Interim Results

GlaxoSmithKline PLC 24 July 2001 PART 1 Issued: 24th July 2001, London Results Announcement for the Second Quarter 2001 ------------------------------------------------ New Product Performance Drives GlaxoSmithKline's Earnings Per Share Growth of 18% (13% at Constant Exchange Rates) GlaxoSmithKline plc (GSK) today announces its results for the second quarter ended 30th June 2001. The business performance results are summarised below. BUSINESS PERFORMANCE RESULTS ---------------------------- Increase Increase ----------- ------------- Q2 2001 CER% £% H1 2001 CER% £% £m £m Sales 5,122 10 13 9,879 10 15 Trading profit 1,542 14 20 2,911 12 20 Profit before tax 1,702 9 15 3,090 10 17 Earnings per share 20.0p 13 18 36.2p 13 19 Q2 2001 HIGHLIGHTS ------------------ * Pharmaceutical sales up 12% (excluding divested products) with US sales up 20%. - New products up 55% to £953 million, led by Seretide/Advair and Avandia. - Respiratory business up 21% to £912 million; very successful US launch of Seretide/Advair in April. - CNS up 17%; strong growth from Paxil and Wellbutrin. - Augmentin US sales up 25%; US approval for Augmentin ES received 25th June. * Total merger and manufacturing cost savings to increase from £1.6 billion to £1.8 billion by 2003. * GSK on track to deliver 2001 earnings per share growth target of around 13% CER or 18% in sterling if current exchange rates hold. Commenting on the performance for the second quarter, Jean-Pierre Garnier, Chief Executive Officer, said:- 'These excellent results show outstanding growth, with EPS up 13% CER, or around 20% when the divestitures of Kytril and Famvir are taken into account. New products are driving that growth, particularly the phenomenal success of Seretide/Advair and Avandia. Looking to the future, we have announced today our intention to form a joint venture with Shionogi that we expect will further strengthen our new product portfolio. We're on track to deliver EPS growth of around 13% CER for the year which, if exchange rates hold at current levels, should be around 18% in sterling.' ------------------------------------------------------------------------- Business performance results exclude merger items, integration and restructuring costs and disposals of subsidiaries. Growth rates are at constant exchange rates (CER) unless otherwise stated. Pharmaceuticals --------------- Pharmaceuticals growth for the quarter was 12%, led by US sales growth of 20% to £2.3 billion driven by an excellent Advair launch and continued strong growth of Avandia, Paxil and Augmentin. US sales are now 53% of GSK's total pharmaceutical business. Europe grew 7% to £1.1 billion, underpinned by the strong growth of the respiratory and CNS businesses. Rest of World sales were weaker, up 1%, impacted in part by comparison to a strong quarter in 2000. Seroxat/Paxil and Wellbutrin continued to drive CNS sales to nearly £1 billion ------------------------------------------------------------------- Seroxat/Paxil sales increased 19% to £437 million with strong US sales of £285 million, up 17%. Seroxat/Paxil is currently the only SSRI approved in the USA for Generalised Anxiety Disorder (GAD), further differentiating the product through its broad range of indications. Wellbutrin sales showed continued strong growth in the USA, up 30% to £155 million, benefiting from its excellent clinical profile. Imigran/Imitrex for migraine grew 3% to £198 million. GSK expects to launch Imigran/Imitrex tablets in Japan later this year. Key asthma products - Seretide/Advair, Serevent, Flixotide/Flovent - grew 40% to over £600 million -------------------------------------------------------------------- Total Seretide/Advair sales were £194 million. In just 12 weeks on the US market, it has already achieved sales of £71 million and a 12% market share of new prescriptions. The successful roll-out of Seretide/Advair continues to drive growth in Europe. An indication for the use of Seretide/Advair in COPD was also filed in the USA during the quarter. The three key products - Seretide/Advair, Serevent, Flixotide/Flovent - grew 59% in the USA and 22% in Europe. Anti-bacterials continued to show a strong performance in the US ---------------------------------------------------------------- Total sales of Augmentin grew 10% to £291 million. In the USA, sales were up 25%, where growth continues to be driven by Augmentin's track record of unmatched efficacy. FDA approval for new Augmentin ES (extra strength) to treat children with antibiotic resistant otitis media was received in June, and the product is expected to be launched later this year. Otitis media accounts for approximately 60% of all paediatric antibiotic use in the USA. Overall, sales of anti- bacterials were flat as Augmentin's success was offset by declines in other products which now face generic competition. Growth of anti-virals driven by the new HIV triple combination product Trizivir ---------------------------------------------------------------------- HIV sales were up 13% with a very strong start from Trizivir in Europe and the USA, and Combivir in the Rest of the World. Overall, GSK's total US market share of the NRTI (nucleoside analogue reverse transcriptase inhibitor) market has increased from 71% to 73% of new prescriptions since Trizivir's launch last December. Combivir remains the world's biggest selling medicine for HIV with total sales of £153 million, up 4%. Valtrex sales also grew, up 38% to £82 million. Metabolic & Gastro-intestinal - strong performance from Avandia, sales up 84% ---------------------------------------------------------------------- Total sales of metabolic & gastro-intestinal products were up 19%. Sales of Avandia were over £200 million, up 72% in the USA where it continues to be the leading medicine in its class, and has been used by over 2 million patients with type 2 diabetes. GSK expects to initiate a clinical development programme on a combination product of Avandia and metformin. Zantac sales continued to decline in most markets. Vaccines sales of £242 million - up 8% driven by continued growth of Infanrix -------------------------------------------------------------------- Infanrix (our new DTPa range of combination vaccines) performed well in all regions with sales up 44% to £70 million. European sales were up 42%, driven by the new PeNta and HeXa combinations. In the USA, sales more than doubled to £17 million. Despite US sales growth of 3% for hepatitis vaccines, overall sales of the hepatitis portfolio were down 11%, due to the recent introduction in Europe of competing paediatric combination vaccines that provide protection against hepatitis B. In May GSK received FDA approval for Twinrix for hepatitis A and B in adults. Consumer Healthcare ------------------- Consumer Healthcare sales grew 19%, boosted by the acquisition of Block Drug, which contributed additional sales of £146 million. Excluding Block Drug, sales would have declined 2%. Worldwide sales of Oral care products, excluding Block Drug, were £170 million, up 2%; US sales were down 19%, but in Europe, where GSK is the No. 1 oral healthcare company, sales were up 13%. Block Drug added Oral care product sales of £107 million. Nutritional Healthcare products increased 8% to £151 million, led by strong growth from Horlicks in India. Worldwide sales of over-the-counter medicines were £335 million, down 7% from last year, primarily due to private label competition that led to a 28% reduction in US sales of Smoking control products. Consumer Healthcare trading profit increased 12%, reflecting the contribution from Block Drug. Pipeline -------- Tranilast, in Phase III clinical trials for restenosis, did not meet its efficacy targets and consequently development has now ceased. However, GSK continued to enhance its R&D portfolio by establishing a series of promising new agreements: The company has announced its intention to form a joint venture with Shionogi & Co., Ltd. to develop and market several drugs in clinical trials including new agents to fight against HIV and neurological disorders. The JV is expected to operate in the USA and in