3rd Qtr & 9 Mths Rslts - Pt 2

GlaxoSmithKline PLC 23 October 2001 Issued: 23rd October 2001, London GlaxoSmithKline plc Results Announcement for the Third Quarter 2001 PART TWO OF TWO =============== SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT ------------------------------------------------------- Q3 2001 Q3 2000 2000 £m £m £m ----- ----- ----- BUSINESS PERFORMANCE OPERATING PROFIT 1,357 1,190 5,300 Depreciation and other non-cash items 223 196 626 Increase in working capital (125) (28) (297) Increase/(decrease) in net liabilities 539 (78) 271 ----- ----- ----- 1,994 1,280 5,900 Restructuring/integration costs paid (296) (73) (362) Merger transaction costs - (37) (97) ----- ----- ----- NET CASH INFLOW FROM OPERATING 1,698 1,170 5,441 ACTIVITIES Earnings from joint ventures and associates - - 1 Returns on investment and servicing of finance (23) (60) (322) Taxation paid (404) (221) (1,240) ----- ----- ----- FREE CASH FLOW 1,271 889 3,880 ----- ----- ----- Purchase of tangible fixed assets (258) (244) (1,007) Sale of tangible fixed assets 22 2 46 Purchase of intangible fixed assets (29) (26) (96) ----- ----- ----- (265) (268) (1,057) Product divestments (3) - 1,529 Purchase of own shares (326) (68) (1,232) Proceeds from own shares for staff options 43 108 206 Purchase of equity investments (4) (11) (62) Sale of equity investments 14 46 289 ----- ----- ----- Capital expenditure and financial investment (541) (193) (327) ----- ----- ----- Purchase of businesses - - (25) Business disposal (4) - (62) Investment in joint ventures and (8) - (2) associates Disposal of interests in associates - - 155 ----- ----- ----- Acquisitions and disposals (12) - 66 ----- ----- ----- Equity dividends paid (547) (163) (2,028) ----- ----- ----- NET CASH INFLOW 171 533 1,591 Issue of ordinary share capital 27 51 185 Other financing cash flows 75 (51) (47) Other non-cash movements - (8) (7) Exchange movements 29 24 24 ----- ----- ----- DECREASE IN NET DEBT IN PERIOD 302 549 1,746 NET DEBT AT BEGINNING OF PERIOD (1,142) (2,824) (2,357) ----- ----- ----- NET DEBT AT END OF PERIOD (840) (2,275) (611) ===== ===== ===== BALANCE SHEET ------------- Q3 2001 Q3 2000 2000 £m £m £m ----- ----- ----- Goodwill 176 167 170 Intangible fixed assets 1,574 994 966 Tangible fixed assets 6,744 6,628 6,642 Investments 3,041 2,424 2,544 ----- ----- ----- FIXED ASSETS 11,535 10,213 10,322 ----- ----- ----- Equity investments 149 68 171 Stocks 2,261 2,333 2,277 Debtors 5,402 5,314 5,399 Liquid investments 1,390 2,271 2,138 Cash at bank 1,184 482 1,283 ----- ----- ----- CURRENT ASSETS 10,386 10,468 11,268 ----- ----- ----- Loans and overdrafts (1,892) (3,050) (2,281) Other creditors (7,180) (5,687) (6,803) ----- ----- ----- CREDITORS: amounts due within one year (9,072) (8,737) (9,084) ----- ----- ----- NET CURRENT ASSETS 1,314 1,731 2,184 ----- ----- ----- TOTAL ASSETS LESS CURRENT LIABILITIES 12,849 11,944 12,506 ----- ----- ----- Loans (1,522) (1,978) (1,751) Other creditors (140) (148) (143) ----- ----- ----- CREDITORS: amounts due after one year (1,662) (2,126) (1,894) ----- ----- ----- PROVISIONS FOR LIABILITIES AND CHARGES (1,840) (1,695) (1,657) ----- ----- ----- NET ASSETS 9,347 8,123 8,955 ===== ===== ===== Called up share capital 1,560 1,555 1,556 Share premium account 143 - 30 Other reserves 6,831 5,333 6,125 ----- ----- ----- EQUITY SHAREHOLDERS' FUNDS 8,534 6,888 7,711 Non-equity minority interest 612 1,053 1,039 Equity minority interests 201 182 205 ----- ----- ----- CAPITAL EMPLOYED 9,347 8,123 8,955 ===== ===== ===== RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS --------------------------------------------------------- 9 Months 9 Months 2001 2000 2000 £m £m £m ----- ----- ----- Equity shareholders' funds at beginning 7,711 5,464 5,464 of period Total recognised gains and losses 1,952 2,331 4,147 for the period Dividends (1,638) (1,025) (2,097) Ordinary Shares issued 117 125 185 Exchange movements on goodwill written off 6 (7) 10 to reserves Goodwill written back on disposals of 386 - 2 businesses ----- ----- ----- Equity shareholders' funds at end 8,534 6,888 7,711 of period ===== ===== ===== FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET ---------------------------------------------- Cash flow --------- Operating cash flow, after