Interim Results
GlaxoSmithKline PLC
23 July 2003
Issued: 23rd July 2003, London
Results Announcement for the Second Quarter 2003
GSK CONTINUES TO DELIVER STRONG EARNINGS GROWTH
BUSINESS PERFORMANCE* EPS OF 23.9 PENCE - GROWTH OF 15% CER
GlaxoSmithKline plc (GSK) today announces its results for the second quarter ended 30th June 2003. The full UK GAAP
results (statutory results) are presented under "Profit and loss account" on page 6 and 7. 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
Q2 2003 Increase H1 2003 Increase
£m CER % £% £m CER % £%
Turnover 5,375 3 (1) 10,597 6 1
Business performance*
Trading profit 1,891 8 4 3,698 15 8
Profit before tax 1,969 13 8 3,743 18 9
Earnings per share 23.9p 15 9 45.7p 20 12
Statutory results
Trading profit 1,801 16 11 3,503 22 14
Profit before tax 1,882 21 15 3,551 25 16
Earnings per share 22.8p 22 16 43.3p 27 18
Q2 2003 HIGHLIGHTS*
• Total pharmaceutical turnover grew 3% in the quarter and 6% in the first half of the year - a good
performance given the loss of nearly £300 million of Augmentin sales to generic competition in the USA
during the first half of the year.
• Seretide sales exceeded £1 billion (+39%), for the first half of the year, making it the Group's largest
and fastest growing product.
• Earnings per share increased 15% in the quarter and 20% in the first half of the year. The strong
performance in H1 2003 means that GSK now expects to deliver business performance EPS growth of high
single digits or better in 2003, regardless of possible generic competition to Paxil in the USA during the
year.
• GSK is on track to launch two key products into the US market in the second half of the year - Levitra,
for erectile dysfunction, and Wellbutrin XL, for depression.
• The effect of exchange rates reduced sterling turnover growth by 4% and EPS growth by 6% in the quarter.
However, if rates remain at their current levels the impact will be broadly neutral in the second half of
2003.
* 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.
SECOND QUARTER PERFORMANCE 2003
Commenting on the performance for the quarter, JP Garnier, Chief Executive Officer, said:
"This quarter represents another solid performance by GSK and has helped us to grow earnings per share by 20% in the
first half of the year. This was a great achievement for GSK especially given the loss of £300 million of US Augmentin
sales in the same period. On the back of this excellent performance we are upgrading our earnings guidance. We now
expect earnings per share growth of high single digits or better in 2003, regardless of possible generic competition to
Paxil in the USA".
CONTINUED PHARMACEUTICAL SALES GROWTH
• Pharmaceutical turnover grew 3% in the quarter to £4.6 billion.
• In the United States, sales grew 2% to £2.4 billion in the quarter. As previously indicated, in the first
quarter of this year wholesaler stocking patterns helped US sales growth which was 12%. In the second
quarter there was some reversal of this which resulted in lower reported US growth. Overall, US sales
growth of 7% in the first half of the year is broadly consistent with the underlying performance of the US
business.
• European sales were up 2% in the quarter to nearly £1.3 billion. Key markets continued to be impacted by
government reforms on healthcare spending. However, GSK continued to achieve good growth in emerging
markets in Central and Eastern Europe (+7%).
• Sales in International markets increased by 9% in the quarter, driven by good performances in Canada
(+13%), Asia Pacific (+6%), and Latin America (+21%), the latter reflecting continued improvement in
trading conditions in Mexico.
BROAD PRODUCT PORTFOLIO DRIVES GROWTH
Pharmaceutical sales growth is being sustained by a broad portfolio of fast-growing products:
• Seretide/Advair consolidated its position as GSK's number one product, with sales of £531 million in the
quarter, up 31%. In the USA, where sales were up 41% in the quarter, over 19 million prescriptions have
now been written for Advair since its launch, with more than 3.5 million patients being treated. The
respiratory products Flixotide (sales of £173 million, down 8%) and Serevent (sales of £109 million, down
18%) continued to be impacted by the success of Seretide.
GSK is developing several new opportunities for Advair. During the quarter, the company submitted to the
FDA an application for the use of Advair to treat children from 4 to 12 years of age. GSK has also
received European approval for the use of Seretide to treat Chronic Obstructive Pulmonary Disease (COPD).
In the USA, the company submitted additional data to the FDA in May to progress its application for
treatment of COPD. The outcome of the FDA review is expected towards the end of the year.
• Sales of Seroxat/Paxil, GSK's leading product for depression and anxiety disorders, were level at £520
million in the quarter. Paxil CR continues to grow market share and now represents over 38% of new Paxil
prescriptions in the USA.
Seroxat/Paxil performed well in International markets with sales growth of 33% in the quarter, driven by
continued growth in Japan.
• Sales of Avandia and Avandamet, GSK's oral anti-diabetes products, grew 3% in the quarter to £212 million.
In the USA, underlying growth of Avandia and Avandamet was approximately 20%, although reported sales
decreased 5% due to wholesaler stocking movements in the previous quarter. Following a positive opinion
from the CPMP on Avandamet this quarter, GSK anticipates launching the product in Europe later in the year.
• GSK's HIV portfolio had strong growth, with sales up 11% to £390 million in the quarter, reflecting good
performance across all regions. GSK products are the cornerstone of HIV treatment with all of the top 10
HIV treatment regimens in the USA now containing a GSK brand.
