Change to financial reporting framework

RNS Number : 2110C

GlaxoSmithKline PLC

11 April 2017

 

11 April 2017, London, U.K. GlaxoSmithKline plc Change to financial reporting framework

GSK keeps its financial reporting framework under regular review to ensure that it remains current and in line with both the latest regulatory requirements and developing best practice within the Pharmaceutical industry. As a result of its latest review, GSK will be making the following change to its financial reporting from Q1 2017.

Core results will be renamed Adjusted results and will include 'ordinary course' legal charges Treatment and reporting of legal charges From Q1 2017, only Significant legal charges and expenses will be excluded in order to present Adjusted results. All other legal charges and expenses will be included in Adjusted results. Significant legal charges and expenses are those arising from the settlement of litigation or a government investigation that are not in the normal course and materially larger than more regularly occurring individual matters. They also include certain major legacy legal matters. Any new Significant legal matters excluded in order to present Adjusted results will be disclosed at the time. Revised Adjusted results The tables below set out revised reconciliations of Total to Adjusted results, the Adjusted profit and the segment profits for the quarters of 2016 and full year 2015 on the basis that the change described above had taken effect in those years. The impact of this change would have been to reduce the amount of legal charges excluded in arriving at the Adjusted pre-tax profit by £100 million in 2016 and £70 million in 2015. Ongoing legal charges and expenses for the full year 2017 are expected to be at broadly similar levels to 2016 and 2015, and so this change is not expected to affect the Group's previously announced guidance for 2017 or the Group's outlook for the five-year period 2016-2020, provided to investors in May 2015. Historic Adjusted results will be revised for this change to ensure comparability of future Adjusted results with prior periods. An Excel version of this data is available on www.gsk.com. Presentation of Total and Adjusted results GSK will continue to present Total results before Adjusted results and provide a reconciliation between the two. Charges and expenses arising from Significant legal matters will be aggregated into this reconciliation and reported in a new column, 'Divestments, Significant legal charges and other items'. The Remuneration Committee will consider the impact of this change on outstanding and future incentive awards for senior executives, to ensure that performance continues to be assessed on a fair basis. Adjusted results will now exclude the following items and their tax effects: ·      amortisation and impairment of intangible assets (excluding computer software) and goodwill; ·      major restructuring costs, including those costs following material acquisitions; ·      transaction-related accounting adjustments for significant acquisitions; ·      Significant legal charges (net of insurance recoveries) and expenses on the settlement of litigation and government investigations, and ·     other items, including disposals of associates, products and businesses, and other operating income other than royalty income.

Analyst/Investor enquiries:	Sarah Elton-Farr	[phone]	(London)
	Gary Davies	[phone]	(London)
	James Dodwell	[phone]	(London)
	Sarah Webster	[phone]	(London)
	Tom Curry	[phone]	(Philadelphia)
	Jeff McLaughlin	[phone]	(Philadelphia)

This 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 information for 2015 and 2016 has been derived from the full Group accounts published in the Annual Reports 2015 and 2016. CER 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.

Assumptions related to 2017 guidance and 2016-2020 outlook In outlining the expectations for 2017 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 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 Group's expectation of at least £6 billion of revenues per annum on a CER basis by 2020 from products launched since 2013 includes contributions from the current pipeline asset Shingrix.  This target is now expected to be met up to two years earlier. The Group also expects volume demand for its products to increase, particularly in Emerging Markets. The assumptions for the Group's revenue and earnings expectations assume no material interruptions to supply of the Group's products and no material mergers, acquisitions, disposals, litigation costs or share repurchases for the Company; and no change in the Group's shareholdings in ViiV Healthcare or Consumer Healthcare. They also assume no material changes in the macro-economic and healthcare environment. The Group's expectations assume successful delivery of the Group's integration and restructuring plans over the period 2016-2020. Material costs for investment in new product launches and R&D have been factored into the expectations given.  The expectations are given on a constant currency basis and assume no material change to the Group's effective tax rate. Cautionary statement regarding forward-looking statements The Group's reports filed with or furnished to the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may contain 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' 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, and financial results. Other than in accordance with its legal or regulatory obligations (including under 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 that 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 shareholders 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 'Principal risks and uncertainties' on pages 253-262 of the GSK 2016 Annual Report. 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 of and information available to the Directors on the date of this report.