restructuring and integration payments of £296 million, was £1.7 billion in Q3 2001. This represents a significant increase over the comparable period and is after adjusting for an increase in net liabilities arising from the timing of payments for rebates, returns and incentives and provisions for product withdrawal costs. The operating cash flow was more than sufficient to fund the routine cash flow of tax, capital expenditure and the first quarter 2001 interim dividend. Funding was provided to the Employee Share Ownership Trusts (ESOTs) for the purchase of GSK shares in the market in the amount of £326 million to satisfy future share options; this was partly offset by receipts of £70 million from the exercise of share options, £43 million satisfied from shares held by the ESOTs and £27 million from new shares. Net assets ---------- The book value of net assets increased from £8,955 million at 31st December 2000 to £9,347 million at 30th September 2001, an increase of £392 million. This reflects retained profits of £445 million, after providing for the 2001 interim dividends, offset by the use in the first quarter of liquid resources to finance the redemption of some of the non-equity minority interest and the effect on net assets of exchange rate movements. Fixed asset investments comprise investments in associates, equity investments and an investment in own shares held by the Employee Share Ownership Trusts (ESOTs). At 30th September 2001 the ESOTs held 180.8 million GlaxoSmithKline ordinary shares at a carrying value of £2,787 million against the future exercise of share options and share awards. Equity shareholders' funds -------------------------- Equity shareholders' funds increased from £7,711 million at 31st December 2000 to £8,534 million at 30th September 2001. The increase arises from retained profits, shares issued under share option schemes and the write-back from reserves to the profit and loss account of the goodwill on a business disposal. Legal proceedings ----------------- Legal proceedings in which GlaxoSmithKline is involved are described in the Annual Report 2000. Developments since the dates of the Annual Report and the Results Announcements for the first and second quarters 2001 are set out below. GlaxoSmithKline has received purported class action lawsuits filed in state and federal courts in the USA alleging that paroxetine (the active ingredient in Paxil) is addictive and causes dependency and withdrawal reactions. The state court cases have been removed to federal court. Plaintiffs seek remedies including compensatory and punitive damages and the cost of a fund for medical monitoring. The lawsuits are in their very early stages and there has been no determination as to whether any of the lawsuits will be permitted to proceed as class actions. GlaxoSmithKline, along with a number of other pharmaceutical companies, has been named as a defendant in a number of purported class action and individual personal injury lawsuits in state courts in the USA alleging that thimerosal, a preservative used in vaccines, causes neurodevelopmental disorders and other injuries. Plaintiffs seek remedies including compensatory and punitive damages and the cost of a fund for medical monitoring and research. The lawsuits are in their very early stages and there has been no determination as to whether any of the purported class actions will be permitted to proceed as class actions. In August 2001 Bayer AG withdrew Baycol (cerivastatin sodium) worldwide in light of reports of adverse events, including deaths, involving rhabdomyolysis. GlaxoSmithKline had participated in the marketing of Baycol in the USA pursuant to a co-promotion agreement with Bayer which was the licence holder and manufacturer of the product. Following the withdrawal, Bayer has received a number of lawsuits filed on behalf of both individual and putative classes of former Baycol users in state and federal courts in the USA. Several of the suits allege that the plaintiffs suffered personal injuries, including rhabdomyolysis, from the use of Baycol. Others claim that persons who took Baycol, although not injured, may be at risk of future injury or may have suffered economic damages from purchasing and using Baycol. A number of the suits include GlaxoSmithKline