In the quarter, GSK and Shionogi reviewed final data from a phase II study of the integrase inhibitor
810781 (S-1360) and have agreed to end development of this lead compound in the series. A follow-up
candidate, 1838, has been selected to replace it. Also during the quarter, GSK and Medivir announced a new
licensing agreement for the development of MIV-210, a nucleoside analogue reverse transcriptase inhibitor
with a unique resistance profile, that is currently in phase I studies.
• Lamictal and Valtrex continued to perform strongly. In the quarter Lamictal sales were £135 million, up
28% and Valtrex sales increased 32% to £132 million. Both products will also benefit from new indications:
Lamictal received FDA approval in June for use in the treatment of bipolar disorder and Valtrex is
expected to obtain FDA approval in Q3 for its use to reduce the risk of transmission of genital herpes.
• Sales of Coreg, an alpha/beta blocker for the treatment of heart failure, rose 20% in the quarter to £84
million. Coreg is expected to benefit from exciting new data published this year. Results from the COMET
trial, the longest and largest trial ever conducted into heart failure, were published in 'The Lancet' this
month and showed Coreg reduced mortality by 17% compared to the beta blocker metoprolol. This data builds
on the impressive results of the recent CAPRICORN study which showed Coreg could reduce the risk of death
by 23% in patients with left ventricular heart dysfunction.
• Global Augmentin sales declined 42% to £179 million in the quarter. The decline in US sales of the
Augmentin franchise due to generic competition was partially mitigated by the strong performances of
Augmentin ES and XR, which now represent approximately 30% of the total number of prescriptions being
written for branded and generic Augmentin.
• Other key products that performed well globally in the quarter include Wellbutrin (£230 million, up 22%),
Zofran (£206 million, up 25%) and Flixonase (£164 million, up 18%).
NEW PRODUCT UPDATE
• Levitra, a potent new treatment for erectile dysfunction, is being rolled out across Europe. In the USA,
following a successful FDA advisory committee meeting in May, GSK and its partner Bayer, expect to gain
approval of Levitra early in the second half of the year.
• Wellbutrin XL has an attractive, differentiated profile as the first and only once-daily anti-depressant
with a low incidence of sexual dysfunction and weight gain. Following receipt of an approvable letter in
June, GSK has received notification that the FDA has classified the company's recent response as Class 1.
The Agency has therefore set 3rd September as the new action date for granting approval.
• In the quarter, FDA approval was received for Bexxar, a new treatment for non-Hodgkin's lymphoma. GSK
expects to launch Bexxar with its partner Corixa at the end of July.
• GSK's new protease inhibitor "908" is under review with the FDA and remains on track for approval during
the second half of the year.
• Epivir+Ziagen, GSK's new once-daily combination product for the treatment of HIV, will be filed with the
FDA during the second half of the year.
• Ariflo, GSK's new oral product to treat COPD will be reviewed at an FDA advisory committee meeting on 5th
September.
CONSUMER HEALTHCARE SALES OF £809 MILLION UP 3%
Sales growth in the quarter was led by Europe (+4%) and International (+5%). North America grew 1%.
Sales of Over-the-counter medicines grew 3% to £377 million in the quarter helped by the acquisition of a number of
dermatological products. Oral Care sales were down 2% to £269 million reflecting competitive market conditions in all
regions. Sales of Nutritional healthcare products grew 12% to £163 million with strong performances by Lucozade (+22%)
in Europe and Horlicks (+18%) in International.
FINANCIAL REVIEW
Trading profit and earnings per share
Business performance trading profit grew 8% to £1,891 million on turnover growth of 3%. The trading margin improved
1.6 percentage points to 35.2% compared with 33.6% in Q2 2002. This improvement came principally from cost of sales,
which declined by 4%, and selling, general and administration (S,G&A) costs, which declined 1%. R&D expenditure
increased 12%. Cost of sales reduced by 1 percentage point on sales, this benefit principally coming from continued
merger, manufacturing restructuring and other cost savings. S,G&A expenditure reduced by 1.6 percentage points on
sales as a result of cost savings arising from merger implementation and the operational excellence cost saving
programme.
Net other operating income was £87 million in the quarter compared with £16 million income in the second quarter of
2002. This included the disposal of a number of minor non-core products.
Business performance EPS of 23.9 pence in the quarter increased 15% in CER terms and 9% in sterling terms. The adverse
currency impact on EPS of 6% in the quarter reflected the continued weakness of the US dollar relative to last year
partly offset by a stronger Euro.
Statutory results, which include merger and manufacturing restructuring costs, delivered a trading profit of £1,801
million on turnover of £5,375 million. Taken together with other expenses, taxation and product divestments this
resulted in EPS of 22.8 pence compared with 19.7 pence in the second quarter of 2002. Merger and manufacturing
restructuring costs were lower in the quarter than in Q2 2002, reflecting movement towards the completion of these
programmes. The sterling based growth in EPS of 16% was higher than the CER based growth in business performance EPS
as a result of lower merger and restructuring costs partly offset by the overall negative impact of currencies.
Merger and restructuring
Costs of £83 million were incurred in the quarter in respect of merger and manufacturing restructuring compared with
£185 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 second quarter 2003 results are based on average exchange rates of £1/$1.62 and £1/Euro 1.43 which compare with
average rates for the second quarter of 2002 of £1/$1.47 and £1/Euro 1.58. Exchange rates at 16th July were £1/$1.59
and £1/Euro 1.42. If exchange rates were to hold at these current levels for the remainder of the year the impact will
be broadly neutral in the second half of 2003.
