 the ESOTs held 180 million GSK ordinary shares, at a carrying value of
£2,822 million and market value of £2,006 million, against the future exercise of share options and share awards. This
valuation shortfall is not considered to represent a permanent diminution in value in the context of the length of the
future period over which the related share options may be exercised. Accordingly no provision has been made. The
carrying value of associates and equity investments was £458 million and the market value was £1,209 million.
Equity shareholders' funds
Equity shareholders' funds increased from £6,581 million at 31st December 2002 to £7,183 million at
31st March 2003. The increase arises from earnings being offset to a lesser extent by a lower level of shares
purchased and cancelled and positive exchange movements on overseas net assets.
Legal proceedings
GlaxoSmithKline is involved in various legal and administrative proceedings, principally product liability,
intellectual property, antitrust, and governmental investigations and related private litigation. The outcome of
claims, legal proceedings and other matters in which the Group is involved cannot be predicted with any certainty.
Legal proceedings in which GlaxoSmithKline is involved are described in the 'Legal proceedings' note to the Financial
Statements and the 'Risk factors' in Operating and financial review and prospects included in the Annual Report 2002.
Developments since the date of the Annual Report are set out below.
With respect to the patent infringement action against Pentech Pharmaceuticals regarding Paxil, in April 2003 the Group
reached a settlement with Pentech and Par Pharmaceutical to which Pentech had granted rights under Pentech's ANDA for
paroxetine hydrochloride capsules. The parties jointly filed for dismissal of the suit. The settlement will allow Par
to distribute in Puerto Rico substitutable generic paroxetine hydrochloride immediate release tablets supplied and
licensed from the Group for a royalty payable to the Group. Par will be entitled to distribute the same product in the
US market once another generic version fully substitutable for Paxil becomes available there. In the settlement Par
and Pentech acknowledge that the GlaxoSmithKline patent covering the hemihydrate form of paroxetine hydrochloride is
valid and enforceable and would be infringed by Pentech's proposed capsule product. The Bureau of Competition of the
US Federal Trade Commission reviewed the settlement. The review was voluntary and was conducted at the request of the
Group, Par and Pentech.
With respect to the patent infringement actions regarding Paxil in the District Court for the Eastern District of
Pennsylvania, in April 2003 the Group waived claims for infringement of a product by process patent (US patent
6,172,233) against Geneva Pharmaceuticals, Alphapharm, Zenith-Goldline and Sumika Fine Chemicals, which had been
identified as the manufacturer of bulk material for the other three companies. In the course of discovery Sumika
produced evidence that it was not infringing that patent. As a consequence of withdrawal of the waiver, all
Hatch-Waxman stays against FDA approval of Geneva's ANDA have expired and the last remaining Hatch-Waxman stay for
Zenith expires on 10th May 2003 and for Alphapharm on 21st November 2003. Litigation continues in Philadelphia against
Geneva, Alphapharm and Zenith and the other generic companies for infringement of the other GlaxoSmithKline patents at
issue in the case. No trial date has yet been set.
With respect to the complaint filed by GlaxoSmithKline with the US International Trade Commission regarding Augmentin,
in March 2003 in response to a motion by Geneva the administrative law judge recommended that the action be dismissed.
In April the Commission rejected that recommendation and remanded the matter to the administrative law judge for full
hearing.
With respect to the patent infringement litigation regarding Wellbutrin SR, the Court of Appeals for the Federal
Circuit has set a 2nd June 2003 hearing date for the Group's appeal of the summary judgements of non-infringement
granted to Impax Laboratories and Excel Pharmaceutical in US district courts. Eon Labs Manufacturing has filed further
summary judgement motions in the US District Court for the Southern District of New York.
With respect to the 'best price' investigation by the US Attorney's Office for the District of Massachusetts, in April
2003 GlaxoSmithKline and the US Attorney's Office, the US Department of Justice and the Office of Inspector General, US
Department of Health and Human Services entered into a civil settlement agreement effectively resolving this matter.
As part of the civil settlement, the Group agreed to pay a total of $87.6 million and entered into a corporate
integrity agreement with respect to the conduct of its US pharmaceutical business.
With respect to the antitrust action filed by Teva Pharmaceuticals against the Group regarding the Group's patents for
nabumetone (Relafen), the parties entered a settlement agreement in April 2003.
EXCHANGE RATES
The results and net assets of the Group, as reported in sterling, are affected by movements in exchange rates between
sterling and overseas currencies. GSK uses the average of exchange rates prevailing during the period to translate the
results and cash flows of overseas Group subsidiary and associated undertakings into sterling and period end rates to
translate the net assets of those undertakings. The currencies which most influence these translations, and the
relevant exchange rates, are:
Q1 2003 Q1 2002 2002
Average rates: ---- ---- ----
£/US$ 1.60 1.43 1.50
£/Euro 1.49 1.64 1.59
£/Yen 191.00 189.00 188.00
Period end rates:
£/US$ 1.58 1.42 1.61
£/Euro 1.45 1.63 1.54
£/Yen 187.00 189.00 192.00
During Q1 2003 average sterling exchange rates were stronger against the US dollar and the yen and weaker against the
Euro compared to the same period in 2002. Comparing Q1 2003 period-end rates with Q1 2002 period-end rates, sterling
also was stronger against the US dollar and the yen and weaker against the Euro.
ACCOUNTING PRESENTATION AND POLICIES
This unaudited Results Announcement for the three months ended 31st March 2003 is prepared in accordance with the
accounting policies expected to apply in 2003. These are unchanged from those set out in the Annual Report 2002.
Data for market share and market growth rates relate to the year ended 31st December 2002 (or later where available).
These are GSK estimates based on the most recent data from independent external sources, valued in sterling at relevant
exchange rates. Figures quoted for product market share reflect sales by GSK and licensees.
The profit and loss account, statement of total recognised gains and losses and cash flow statement for the year ended,
and the balance sheet at, 31st December 2002 have been derived from the full Group accounts for that period, which have
been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and did not
contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985.
INVESTOR INFORMATION
Announcement of Q1 Results 2003
This Announcement was approved by the Board of Directors on Wednesday 30th April 2003.
Financial calendar
The company will announce second quarter 2003 results on 23rd July 2003. The second interim dividend for 2003 will
have an ex-dividend date of 30th July 2003 and a record date of 1st August 2003 and will be paid on 2nd October 2003.
Annual General Meeting
The Annual General Meeting will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster,
London SW1P 3EE on 19th May 2003.
Internet
This Announcement, and other information about GSK, is available on the company's website at: http://www.gsk.com.
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