major European markets, and will be entitled to an exclusive negotiation period regarding all future Shionogi compounds for HIV and CNS. GSK has signed a worldwide development and commercialisation agreement with Neurocrine Biosciences, for Corticotropin Releasing Factor Receptor Antagonists (CRF-R1 and CRF-R2), an entirely new class of compounds to treat psychiatric, neurological and gastro-intestinal diseases including anxiety, depression and irritable bowel syndrome. Neurocrine's lead CRF-R1 Antagonist is currently in Phase I development. Cytokinetics Inc. is joining with GSK in a strategic collaboration to discover, develop and commercialise novel small-molecule therapeutics targeting mitotic kinesins for applications in the treatment of cancer and other diseases. Merger and Restructuring ------------------------ GSK continues to implement the manufacturing restructuring plans initiated by both SmithKline Beecham and Glaxo Wellcome, and is proceeding with the integration of the SB and GW businesses in accordance with the merger plans developed during 2000. Since completion of the merger on 27th December 2000 the company has been working to validate in detail the costs and benefits of those plans for the newly merged group. GSK now expects that annual pre-tax merger savings of at least £1.0 billion by 2003 will increase to £1.2 billion. These, together with savings from the pre-existing manufacturing plans will result in total merger and manufacturing restructuring savings of £1.8 billion by 2003. Merger savings in excess of £400 million are expected in 2001. The estimated total charge for delivering these savings has increased from the £3.0 billion included in the Merger Listing Particulars to £3.8 billion. This is mainly due to higher than expected redundancy costs and further manufacturing network rationalisation. Worldwide integration of Block Drug remains on track. The integration charge is estimated at £0.2 billion. Trading Profit and Earnings Per share ------------------------------------- Trading profit growth was 14%, stronger than the sales growth of 10%, reflecting an improved trading margin. The trading margin improved 1.8% to 30.1% despite the acquisition of the lower margin Block Drug business. Underlying margin improvement was principally driven by geographic sales mix and merger integration benefits. Second quarter EPS increased 13% in CER terms and 18% in sterling terms benefiting from favourable exchange rates. Dividend -------- The Board has declared a second quarter interim dividend of 9 pence per share. The equivalent dividend receivable by ADR holders is 25.455 cents per ADS based on an exchange rate of £1/$1.41418. The dividend will be paid on 4th October 2001 to shareholders and ADR holders of record on 3rd August 2001. Subject to no material unforeseen circumstances, it is expected that GSK will pay a level dividend for each of the first three quarters of 2001, with any increase in the total dividend being taken in the fourth quarter. ----------------------------------------------------------------------- GlaxoSmithKline - one of the world's leading research-based pharmaceutical and healthcare companies - is committed to improving the quality of human life by enabling people to do more, feel better and live longer. For company information, visit GSK on the World Wide Web at www.gsk.com. Enquiries: UK Media Martin Sutton (020) 8966 8000 Philip Thomson (020) 8966 8000 Alan Chandler (020) 8966 8000 US Media Nancy Pekarek (215) 751 7709 Mary Anne Rhyne (919) 483 2839 European Analyst / Investor Jennie Younger (020) 8966 8378 Duncan Learmouth (020) 8966 5961 Anita Kidgell (020) 8966 8369 US Analyst / Investor Frank Murdolo (215) 751 7002 Tom Curry (215) 751 5419 --------------------------------------------------------------------------- GSK prepares its financial results in £ sterling. Accordingly this Announcement is issued in £ sterling. A convenience translation in US$ is also issued. Both £ sterling and US$ versions of the Announcement are available on 'Corporate Home' at www.gsk.com. 