Dividend
The Board has declared a second interim dividend of 9 pence per share. This compares with a dividend of 9 pence per
share for Q2 2002. The equivalent dividend receivable by ADR holders is 28.637 cents per ADS based on an exchange rate
of £1/$1.59095. The dividend will have an ex-dividend date of 30th July 2003 and will be paid on 2nd October 2003 to
shareholders and to ADR holders of record on 1st August 2003.
Earnings guidance for 2003
GSK's earnings guidance for 2003 has been improved to high single digit or better percentage growth in business
performance earnings per share at constant exchange rates, regardless of possible generic competition to Paxil in the
USA (see "Legal proceedings" on page 19).
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, £262 million in the first quarter and £275 million in the second 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.
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
David Mawdsley (020) 8047 5502
Chris Hunter-Ward (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, and Bexxar, a trade mark of Corixa Corporation which are 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 30th June 2003
Merger, restructuring
and disposal of
businesses
Business performance Statutory
-------------------- -------------- -------------
Q2 2003 Q2 2002 Growth Q2 2003 Q2 2002 Q2 2003 Q2 2002
£m £m CER% £m £m £m £m
--- --- --- --- --- --- ---
Turnover:
Pharmaceuticals 4,566 4,613 3 - - 4,566 4,613
Consumer Healthcare 809 802 3 - - 809 802
--- --- --- --- --- ---
TURNOVER 5,375 5,415 3 - - 5,375 5,415
Cost of sales (990) (1,052) (4) (75) (58) (1,065) (1,110)
--- --- --- --- --- ---
Gross profit 4,385 4,363 5 (75) (58) 4,310 4,305
Selling, general and administration (1,850) (1,950) (1) (5) (107) (1,855) (2,057)
Research and development (644) (594) 12 (10) (29) (654) (623)
--- --- --- --- --- ---
Trading profit:
Pharmaceuticals 1,740 1,697 7 (83) (185) 1,657 1,512
Consumer Healthcare 151 122 24 (7) (9) 144 113
--- --- --- --- --- ---
TRADING PROFIT 1,891 1,819 8 (90) (194) 1,801 1,625
Other operating income 87 16 - - 87 16
--- --- --- --- --- ---
Operating profit 1,978 1,835 13 (90) (194) 1,888 1,641
Business disposals - - 3 - 3 -
Profits of associates 28 21 - - 28 21
--- --- --- --- --- ---
Profit before interest 2,006 1,856 (87) (194) 1,919 1,662
Net interest payable (37) (29) - - (37) (29)
--- --- --- --- --- ---
PROFIT BEFORE TAXATION 1,969 1,827 13 (87) (194) 1,882 1,633
Taxation (550) (493) 23 63 (527) (430)
--- --- --- --- --- ---
Profit after taxation 1,419 1,334 12 (64) (131) 1,355 1,203
Minority interests (21) (24) - - (21) (24)
Preference share dividends (4) (5) - - (4) (5)
--- --- --- --- --- ---
EARNINGS 1,394 1,305 12 (64) (131) 1,330 1,174
--- --- --- --- --- ---
EARNINGS PER SHARE 23.9p 21.9p 15 22.8p 19.7p
--- --- --- ---
Diluted earnings per share 22.8p 19.6p
--- ---
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
14.
PROFIT AND LOSS ACCOUNT
Six months ended 30th June 2003
Merger, restructuring
and disposal of
businesses
Business performance Statutory
-------------------- -------------- -------------
H1 2003 H1 2002 Growth H1 2003 H1 2002 H1 2003 H1 2002
£m £m CER% £m £m £m £m
--- --- --- --- --- --- ---
Turnover:
Pharmaceuticals 9,032 8,974 6 - - 9,032 8,974
Consumer Healthcare 1,565 1,551 5 - - 1,565 1,551
--- --- --- --- --- ---
TURNOVER 10,597 10,525 6 - - 10,597 10,525
Cost of sales (2,009) (2,127) (4) (166) (100) (2,175) (2,227)
--- --- --- --- --- ---
Gross profit 8,588 8,398 8 (166) (100) 8,422 8,298
Selling, general and administration (3,616) (3,720) 2 (15) (224) (3,631) (3,944)
Research and development (1,274) (1,244) 6 (14) (45) (1,288) (1,289)
--- --- --- --- --- ---
Trading profit:
Pharmaceuticals 3,440 3,218 15 (182) (350) 3,258 2,868
Consumer Healthcare 258 216 24 (13) (19) 245 197
--- --- --- --- --- ---
TRADING PROFIT 3,698 3,434 15 (195) (369) 3,503 3,065
Other operating income 67 11 - - 67 11
--- --- --- --- --- ---
Operating profit 3,765 3,445 17 (195) (369) 3,570 3,076
Business disposals - - 3 - 3 -
Product divestments - - - 12 - 12
Profits of associates 50 38 - - 50 38
--- --- --- --- --- ---
Profit before interest 3,815 3,483 (192) (357) 3,623 3,126
Net interest payable (72) (63) - - (72) (63)
--- --- --- --- --- ---
PROFIT BEFORE TAXATION 3,743 3,420 18 (192) (357) 3,551 3,063
Taxation (1,029) (923) 51 113 (978) (810)
--- --- --- --- --- ---
Profit after taxation 2,714 2,497 17 (141) (244) 2,573 2,253
Minority interests (41) (48) - - (41) (48)
Preference share dividends (8) (10) - - (8) (10)
--- --- --- --- --- ---
EARNINGS 2,665 2,439 17 (141) (244) 2,524 2,195
--- --- --- --- --- ---
EARNINGS PER SHARE 45.7p 40.9p 20 43.3p 36.8p
--- --- --- ---
Diluted earnings per share 43.2p 36.6p
--- ---
Weighted average number of shares 5,827 5,962 5,827 5,962
(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
14.