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Reconciliations between Total and Adjusted profit The revised adjustments that reconcile Total operating profit, profit after tax and earnings per share to Adjusted results are as follows:

	2016															Q4 2016
	Operating profit £m				Profit after tax £m					Earnings per share p						Operating profit £m			Profit after tax £m			Earnings per share p
Total results	2,598				1,062					18.8						595			317			5.3
Intangible asset amortisation	588				458					9.4						144			117			2.4
Intangible asset impairment	20				15					0.3						29			21			0.4
Major restructuring costs	970				757					15.6						397			296			6.1
Legal costs*	62				59					1.2						12			12			0.3
Transaction-related items	3,919				3,480					61.6						862			716			11.6
Divestments and other*	(486)				(305)					(6.3)						(12)			(27)			(0.6)
	5,073				4,464					81.8						1,432			1,135			20.2
Adjusted results	7,671				5,526					100.6						2,027			1,452			25.5
Previously reported core results	7,771				5,615					102.4						2,062			1,483			26.1

	9 months 2016											Q3 2016
	Operating profit £m			Profit after tax £m				Earnings per share p				Operating profit £m			Profit after tax £m				Earnings per share p
Total results	2,003			745				13.5				1,431			885				16.6
Intangible asset amortisation	444			341				7.0				165			121				2.5
Intangible asset impairment	(9)			(6)				(0.1)				(9)			(6)				(0.1)
Major restructuring costs	573			461				9.4				151			121				2.4
Legal costs*	50			47				1.0				46			43				1.0
Transaction-related items	3,057			2,764				50.0				799			722				13.2
Divestments and other*	(474)			(278)				(5.7)				(285)			(189)				(3.9)
	3,641			3,329				61.6				867			812				15.1
Adjusted results	5,644			4,074				75.1				2,298			1,697				31.7
Previously reported core results	5,709			4,132				76.3				2,319			1,714				32.0

	6 months 2016											Q2 2016
	Operating profit £m			Profit after tax £m				Earnings per share p				Operating profit £m			Profit after tax £m				Earnings per share p
Total results	572			(140)				(3.2)				(151)			(492)				(9.0)
Intangible asset amortisation	279			220				4.6				135			105				2.2
Intangible asset impairment	-			-				-				-			-				-
Major restructuring costs	422			340				7.0				234			179				3.7
Legal costs*	4			4				0.1				13			14				0.2
Transaction-related items	2,258			2,042				36.8				1,798			1,629				29.9
Divestments and other*	(189)			(89)				(1.8)				(207)			(131)				(2.7)
	2,774			2,517				46.7				1,973			1,796				33.3
Adjusted results	3,346			2,377				43.5				1,822			1,304				24.3
Previously reported core results	3,390			2,418				44.3				1,831			1,312				24.5

	3 months 2016
	Operating profit £m			Profit after tax £m				Earnings per share p
Total results	723			352				5.8
Intangible asset amortisation	144			115				2.4
Intangible asset impairment	-			-				-
Major restructuring costs	188			161				3.3
Legal costs*	(9)			(10)				(0.2)
Transaction-related items	460			413				6.9
Divestments and other*	18			42				0.9
	801			721				13.3
Adjusted results	1,524			1,073				19.1
Previously reported core results	1,559			1,106				19.8

	2015
	Operating profit £m			Profit after tax £m				Earnings per share p
Total results	10,322			8,372				174.3
Intangible asset amortisation	563			402				8.3
Intangible asset impairment	206			156				3.2
Major restructuring costs	1,891			1,455				30.1
Legal costs*	151			147				3.0
Transaction-related items	2,238			1,886				28.8
Divestments and other*	(9,712)			(8,373)				(173.1)
	(4,663)			(4,327)				(99.7)
Adjusted results	5,659			4,045				74.6
Previously reported core results	5,729			4,098				75.7

*Going forward, charges arising from Significant legal matters will be aggregated into 'Divestments and other', which will become 'Divestments, Significant legal charges and other items', in the Total results to Adjusted results reconciliation.       