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 2000, filed with the US Securities and Exchange Commission. PROFIT AND LOSS ACCOUNT Three months ended 30th June 2001 --------------------------------- Merger, integration and restruct- uring and disposal of Business performance subsidiaries Total -------------------- -------------- --------------- Q2 2001 Q2 2000 Q2 2001 Q2 2000 Q2 2001 Q2 2000 £m £m CER% £m £m £m £m ------- ------- ---- ------ ------- ------- ------- Sales: Pharmaceuticals * Existing portfolio 4,320 3,752 12 - - 4,320 3,752 * Divested products - 120 - - - 120 ----- ----- ----- ----- ----- ----- * Total 4,320 3,872 8 - - 4,320 3,872 ----- ----- ----- ----- ----- ----- Consumer Healthcare * Existing portfolio 656 655 (2) - - 656 655 * Acquisition - Block 146 - - - 146 - Drug ----- ----- ----- ----- ----- ----- 802 655 20 - - 802 655 * Divested products - 3 - - - 3 ----- ----- ----- ----- ----- ----- * Total 802 658 19 - - 802 658 ----- ----- ----- ----- ----- ----- SALES 5,122 4,530 10 - - 5,122 4,530 Cost of sales (1,077) (996) (8) (35) (20) (1,112) (1,016) ----- ----- ----- ----- ----- ----- Gross profit 4,045 3,534 10 (35) (20) 4,010 3,514 Selling, general and (1,882) (1,634) (11) (183) (174) (2,065) (1,808) administration Research and development (621) (617) 2 (35) - (656) (617) ----- ----- ----- ----- ----- ----- Trading profit: Pharmaceuticals 1,423 1,179 15 (205) (160) 1,218 1,019 Consumer Healthcare 119 104 12 (48) (34) 71 70 ----- ----- ----- ----- ----- ----- TRADING PROFIT 1,542 1,283 14 (253) (194) 1,289 1,089 Other operating 67 75 - - 67 75 income/(expense) ----- ----- ----- ----- ----- ----- Operating profit 1,609 1,358 12 (253) (194) 1,356 1,164 Profits of associates 20 16 - - 20 16 Disposal of interests in 96 144 - - 96 144 associates Merger transaction costs - - - (15) - (15) ----- ----- ----- ----- ----- ----- Profit before interest 1,725 1,518 (253) (209) 1,472 1,309 Net interest payable (23) (36) - - (23) (36) ----- ----- ----- ----- ----- ----- PROFIT BEFORE TAXATION 1,702 1,482 9 (253) (209) 1,449 1,273 Taxation (454) (404) (10) 56 45 (398) (359) Profit after taxation 1,248 1,078 10 (197) (164) 1,051 914 Minority interests (22) (35) - - (22) (35) Preference share dividends (8) (15) - - (8) (15) ----- ----- ----- ----- ----- ----- EARNINGS 1,218 1,028 13 (197) (164) 1,021 864 ===== ===== ===== ===== ===== ===== EARNINGS PER SHARE 20.0p 17.0p 13 16.9p 14.2p ===== ===== ===== ===== To illustrate 'Business performance', merger items, integration and restructuring costs and disposal of subsidiaries have been excluded and an adjusted EPS presented. Appropriations of profit attributable to shareholders are set out under 'Appropriations'. PROFIT AND LOSS ACCOUNT Six months ended 30th June 2001 ------------------------------- Merger, integration and restruct- uring and disposal of Business performance subsidiaries Total ---------------------- ---------------- ----------------- 6 months 6 months 6 months 6 months 6 months 6 months 2001 2000 2001 2000 2001 2000 £m £m CER% £m £m £m £m -------- -------- ---- ------- -------- -------- -------- Sales: Pharmaceuticals * Existing portfolio 8,302 7,118 11 - - 8,302 7,118 * Divested products - 221 - - - 221 ----- ----- ----- ----- ----- ----- * Total 8,302 7,339 8 - - 8,302 7,339 ----- ----- ----- ----- ----- ----- Consumer Healthcare * Existing portfolio 1,287 1,273 (2) - - 1,287 1,273 * Acquisition - Block 290 - - - 290 - Drug ----- ----- ----- ----- ----- ----- 1,577 1,273 20 - - 1,577 1,273 * Divested products - 9 - - - 9 ----- ----- ----- ----- ----- ----- * Total 1,577 1,282 19 - - 1,577 1,282 ----- ----- ----- ----- ----- ----- SALES 9,879 8,621 10 - - 9,879 8,621 Cost of sales (2,095) (1,844) (11) (62) (38) (2,157) (1,882) ----- ----- ----- ----- ----- ----- Gross profit 7,784 6,777 9 (62) (38) 7,722 6,739 Selling, general and (3,666) (3,184) (10) (492) (184) (4,158) (3,368) administration Research and (1,207) (1,158) - (44) - (1,251) (1,158) development ----- ----- ----- ----- ----- ----- Trading profit: Pharmaceuticals 2,692 2,245 13 (534) (186) 2,158 2,059 Consumer Healthcare 219 190 11 (64) (36) 155 154 ----- ----- ----- ----- ----- ----- TRADING PROFIT 2,911 2,435 12 (598) (222) 2,313 2,213 Other operating 91 120 - - 91 120 income/(expense) ----- ----- ----- ----- ----- ----- Operating profit 3,002 2,555 11 (598) (222) 2,404 2,333 Profits/(losses) of 35 28 - (5) 35 23 associates Disposal of interests 96 144 - - 96 144 in associates Business disposal - - (1) - (1) - Merger transaction costs - - - (22) - (22) ----- ----- ----- ----- ----- ----- Profit before 3,133 2,727 (599) (249) 2,534 2,478 interest Net interest payable (43) (79) - - (43) (79) PROFIT BEFORE TAXATION 3,090 2,648 10 (599) (249) 2,491 2,399 Taxation (825) (722) (8) 109 54 (716) (668) ----- ----- ----- ----- ----- ----- Profit after taxation 2,265 1,926 11 (490) (195) 1,775 1,731 Minority interests (45) (64) - - (45) (64) Preference share (21) (27) - - (21) (27) dividends ----- ----- ----- ----- ----- ----- EARNINGS 2,199 1,835 13 (490) (195) 1,709 1,640 ===== ===== ===== ===== ===== ===== EARNINGS PER SHARE 36.2p 30.3p 13 28.2p 27.0p ===== ===== ===== ===== Weighted average 6,070 6,063 6,070 6,063 number of shares (millions) ===== ===== ===== ===== To illustrate 'Business performance', merger items, integration and restructuring costs and disposal of subsidiaries have been excluded and an adjusted EPS presented. Appropriations of profit attributable to shareholders are set out under 'Appropriations'. PHARMACEUTICAL SALES - EXISTING PORTFOLIO Three months ended 30th June 2001 ----------------------------------------- Total USA Europe RoW £m CER% £m CER% £m CER% £m CER% ----------- ----------- ----------- ----------- CENTRAL NERVOUS SYSTEM 986 17 693 16 196 15 97 31 Depression 597 22 440 21 97 13 60 40 Seroxat/Paxil 437 19 285 17 97 13 55 42 Wellbutrin 160 30 155 30 - - 5 22 Migraine 221 4 168 4 42 3 11 4 Imigran/Imitrex 198 3 154 4 35 2 9 1 Naramig/Amerge 23 10 14 8 7 11 2 22 Lamictal 90 16 46 21 35 15 9 (2) Requip 19 32 10 45 9 21 - - Zyban 35 58 15 (12) 8 >100 12 >100 RESPIRATORY 912 21 439 42 322 11 151 1 Flixotide, Serevent, 619 40 312 59 231 22 76 35 Seretide Flixotide/Flovent 254 10 138 31 70 (15) 46 11 Serevent 171 3 103 15 58 (12) 10 (7) Seretide/Advair 194 >100 71 - 103 >100 20 >100 Flixonase/Flonase 131 8 98 10 18 22 15 (14) Ventolin 82 (17) 10 12 34 (11) 38 (25) Becotide 39 (26) - - 30 (24) 9 (29) ANTI-BACTERIALS 585 - 279 13 165 (2) 141 (16) Augmentin 291 10 172 25 74 (4) 45 (5) Zinnat/Ceftin 113 8 58 20 30 25 25 (23) Fortum 51 (12) 9 (5) 23 (6) 19 (21) Amoxil 32 (44) 5 (75) 11 (21) 16 (28) ANTI-VIRALS 521 6 253 7 145 4 123 6 HIV 337 13 198 9 103 14 36 30 Trizivir 38 - 25 - 12 - 1 - Combivir 153 4 89 (2) 47 6 17 49 Epivir 77 (4) 41 (3) 24 (9) 12 7 Retrovir 14 (17) 6 (16) 5 (26) 3 (1) Ziagen 43 5 27 (4) 13 14 3 46 Agenerase 12 (16) 10 (27) 2 90 - - Herpes 160 (4) 61 22 37 (18) 62 (13) Valtrex 82 38 52 32 14 (8) 16 >100 Zovirax 78 (27) 9 (14) 23 (23) 46 (31) Zeffix 27 69 2 66 3 92 22 67 METABOLIC & GASTRO- 416 19 225 42 74 (1) 117 2 INTESTINAL Avandia 220 84 201 72 7 >100 12 >100 Zantac 131 (15) 25 (28) 42 (15) 64 (9) VACCINES 242 8 63 8 105 4 74 15 Hepatitis 110 (11) 46 3 47 (21) 17 (14) Infanrix 70 44 17 >100 39 42 14 8 ONCOLOGY & EMESIS 225 20 167 26 35 3 23 10 Zofran 160 24 115 30 27 11 18 15 Hycamtin 27 10 19 22 6 (12) 2 (10) CARDIOVASCULAR 150 18 94 19 38 34 18 (8) Coreg 58 36 56 31 - - 2 >100 ARTHRITIS (Relafen) 50 (14) 44 (9) 2 (57) 4 (19) OTHER 233 (5) 27 (24) 54 - 152 (1) ----------- ----------- ----------- ----------- 4,320 12 2,284 20 1,136 7 900 1 =========== =========== =========== =========== PHARMACEUTICAL SALES - EXISTING PORTFOLIO Six months ended 30th June 2001 ----------------------------------------- Total USA Europe RoW £m CER% £m CER% £m CER% £m CER% ----------- ----------- ----------- ----------- CENTRAL NERVOUS SYSTEM 1,887 17 1,316 14 386 19 185 35 Depression 1,161 20 863 19 188 16 110 37 Seroxat/Paxil 871 18 582 16 188 16 101 37 Wellbutrin 290 27 281 27 - - 9 29 Migraine 396 3 294 2 81 3 21 5 Imigran/Imitrex 352 1 268 2 67 1 17 1 Naramig/Amerge 