PHARMACEUTICAL TURNOVER
Three months ended 30th June 2003
Total USA Europe International
-------------- -------------- ------------- -------------
£m CER% £m CER% £m CER% £m CER%
----- ----- ----- ----- ----- ----- ----- -----
CENTRAL NERVOUS SYSTEM 1,152 5 808 4 213 3 131 18
Depression 750 6 562 5 96 (8) 92 34
Seroxat/Paxil 520 - 338 (4) 96 (8) 86 33
Wellbutrin 230 22 224 21 - - 6 43
Migraine 213 (2) 151 (5) 45 6 17 15
Imigran/Imitrex 190 (2) 138 (5) 37 5 15 16
Naramig/Amerge 23 (1) 13 (9) 8 12 2 8
Lamictal 135 28 74 30 50 30 11 6
Requip 24 3 12 2 11 - 1 45
Zyban 17 (31) 6 (35) 7 8 4 (54)
RESPIRATORY 1,097 10 556 15 375 1 166 10
Seretide/Advair,
Flixotide/Flovent, Serevent 813 12 413 15 292 5 108 16
Seretide/Advair 531 31 286 41 192 15 53 36
Flixotide/Flovent 173 (8) 77 (11) 52 (10) 44 -
Serevent 109 (18) 50 (28) 48 (8) 11 11
Flixonase/Flonase 164 18 131 22 18 (2) 15 6
Ventolin 66 1 1 > 100 34 (4) 31 2
Becotide 28 (19) - - 23 (17) 5 (28)
ANTI-VIRALS 610 11 298 12 195 13 117 6
HIV 390 11 202 6 148 17 40 15
Combivir 152 6 75 (2) 59 16 18 18
Trizivir 102 32 60 26 38 42 4 50
Epivir 74 7 36 6 28 6 10 14
Retrovir 12 (12) 5 1 4 (30) 3 (4)
Ziagen 42 12 21 8 16 19 5 16
Agenerase 8 (25) 5 (28) 3 (5) - -
Herpes 178 12 86 29 41 3 51 (5)
Valtrex 132 32 83 36 25 16 24 34
Zovirax 46 (23) 3 (42) 16 (12) 27 (25)
Zeffix 32 15 3 5 4 2 25 18
ANTI-BACTERIALS 419 (23) 113 (53) 172 (3) 134 9
Augmentin 179 (42) 60 (66) 74 (6) 45 8
Zinnat/Ceftin 55 (4) 4 (33) 29 (1) 22 4
Fortum 47 (10) 6 (29) 24 (9) 17 (2)
Amoxil 29 (1) 6 (23) 8 (29) 15 41
VACCINES 285 8 73 15 127 6 85 3
Hepatitis 106 (13) 34 (23) 55 (4) 17 (9)
Infanrix, Pediarix 102 50 39 92 42 31 21 23
ONCOLOGY AND EMESIS 273 19 207 23 43 4 23 6
Zofran 206 25 155 32 32 1 19 8
Hycamtin 29 12 20 16 7 14 2 (24)
METABOLIC 245 - 167 (5) 25 6 53 17
Avandia, Avandamet 212 3 167 (5) 17 49 28 63
CARDIOVASCULAR AND UROGENITAL
178 10 110 10 42 (2) 26 37
Coreg 84 20 81 19 - - 3 34
Levitra 3 - - - 2 - 1 -
Avodart 3 - 2 - 1 - - -
OTHER 307 (7) 27 (33) 91 (16) 189 3
Zantac 89 (10) 22 12 24 (24) 43 (11)
------------- ------------- ------------- -------------
4,566 3 2,359 2 1,283 2 924 9
------------- ------------- ------------- -------------
Pharmaceutical turnover includes co-promotion income.