 

Adjusted operating profit and margin

Adjusted operating profit and earnings per share
	2016						Q4 2016
	£m		% of turnover		Growth CER%		£m		% of turnover		Reported growth CER%
Turnover	27,889		100		6		7,586		100		3
Cost of sales	(8,351)		(29.9)		5		(2,195)		(28.9)		(2)
Selling, general and administration	(8,797)		(31.6)		2		(2,464)		(32.5)		(1)
Research and development	(3,468)		(12.4)		3		(1,017)		(13.4)		6
Royalty income	398		1.4		16		117		1.5		22
Adjusted operating profit	7,671		27.5		14		2,027		26.7		15
Adjusted profit before tax	7,024				16		1,858				18
Adjusted profit after tax	5,526				13		1,452				10
Adjusted profit attributable to    shareholders	4,889				12		1,240				9
Adjusted earnings per share	100.6p				11		25.5p				9

Adjusted operating profit by business
	2016						Q4 2016
	£m		% of turnover		Growth CER%		£m		% of turnover		Reported growth CER%
Pharmaceuticals	7,951		49.4		6		2,338		51.1		14
Pharmaceuticals R&D	(2,488)				6		(741)				14
Total Pharmaceuticals	5,463		33.9		6		1,597		34.9		14
Vaccines	1,454		31.7		38		284		25.0		41
Consumer Healthcare	1,116		15.5		42		274		14.6		5
	8,033		28.8		16		2,155		28.4		16
Corporate & other unallocated costs	(362)						(128)
Adjusted operating profit	7,671		27.5		14		2,027		26.7		15
Previously reported Pharmaceuticals operating profit	7,979		49.5		6		2,347		51.3		14
Previously reported Corporate & other unallocated costs	(290)						(102)

 

Adjusted operating profit and margin

Adjusted operating profit and earnings per share
	9 months 2016						Q3 2016
	£m		% of turnover		Growth CER%		£m		% of turnover		Reported growth CER%
Turnover	20,303		100		7		7,542		100		8
Cost of sales	(6,156)		(30.3)		7		(2,289)		(30.4)		6
Selling, general and administration	(6,333)		(31.2)		3		(2,186)		(28.9)		5
Research and development	(2,451)		(12.1)		2		(876)		(11.6)		8
Royalty income	281		1.4		13		107		1.4		1
Adjusted operating profit	5,644		27.8		14		2,298		30.5		12
Adjusted profit before tax	5,166				16		2,144				14
Adjusted profit after tax	4,074				14		1,697				13
Adjusted profit attributable to    shareholders	3,649				13		1,540				13
Adjusted earnings per share	75.1p				12		31.7p				12

Adjusted operating profit by business

	9 months 2016						Q3 2016
	£m		% of turnover		Growth CER%		£m		% of turnover		Reported growth CER%
Pharmaceuticals	5,613		48.7		4		2,002		49.3		4
Pharmaceuticals R&D	(1,747)				3		(617)				11
Total Pharmaceuticals	3,866		33.5		4		1,385		34.1		1
Vaccines	1,170		33.9		37		647		40.1		30
Consumer Healthcare	842		15.8		56		301		16.1		28
	5,878		29.0		16		2,333		30.9		12
Corporate & other unallocated costs	(234)						(35)
Adjusted operating profit	5,644		27.8		14		2,298		30.5		12
Previously reported Pharmaceuticals operating profit	5,632		48.9		4		2,001		49.3		4
Previously reported Corporate & other unallocated costs	(188)						(13)

 