as a defendant. Plaintiffs seek remedies including compensatory, punitive and statutory damages and creation of funds for medical monitoring. The lawsuits are in their very early stages and there has been no determination as to whether any of the lawsuits will be permitted to proceed as class actions. On 20th August 2001 the US Court of Appeals vacated the preliminary injunction originally granted in favour of GlaxoSmithKline in its action for infringement of its patents for cefuroxime axetil (the active ingredient in the Group's Ceftin anti-infective product) against Ranbaxy Pharmaceuticals and remanded the case to the US District Court for New Jersey for a full trial on the merits. On 24th August 2001 GlaxoSmithKline commenced an action in the US District Court for New Jersey against Reddy-Cheminor and Dr. Reddy's Laboratories alleging infringement of three patents for ondansetron, the active ingredient in Zofran tablets. The defendants have filed an ANDA with the US Food and Drug Administration. FDA approval of that ANDA is stayed until the earlier of January 2004 or resolution of the patent infringement litigation. The case is in its early stages. Although the outcome of claims, legal proceedings and other matters in which GlaxoSmithKline is involved cannot be predicted with any certainty, the Directors, having taken appropriate legal advice, do not expect GlaxoSmithKline's ultimate liability for such matters, after taking into account provisions, tax benefits and insurance, to have a material adverse effect on itsfinancial condition, the results of its operations or its cash flows. 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: 3 months 3 months 9 months 9 months 2001 2000 2001 2000 2000 ------ ------ ------ ------ ------ Average rates: £/US$ 1.44 1.48 1.44 1.54 1.52 £/Euro 1.61 1.64 1.61 1.64 1.64 £/Yen 176.00 163.00 174.00 165.00 163.46 Period end rates: £/US$ 1.47 1.47 1.47 1.47 1.49 £/Euro 1.61 1.67 1.61 1.67 1.61 £/Yen 175.00 159.00 175.00 159.00 171.00 On average during the first nine months of 2001 sterling exchange rates were weaker against the US dollar and the Euro and stronger against the yen compared to the same period of 2000. In aggregate, currency movements in nine months 2001 compared to nine months 2000 had a net favourable effect on sterling results of 4% in respect of sales and 6% in respect of business performance earnings per share. Comparing 2001 period-end rates with 2000 year- end rates, sterling was weaker against the US dollar and stronger against the yen. In order to illustrate underlying business performance, excluding the effect of exchange rate movements on translation, it is the company's practice to discuss the Group results in terms of constant exchange rate growth (CER). This represents growth calculated as if the exchange rates used to translate the results of overseas companies into sterling had remained unchanged from those used in the corresponding period. In this Announcement growth rates are at constant exchange rates (CER) unless otherwise stated. ACCOUNTING POLICIES AND PRESENTATION ------------------------------------ This Announcement is prepared in accordance with the accounting policies expected to apply for 2001. These are unchanged from those set out in the Annual Report 2000, except that the company has implemented the following new Financial Reporting Standard: FRS 18 'Accounting policies'. The FRS updates an existing standard. There is no effect on the results or the net assets of the Group. Figures quoted for market share and market growth rates relate to the year ended 30th June 2001 (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 and cash flow statement for the year ended, and the balance sheet at, 31st December 2000 are an abridged statement of 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 Results for Q3 2001 ----------------------------------- The Results Announcement was approved by the Board of Directors on Tuesday 23rd October 2001. Financial calendar ------------------ The company will announce fourth quarter 2001 results on 14th February 2002. The final dividend will have an ex-dividend date of 20th February 2002, a record date of 22nd February 2002 and will be paid on 18th April 2002.

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