PHARMACEUTICAL TURNOVER
Six months ended 30th June 2003
Total USA Europe International
-------------- -------------- ------------- -------------
£m CER% £m CER% £m CER% £m CER%
----- ----- ----- ----- ----- ----- ----- -----
CENTRAL NERVOUS SYSTEM 2,247 11 1,595 13 417 3 235 18
Depression 1,456 14 1,099 15 193 (3) 164 29
Seroxat/Paxil 1,010 9 665 9 193 (3) 152 29
Wellbutrin 446 26 434 25 - - 12 35
Migraine 417 2 302 2 85 (3) 30 15
Imigran/Imitrex 373 2 277 2 70 (2) 26 15
Naramig/Amerge 44 (5) 25 (7) 15 (5) 4 10
Lamictal 265 32 150 40 94 24 21 10
Requip 46 11 23 17 21 2 2 44
Zyban 37 (30) 15 (30) 15 (3) 7 (52)
RESPIRATORY 2,190 14 1,127 23 729 2 334 13
Seretide/Advair,
Flixotide/Flovent, Serevent 1,627 17 857 24 568 5 202 18
Seretide/Advair 1,045 39 578 55 370 16 97 43
Flixotide/Flovent 353 (7) 165 (7) 104 (12) 84 (1)
Serevent 229 (13) 114 (19) 94 (8) 21 14
Flixonase/Flonase 323 22 249 27 31 (3) 43 14
Ventolin 130 (1) 3 (47) 67 (5) 60 8
Becotide 57 (17) - - 47 (14) 10 (29)
ANTI-VIRALS 1,181 10 590 11 366 8 225 9
HIV 765 12 415 11 276 13 74 15
Combivir 296 6 154 2 108 8 34 17
Trizivir 196 37 118 35 71 40 7 49
Epivir 148 7 77 10 53 2 18 9
Retrovir 23 (14) 10 (3) 8 (34) 5 4
Ziagen 85 13 45 10 31 18 9 13
Agenerase 17 (16) 11 (20) 5 (4) 1 (14)
Herpes 329 7 157 16 78 2 94 (3)
Valtrex 242 28 154 31 44 13 44 32
Zovirax 87 (27) 3 (80) 34 (9) 50 (21)
Zeffix 63 12 5 (3) 8 (3) 50 17
ANTI-BACTERIALS 886 (24) 251 (53) 377 (2) 258 10
Augmentin 397 (42) 143 (65) 168 (5) 86 10
Zinnat/Ceftin 119 (5) 12 (31) 66 3 41 (4)
Fortum 93 (9) 14 (13) 48 (12) 31 (3)
Amoxil 61 2 13 (6) 18 (31) 30 39
VACCINES 549 8 146 7 234 7 169 11
Hepatitis 213 (9) 79 (15) 99 (7) 35 1
Infanrix, Pediarix 177 34 67 50 72 22 38 31
ONCOLOGY AND EMESIS 521 18 394 22 82 2 45 11
Zofran 388 24 291 32 62 1 35 10
Hycamtin 55 12 37 15 13 2 5 14
METABOLIC 505 12 358 10 50 16 97 16
Avandia, Avandamet 438 15 358 10 29 33 51 47
CARDIOVASCULAR AND UROGENITAL
350 18 220 20 84 5 46 31
Coreg 168 36 162 36 - - 6 34
Levitra 5 - - - 4 - 1 -
Avodart 4 - 3 - 1 - - -
OTHER 603 (10) 57 (25) 185 (17) 361 (4)
Zantac 172 (13) 45 9 49 (28) 78 (13)
------------- ------------- ------------- -------------
9,032 6 4,738 7 2,524 1 1,770 9
------------- ------------- ------------- -------------
Pharmaceutical turnover includes co-promotion income.
CONSUMER HEALTHCARE TURNOVER
Three months ended
30th June 2003
----------------------
£m CER%
--------- ---------
Over-the-counter medicines 377 3
Analgesics 84 4
Dermatological 66 28
Gastro-intestinal 69 (1)
Respiratory tract 29 17
Smoking control 76 (7)
Natural wellness support 40 2
Oral care 269 (2)
Nutritional healthcare 163 12
--------- ---------
Total 809 3
--------- ---------
Six months ended
30th June 2003
----------------------
£m CER%
--------- ---------
Over-the-counter medicines 746 7
Analgesics 164 4
Dermatological 123 39
Gastro-intestinal 140 2
Respiratory tract 65 15
Smoking control 148 (3)
Natural wellness support 80 6
Oral care 521 -
Nutritional healthcare 298 7
--------- ---------
Total 1,565 5
--------- ---------
FINANCIAL REVIEW - PROFIT AND LOSS ACCOUNT
Pharmaceutical turnover
Turnover in the period increased by 3% compared with the second quarter of 2002, which in CER terms represented
additional turnover of £149 million. An analysis of turnover between new products (those launched in a major market
within the last five years), franchise products (established products), and other products (now less actively promoted)
is set out below:
Q2 2003
----------------------------------------------
£m % total CER% CER £m
--------- --------- --------- ---------
New 1,129 25 22 210
Franchise 2,503 55 1 16
Other 934 20 (7) (77)
--------- --------- --------- ---------
4,566 100 3 149
--------- --------- --------- ---------
The growth of the new products, notably Seretide/Advair, Infanrix, Pediarix and Trizivir, and the franchise products,
Wellbutrin, Zofran, and Valtrex, more than offset the decline of older products such as Augmentin, Zovirax and Zantac.
New products accounted for 25% 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. Sales of Levitra in the quarter were £1 million.
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
Q2 2003 Q2 2002 2002
------------------- ------------------ Growth ------
£m % of turnover £m % of turnover CER% £m
------ ------ ------ ------ ------ ------
Turnover 5,375 100.0 5,415 100.0 3 21,212
Cost of sales (990) (18.4) (1,052) (19.4) (4) (4,243)
Selling, general and administration
(1,850) (34.4) (1,950) (36.0) (1) (7,543)
Research and development (644) (12.0) (594) (11.0) 12 (2,732)
------ ------ ------ ------ ------ ------
Trading profit - business
performance 1,891 35.2 1,819 33.6 8 6,694
------ ------ ------ ------ ------ ------
Overall the trading margin improved 1.6 percentage points compared with the same quarter last year, and trading profit
grew 8%. The improvement in margin came from cost of sales, which declined by 4% and from selling, general and
administration costs, which declined 1%, more than offsetting an increase in R&D expenditure of 12%, while turnover
grew 3%.
Cost of sales reduced as a percentage of turnover as a result of benefits arising from merger, manufacturing
restructuring and other savings. A small pricing benefit was largely offset by the exchange impact.
Selling, general and administration costs also benefited from cost savings arising from merger integration
implementation and other initiatives.