44 15 26 13 14 15 4 31 Lamictal 164 17 81 22 66 14 17 6 Requip 36 32 18 42 17 23 1 34 Zyban 81 79 30 (16) 24 >100 27 >100 RESPIRATORY 1,694 21 769 38 631 11 294 9 Flixotide, Serevent, 1,133 38 541 54 452 23 140 42 Seretide Flixotide/Flovent 489 14 260 35 142 (12) 87 19 Serevent 352 13 210 33 122 (8) 20 - Seretide/Advair 292 >100 71 - 188 >100 33 >100 Flixonase/Flonase 257 16 182 18 31 20 44 10 Ventolin 154 (12) 17 21 67 (12) 70 (16) Becotide 81 (27) - - 63 (20) 18 (32) ANTI-BACTERIALS 1,295 2 664 15 353 (4) 278 (12) Augmentin 694 15 443 28 163 (3) 88 1 Zinnat/Ceftin 225 (3) 113 (2) 62 8 50 (15) Fortum 101 (10) 18 (15) 45 (8) 38 (11) Amoxil 76 (31) 20 (44) 26 (25) 30 (26) ANTI-VIRALS 994 6 479 4 292 6 223 10 HIV 635 12 365 6 202 17 68 36 Trizivir 56 - 38 - 17 - 1 - Combivir 298 9 173 2 95 12 30 64 Epivir 149 (5) 76 (8) 50 (5) 23 11 Retrovir 26 (18) 11 (19) 10 (21) 5 (12) Ziagen 82 7 48 (7) 26 28 8 60 Agenerase 24 (10) 19 (23) 4 84 1 >100 Herpes 309 - 113 21 80 (10) 116 (7) Valtrex 158 42 95 34 33 9 30 >100 Zovirax 151 (23) 18 (21) 47 (19) 86 (25) Zeffix 49 71 3 56 6 82 40 70 METABOLIC & GASTRO- 756 13 385 25 150 (3) 221 8 INTESTINAL Avandia 371 65 336 54 14 >100 21 >100 Zantac 253 (13) 50 (23) 85 (15) 118 (6) VACCINES 452 7 123 20 192 (1) 137 11 Hepatitis 218 (10) 90 13 89 (22) 39 (15) Infanrix 122 41 32 >100 66 30 24 20 ONCOLOGY & EMESIS 406 15 295 20 71 7 40 5 Zofran 292 20 208 23 53 15 31 9 Hycamtin 48 4 32 10 12 (4) 4 (11) CARDIOVASCULAR 275 21 172 26 69 23 34 (1) Coreg 107 51 103 52 - - 4 41 ARTHRITIS (Relafen) 101 (8) 89 (3) 5 (48) 7 (20) OTHER 442 (5) 33 (46) 113 - 296 2 ----------- ----------- ----------- ----------- 8,302 11 4,325 17 2,262 6 1,715 5 =========== =========== =========== =========== CONSUMER HEALTHCARE SALES ------------------------- Three months ended 30th June 2001 ------------------------ £m CER% ----------- ----------- Including Block Drug -------------------- Over-the-counter medicines 374 3 Analgesics 81 6 Dermatological 50 50 Gastro-intestinal 81 (5) Respiratory tract 30 5 Smoking control 74 (21) Vitamins & naturals 39 13 Oral care 277 66 Nutritional care 151 8 ----------- ----------- Total 802 19 =========== =========== Excluding Block Drug -------------------- Over-the-counter medicines 335 (7) Oral care 170 2 Nutritional care 151 8 ----------- ----------- 656 (2) Block Drug 146 - ----------- ----------- Total 802 19 =========== =========== Six months ended 30th June 2001 ------------------------ £m CER% ----------- ----------- Including Block Drug -------------------- Over-the-counter medicines 756 4 Analgesics 160 15 Dermatological 96 57 Gastro-intestinal 167 2 Respiratory tract 68 (11) Smoking control 147 (22) Vitamins & naturals 79 10 Oral care 539 69 Nutritional care 282 6 ----------- ----------- Total 1,577 19 =========== =========== Excluding Block Drug -------------------- Over-the-counter medicines 678 (7) Oral care 327 3 Nutritional care 282 6 ----------- ----------- 1,287 (2) Block Drug 290 - ----------- ----------- Total 1,577 19 =========== =========== FINANCIAL REVIEW - PROFIT AND LOSS ---------------------------------- Total sales ----------- An analysis of total sales between continuing, divested and acquired products is set out below: Q2 2001 Q2 2000 Growth 2000 £m £m CER% £m ------- ------- ------- ------- Continuing products - existing portfolio: Pharmaceuticals 4,320 3,752 12 14,982 Consumer Healthcare 656 655 (2) 2,631 ------- ------- ------- ------- 4,976 4,407 10 17,613 Products divested on merger - 123 - 466 ------- ------- ------- ------- 4,976 4,530 7 18,079 Acquired products - Block Drug 146 - - - ------- ------- ------- ------- 5,122 4,530 10 18,079 ======= ======= ======= ======= Sales of continuing products in Q2 2001 increased in aggregate by 10% over Q2 2000. The revenue lost from products divested at the end of 2000 to fulfil regulatory conditions for the Glaxo Wellcome/SmithKline Beecham merger, principally Kytril and Famvir, is more than offset by the additional revenue from the acquired Block Drug portfolio. Pharmaceutical sales -------------------- Sales of continuing products increased 12%, which represents additional sales of £437 million (in CER). An analysis of sales 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: Q2 2001 ---------------------------------- £m % total CER % CER £m ------- ------- ------- ------- New 953 22 55 324 Franchise 2,338 54 12 234 Other 1,029 24 (11) (121) ------- ------- ------- ------- 4,320 100 12 437 ======= ======= ======= ======= The growth of the new products, notably Seretide/Advair and Avandia, more than offsets the decline of older products, such as Zantac and they build an increasing share of the total portfolio. Regional analysis ----------------- Sales in the US market, representing 53% of the Group's total pharmaceutical revenue in the second quarter, grew by 20%. The prime drivers for this were the highly successful launch of Advair (Seretide) for asthma in mid-April, continued strong growth in Paxil and Wellbutrin, an excellent performance from Avandia, which grew by 72%, and strong sales of Augmentin, which grew by 25% and increased its share of the competitive antibiotic market. In the anti-virals sector, 9% growth in sales of HIV products was the result of strong sales of Trizivir following its launch at the end of 2000. Imitrex, in the CNS category, recorded growth of 4%, after a period of flat sales, and remains the leader in the select migraine market. Growth in Europe was also led by the success of Seretide as it continued to be rolled out across the region. This was supported by strong growth in Seroxat, which has benefited from increased selling resource following the merger, and growth from recent launches of Trizivir and Zyban. In the metabolic and gastro-intestinal therapeutic category, growth in Avandia offset the decline of Zantac. In vaccines, sales of the hepatitis range slowed but this was compensated for by strong growth in the Infanrix range, with its recently launched new PeNta and HeXa combinations. In the Rest of the World, sales grew by only 1% in the quarter. A strong comparator period, difficult conditions in some markets such as India and Latin America, and the timing of tender shipments in Africa and the Middle East affected growth compared to Q2 2000. Japan, Canada and Australia, however, recorded good growth, aided by recent product launches such as Paxil in Japan and Seretide in Canada and Australia. Trading profit - business performance ------------------------------------- Q2 2001 Q2 2000 ---------------- ---------------- Growth 2000 £m % £m % CER % £m ------- ------- ------- ------- ------- ------- Sales 5,122 100.0 4,530 100.0 10 18,079 Cost of sales (1,077) (21.0) (996) (22.0) (8) (3,811) Selling, general and (1,882) (36.8) (1,634) (36.1) (11) (6,732) administration Research and development (621) (12.1) (617) (13.6) 2 (2,510) ------- ------- ------- ------- ------- ------- Trading profit 1,542 30.1 1,283 28.3 14 5,026 ======= ======= ======= ======= ======= ======= Cost of sales decreased as a percentage of sales as the benefit of merger and manufacturing restructuring savings began to offset the loss of the high-margin products divested in December 2000 and the inclusion of lower margin Block Drug products. Cost of sales also benefited in this quarter from a higher US sales mix and favourable exchange rates. It is anticipated that cost of sales for the full year will remain broadly in line with the full year 2000 percentage of 21.1%. Selling, general and administration (SG&A) costs also benefited from merger savings, principally in general and administration expenditure, but the inclusion of Block Drug costs and a one-time write-off of intangible assets led to overall costs increasing slightly more than sales. Excluding Block Drug expenses, growth in SG&A costs would have been 7% and SG&A expressed as a percentage of sales would have been 1% lower. Research and development expenditure increased at below the rate of sales growth. It is expected that growth in research and development costs will increase as merger savings begin to be reinvested in this area. Overall