Adjusted operating profit and margin

Adjusted operating profit and earnings per share

	6 months 2016						Q2 2016
	£m		% of turnover		Growth CER%		£m		% of turnover		Reported growth CER%
Turnover	12,761		100		6		6,532		100		4
Cost of sales	(3,867)		(30.3)		8		(1,931)		(29.6)		4
Selling, general and administration	(4,147)		(32.6)		3		(2,062)		(31.5)		(3)
Research and development	(1,575)		(12.3)		(1)		(800)		(12.2)		4
Royalty income	174		1.4		22		83		1.2		31
Adjusted operating profit	3,346		26.2		14		1,822		27.9		16
Adjusted profit before tax	3,022				17		1,657				21
Adjusted profit after tax	2,377				16		1,304				19
Adjusted profit attributable to    shareholders	2,109				13		1,183				19
Adjusted earnings per share	43.5p				12		24.3p				18

Adjusted operating profit by business

	6 months 2016						Q2 2016
	£m		% of turnover		Growth CER%		£m		% of turnover		Reported growth CER%
Pharmaceuticals	3,611		48.4		4		1,928		49.7		5
Pharmaceuticals R&D	(1,130)				(1)		(583)				9
Total Pharmaceuticals	2,481		33.2		6		1,345		34.6		4
Vaccines	523		28.4		47		270		28.1		39
Consumer Healthcare	541		15.7		76		238		14.1		>100
	3,545		27.8		18		1,853		28.4		16
Corporate & other unallocated costs	(199)						(31)
Adjusted operating profit	3,346		26.2		14		1,822		27.9		16
Previously reported Pharmaceuticals operating profit	3,631		48.6		4		1,931		49.7		5
Previously reported Corporate & other unallocated costs	(175)						(25)

 

Adjusted operating profit and margin

Adjusted operating profit and earnings per share

	3 months 2016
	£m		% of turnover		Growth CER%
Turnover	6,229		100		8
Cost of sales	(1,936)		(31.1)		12
Selling, general and administration	(2,085)		(33.4)		9
Research and development	(775)		(12.4)		(5)
Royalty income	91		1.4		16
Adjusted operating profit	1,524		24.5		12
Adjusted profit before tax	1,365				13
Adjusted profit after tax	1,073				12
Adjusted profit attributable to    shareholders	926				6
Adjusted earnings per share	19.1p				6

Adjusted operating profit by business

	3 months 2016
	£m		% of turnover		Growth CER%
Pharmaceuticals	1,683		46.9		1
Pharmaceuticals R&D	(547)				(9)
Total Pharmaceuticals	1,136		31.7		7
Vaccines	253		28.7		56
Consumer Healthcare	303		17.2		59
	1,692		27.2		20
Corporate & other unallocated costs	(168)
Adjusted operating profit	1,524		24.5		12
Previously reported Pharmaceuticals operating profit	1,700		47.4		2
Previously reported Corporate & other unallocated costs	(150)

 

Adjusted operating profit and margin

Adjusted operating profit and earnings per share

		2015
		£m		% of turnover
Turnover		23,923		100
Cost of sales		(7,520)		(31.4)
Selling, general and administration		(7,977)		(33.3)
Research and development		(3,096)		(12.9)
Royalty income		329		1.3
Adjusted operating profit		5,659		23.7
Adjusted profit before tax		5,021
Adjusted profit after tax		4,045
Adjusted profit attributable to    shareholders		3,605
Adjusted earnings per share		74.6p

Adjusted operating profit by business

		2015
		£m				% of turnover
Pharmaceuticals		6,443				45.5
Pharmaceuticals R&D		(2,168)
Total Pharmaceuticals		4,275				30.2
Vaccines		964				26.4
Consumer Healthcare		684				11.3
		5,923				24.8
Corporate & other unallocated costs		(264)
Adjusted operating profit		5,659				23.7
Previously reported Pharmaceuticals operating profit		6,466				45.7
Previously reported Corporate & other unallocated costs		(217)

 

END

 

 

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