Research and development (R&D) increased by 12% reflecting increased activity. Pharmaceuticals R&D expenditure
represented 13.7% of pharmaceutical turnover in the period.
Profit before tax - business performance
Q2 2003 Q2 2002 2002
£m £m £m
---- ---- ----
Trading profit 1,891 1,819 6,694
Other operating income/(expense) 87 16 (111)
Profits of associates 28 21 75
Net interest payable (37) (29) (141)
---- ---- ----
Profit before tax - business performance 1,969 1,827 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 carrying cost adjustments arising from stock
market price changes, royalty income, product disposals and equity investment sales.
Merger items, integration and restructuring costs and disposal of subsidiaries
Q2 2003 Q2 2002 2002
£m £m £m
---- ---- ----
Manufacturing and other restructuring (19) (16) (121)
Merger integration costs (64) (169) (851)
Block Drug integration costs (7) (9) (60)
---- ---- ----
Effect on operating profit (90) (194) (1,032)
Product divestments - - 11
Disposal of businesses 3 - 10
---- ---- ----
Effect on profit before tax (87) (194) (1,011)
---- ---- ----
Merger integration costs are declining as the programme nears its completion in the third year post merger.
Manufacturing and other restructuring charges principally reflect the timing of production plant closures.
Taxation - total
Q2 2003 Q2 2002 2002
£m £m £m
---- ---- ----
Business performance (550) (493) (1,760)
Merger items, integration and restructuring costs
and disposal of subsidiaries 23 63 299
---- ---- ----
Taxation - total (527) (430) (1,461)
---- ---- ----
The charge for taxation on business performance profit for the half year represents an effective tax rate of 27.5%
which is the expected rate for the year. This represents an increase compared with the effective rate of 27.0% in 2002
due to changes in the geographic mix of profits.
The credit for taxation on merger, restructuring and business disposals 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
for 2002. Developments since the date of that report are as follows. With respect to the claims of the Internal
Revenue Service (IRS) for all years since 1989, which are described in the note, the US and UK tax authorities have
concluded discussions under the mutual agreement provisions of the double taxation convention between the two countries
without reaching agreement. As stated in previous updates, there continues to be a wide difference of views between
the company and the IRS. The company is now in discussions with the Appeals Division of the IRS regarding years
1995-2000, but the dispute in respect of 1989-1994 will now proceed to the US Tax Court. The company is awaiting
statutory notices from the IRS.
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
Q2 2003 Q2 2002 2002
£m £m £m
Net profit attributable to shareholders ---- ---- ----
Earnings 1,330 1,174 3,915
Adjustment for merger items, integration and restructuring costs and
disposal of businesses 64 131 712
---- ---- ----
Adjusted earnings 1,394 1,305 4,627
---- ---- ----
pence pence pence
Earnings per share ---- ---- ----
Basic earnings per share 22.8 19.7 66.2
Adjustment for merger items, integration and restructuring costs and
disposal of businesses 1.1 2.2 12.1
---- ---- ----
Adjusted earnings per share 23.9 21.9 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.
Q2 2003 Q2 2002 2002
£m £m £m
Appropriations ---- ---- ----
Net profit attributable to shareholders 1,330 1,174 3,915
Dividends (522) (530) (2,346)
---- ---- ----
Retained profit 808 644 1,569
---- ---- ----
pence per 2003 pence per 2002
share share
£m £m
Dividends ---- ---- ---- ----
First interim - paid 3rd July 2003 9 524 9 535
Second interim - payable 2nd October 2003 9 522 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 30th June 2003 was
5,802 million (30th June 2002: 5,880 million).
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
H1 2003 H1 2002 2002
£m £m £m
---- ---- ----
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 2,524 2,195 3,915
Exchange movements on overseas net assets 181 (76) (154)
Tax on exchange movements 1 - (67)
Unrealised gains on equity investments 3 2 7
---- ---- ----
TOTAL RECOGNISED GAINS AND LOSSES 2,709 2,121 3,701
---- ---- ----
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
Three months ended 30th June 2003
Q2 2003 Q2 2002 2002
£m £m £m
---- ---- ----
BUSINESS PERFORMANCE OPERATING PROFIT 1,978 1,835 6,583
Depreciation and other non-cash items 181 159 909
Increase in working capital (212) (3) (98)
(Decrease)/increase in net liabilities (164) 290 530
---- ---- ----
1,783 2,281 7,924
Restructuring/integration costs paid (89) (180) (669)
---- ---- ----
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,694 2,101 7,255
Dividends received from associates - - 2
Returns on investment and servicing of finance (50) (39) (237)
Taxation paid (627) (427) (1,633)
---- ---- ----
FREE CASH FLOW 1,017 1,635 5,387
---- ---- ----
Purchase of tangible fixed assets (186) (232) (1,044)
Sale of tangible fixed assets 17 20 59
Purchase of intangible fixed assets (19) (59) (182)
---- ---- ----
(188) (271) (1,167)