the trading margin improved by 1.8% which is consistent with expectations of an improvement for the full year of up to 2%. Profit before tax - business performance ---------------------------------------- Q2 2001 Q2 2000 2000 £m £m £m ------- ------- ------- Trading profit 1,542 1,283 5,026 Other operating income/(expense) 67 75 274 Profits of associates 20 16 65 Disposal of interests in associates 96 144 144 Net interest payable (23) (36) (182) ------- ------- ------- Profit before tax 1,702 1,482 5,327 ======= ======= ======= Other operating income/(expense) included profits of £78 million from investment disposals partially offset by one-off expense items. The disposal of part of the Group's investment in its associate, Quest Diagnostics Inc., led to a gain of £96 million. Together, other operating income/(expense) and gains on disposal of associates reduced by £56 million compared to Q2 2000 in line with the company's stated intention to reduce the contribution from one-off items. Net interest payable was lower due to a lower average level of net debt in Q2 2001 than in Q2 2000 and to lower interest rates. Overall profit before tax increased by 9%. Merger items, integration and restructuring costs and disposal of subsidiaries ----------------------------------------------------------------- Q2 2001 Q2 2000 2000 £m £m £m ------- ------- ------- Manufacturing and other restructuring (37) (29) (171) Merger integration costs (168) (165) (400) Block Drug integration costs (48) - - ------- ------- ------- Effect on operating profit (253) (194) (571) Share of associate - - (8) Product divestments - - 1,416 Merger transaction costs - (15) (121) Loss on disposal of businesses - - (14) ------- ------- ------- Effect on profit before tax (253) (209) 702 ======= ======= ======= Taxation -------- Q2 2001 Q2 2000 2000 £m £m £m ------- ------- ------- Business performance (454) (404) (1,454) Merger items, integration and restructuring 56 45 (245) costs and disposal of subsidiaries ------- ------- ------- (398) (359) (1,699) ======= ======= ======= The charge for taxation on business performance profit in Q2 2001 represents an effective rate of tax of 26.7%, which is the rate expected to apply for the year. This represents a reduction compared to the effective rate of 27.3% in 2000. The credit for taxation on merger items, integration and restructuring costs and disposal of subsidiaries in Q2 2001 reflects the estimated actual tax rate applicable to the transactions in the territories in which they arise. Earnings -------- Q2 2001 Q2 2000 2000 £m £m £m ------- ------- ------- Net profit attributable to shareholders --------------------------------------- Earnings 1,021 864 4,154 Adjustment for merger items, integration and 197 164 (457) restructuring costs and disposal of subsidiaries ------- ------- ------- Adjusted earnings 1,218 1,028 3,697 ======= ======= ======= Earnings per share pence pence pence ------------------ ------- ------- ------- Basic earnings per share 16.9 14.2 68.5 Adjustment for merger items, integration and 3.1 2.8 (7.5) restructuring costs and disposal of subsidiaries ------- ------- ------- Adjusted earnings per share 20.0 17.0 61.0 ======= ======= ======= Appropriations -------------- £m £m £m ------- ------- ------- Earnings (profit attributable to shareholders) 1,021 864 4,154 Dividends (546) (700) (2,097) ------- ------- ------- Retained profit 475 164 2,057 ======= ======= ======= The dividends in Q2 2000 were the second quarter dividend payable by SmithKline Beecham plc and the first interim dividend payable by Glaxo Wellcome plc. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES ---------------------------------------------- H1 2001 H1 2000 2000 £m £m £m ------- ------- ------- PROFIT ATTRIBUTABLE TO SHAREHOLDERS 1,709 1,640 4,154 Exchange movements on overseas net assets (45) 69 (23) UK tax on exchange movements 11 (11) 16 ------- ------- ------- TOTAL RECOGNISED GAINS AND LOSSES 1,675 1,698 4,147 ======= ======= ======= MORE TO FOLLOW

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