Product divestments - - (1)
Proceeds from own shares for employee share options 11 10 58
Purchase of equity investments (6) (6) (75)
Sale of equity investments 44 53 65
---- ---- ----
Capital expenditure and financial investment (139) (214) (1,120)
---- ---- ----
Purchase of businesses (9) (7) (21)
Business disposals 3 - 6
Investment in joint ventures and associates (1) - (5)
---- ---- ----
Acquisitions and disposals (7) (7) (20)
---- ---- ----
Equity dividends paid (760) (719) (2,327)
---- ---- ----
NET CASH INFLOW 111 695 1,920
Issue of ordinary share capital 11 18 56
Purchase of shares for cancellation (286) (1,084) (2,220)
Net non-cash funds of subsidiary acquired - - (4)
Other financing cash flows 81 95 135
Exchange movements (28) (30) (121)
---- ---- ----
INCREASE IN NET DEBT IN PERIOD (111) (306) (234)
NET DEBT AT BEGINNING OF PERIOD (2,051) (2,221) (2,101)
---- ---- ----
NET DEBT AT END OF PERIOD (2,162) (2,527) (2,335)
---- ---- ----
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
Six months ended 30th June 2003
H1 2003 H1 2002
£m £m
---- ----
BUSINESS PERFORMANCE OPERATING PROFIT 3,765 3,445
Depreciation and other non-cash items 344 408
Increase in working capital (351) (245)
(Decrease)/increase in net liabilities (225) 275
---- ----
3,533 3,883
Restructuring/integration costs paid (176) (333)
---- ----
NET CASH INFLOW FROM OPERATING ACTIVITIES 3,357 3,550
Returns on investment and servicing of finance (149) (146)
Taxation paid (1,117) (636)
---- ----
FREE CASH FLOW 2,091 2,768
---- ----
Purchase of tangible fixed assets (339) (408)
Sale of tangible fixed assets 31 28
Purchase of intangible fixed assets (56) (91)
---- ----
(364) (471)
Proceeds from own shares for employee share options 12 37
Purchase of equity investments (15) (13)
Sale of equity investments 86 62
---- ----
Capital expenditure and financial investment (281) (385)
---- ----
Purchase of businesses (9) (7)
Business disposals 3 -
Disposal of interests in associates (1) -
---- ----
Acquisitions and disposals (7) (7)
---- ----
Equity dividends paid (1,287) (1,264)
---- ----
NET CASH INFLOW 516 1,112
Issue of ordinary share capital 18 36
Purchase of shares for cancellation (527) (1,588)
Other financing cash flows 144 52
Exchange movements 22 (38)
---- ----
DECREASE/(INCREASE) IN NET DEBT IN PERIOD 173 (426)
NET DEBT AT BEGINNING OF PERIOD (2,335) (2,101)
---- ----
NET DEBT AT END OF PERIOD (2,162) (2,527)
---- ----
BALANCE SHEET
30th June 30th June 31st December
2003 2002 2002
£m £m £m
---- ---- ----
Goodwill 153 159 171
Intangible fixed assets 1,686 1,639 1,637
Tangible fixed assets 6,594 6,762 6,649
Investments 3,109 3,141 3,121
---- ---- ----
FIXED ASSETS 11,542 11,701 11,578
---- ---- ----
Equity investments 164 152 161
Stocks 2,222 2,191 2,080
Debtors 6,717 6,048 6,200
Liquid investments 1,434 1,281 1,256
Cash at bank 1,611 1,122 1,052
---- ---- ----
CURRENT ASSETS 12,148 10,794 10,749
---- ---- ----
Loans and overdrafts (1,372) (2,525) (1,551)
Other creditors (6,669) (7,342) (7,257)
---- ---- ----
CREDITORS: amounts due within one year (8,041) (9,867) (8,808)
---- ---- ----
NET CURRENT ASSETS 4,107 927 1,941
---- ---- ----
TOTAL ASSETS LESS CURRENT LIABILITIES 15,649 12,628 13,519
---- ---- ----
Loans (3,835) (2,405) (3,092)
Other creditors (217) (266) (206)
---- ---- ----
CREDITORS: amounts due after one year (4,052) (2,671) (3,298)
---- ---- ----
PROVISIONS FOR LIABILITIES AND CHARGES (3,111) (2,409) (2,833)
---- ---- ----
NET ASSETS 8,486 7,548 7,388
---- ---- ----
Called up share capital 1,495 1,516 1,506
Share premium account 241 205 224
Other reserves 1,917 1,894 1,905
Profit and loss account 4,074 3,135 2,946
---- ---- ----
EQUITY SHAREHOLDERS' FUNDS 7,727 6,750 6,581
Non-equity minority interest 545 592 559
Equity minority interests 214 206 248
---- ---- ----
CAPITAL EMPLOYED 8,486 7,548 7,388
---- ---- ----
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
H1 2003 H1 2002 2002
£m £m £m
---- ---- ----
Equity shareholders' funds at beginning of period 6,581 7,390 7,390
Total recognised gains and losses for the period 2,709 2,121 3,701
Dividends (1,046) (1,065) (2,346)
Ordinary shares issued 18 36 56
Ordinary shares purchased and cancelled (537) (1,720) (2,220)
Exchange movements on goodwill written off to reserves 2 (12) -
---- ---- ----
Equity shareholders' funds 7,727 6,750 6,581
---- ---- ----
FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET
Cash flow
Operating cash flow, after restructuring and integration payments of £89 million, was £1,694 million in Q2 2003. This
represents a decrease of £407 million over Q2 2002 arising from sales related movements in trade debtors and
provisions for returns and rebates and movements in the provision for legal and other disputes partly offset by higher
operating profit and lower restructuring costs. The operating cash flow is in excess of the funds needed for the
routine cash flows of tax, capital expenditure on tangible assets and dividend payments, together amounting to £1,573
million. In addition, a further £286 million was spent in the quarter on purchasing the company's own shares for
cancellation.
Net assets
The book value of net assets increased by £1,098 million from £7,388 million at 31st December 2002 to
£8,486 million at 30th June 2003. This reflects increased working capital, together with reductions in both taxation
creditors due to timing of payments and the dividend creditor following the payment of the Q4 2002 dividend.
Fixed asset investments comprise investments in associates, long-term equity investments and an investment in own
shares held by the ESOTs. At 30th June 2003 the ESOTs held 179 million GSK ordinary shares, at a carrying value of
£2,795 million and market value of £2,191 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 £478 million and the market value was £1,281 million.
Equity shareholders' funds
Equity shareholders' funds increased from £6,581 million at 31st December 2002 to £7,727 million at
30th June 2003. The increase arises from retained earnings and positive exchange movements on overseas net assets
partly offset by own shares purchased and cancelled.
Legal proceedings
Legal proceedings in which GlaxoSmithKline is involved are described in the 'Legal proceedings' note to the Financial
Statements and the 'Risk factors' in the operating and financial review and prospects included in the Annual Report
2002, as updated in the 'Legal proceedings' note to the first quarter results announcement. Developments since the
dates of the Annual Report and the first quarter results are set out below.
In July 2003 the Group requested the U.S. Food and Drug Administration (FDA) to remove three patents related to Paxil
from the register of pharmaceutical patents maintained by the FDA (the 'Orange Book'). The action followed the FDA's
release on 12th June of new regulations concerning, among other matters, the listing of patents in the Orange Book.
Although the new regulations do not specifically apply to patents already listed, the FDA did provide new criteria for
listing certain types of patents in the future. The Group voluntarily sought the delisting of three product-by-process
patents to proactively align with the new criteria. The delisting request does not affect the validity of these
patents or related patent litigation but does terminate any remaining Hatch-Waxman stays related to the delisted
patents with the effect that there are no remaining stays with respect to FDA approval of the ANDA filed by Apotex
Corp. The Group continues to pursue patent infringement claims in litigation in Philadelphia against Apotex and other
generic companies under these and other patents. No trial date has been set in the Philadelphia litigation.
With respect to the challenge by BASF to the Group's UK paroxetine hydrochloride anhydrate patent, in June 2003 the UK
Court of Appeal upheld the first instance decision which held the process claims of the patent to be valid. The full
trial against Apotex under the same patent in the UK High Court, involving issues of both validity and infringement,
will be completed by the end of July with a decision not expected until October 2003.
With respect to the complaint filed by GlaxoSmithKline with the US International Trade Commission (ITC) regarding
Augmentin, in July 2003 the Group reached a settlement agreement with Novartis and its affiliate companies over the ITC
complaint and related state court actions. Under the terms of the agreement, the Group will receive single-digit
percentage royalties on US sales of generic versions of Augmentin sold by Novartis or its affiliate companies from July
2002 through to June 2006. The termination of the ITC proceeding is subject to approval by the administrative law
judge and the ITC. The settlement does not affect the company's litigation relating to its Augmentin patents. The US
Court of Appeals for the Federal Circuit (CAFC) heard the patent appeal case on 5th March 2003 and a decision is
expected this year. The state court lawsuit against Teva Pharmaceuticals and Ranbaxy Pharmaceuticals concerning the
bacterial strain used to manufacture Augmentin is not affected by the Novartis settlement.
With respect to Wellbutrin SR, the CAFC heard the Group's appeal from the summary judgements of non-infringement
granted to Impax Laboratories and Excel Pharmaceuticals on 2nd June 2003, but as of the date of this report the CAFC
has not ruled on the appeal.
In May 2003 GlaxoSmithKline filed an action against Ranbaxy in the US District Court for the District of New Jersey for
infringement of the Group's composition of matter patent with respect to valaciclovir, the active ingredient in
Valtrex. That patent expires in 2009. The defendant has filed an ANDA with the FDA with a certification of invalidity
of the composition of matter patent and non-infringement of two other patents expiring in 2016 that are listed in the
Orange Book. The case is in its early stages.
The Group has received notice from Teva Pharmaceuticals that Teva has filed an ANDA with the FDA containing a
certification of invalidity of two patents for Avandia expiring in 2015 and 2017 that are listed in the Orange Book.
Teva has not challenged the basic compound patent for Avandia that expires in 2008. Expiry of that compound patent is
expected to be extended to 2011 after the US Patent and Trademark Office has granted patent term restoration.
Developments with respect to tax matters are described in 'Taxation' on page 13.
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:
H1 2003 H1 2002 2002
Average rates: ---- ---- ----
£/US$ 1.61 1.45 1.50
£/Euro 1.46 1.61 1.59
£/Yen 192.00 187.00 188.00
Period end rates:
£/US$ 1.65 1.52 1.61
£/Euro 1.44 1.55 1.54
£/Yen 198.00 183.00 192.00
During H1 2003 average sterling exchange rates were stronger against the US dollar and the yen and weaker against the
Euro compared with the same period in 2002. Comparing H1 2003 period-end rates with H1 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 period ended 30th June 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 12 months ended 31st March 2003 (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 Q2 Results 2003
This Announcement was approved by the Board of Directors on Wednesday 23rd July 2003.
Half-Year Report
In accordance with the Listing Rules of the UK Listing Authority the Half-Year Report will be published in the
Financial Times, The Daily Telegraph and The Wall Street Journal on Thursday 24th July 2003 and will be available from
that date on the GSK website.
Financial calendar
The company will announce third quarter 2003 results on 22nd October 2003. The third interim dividend for 2003 will
have an ex-dividend date of 29th October 2003 and a record date of 31st October 2003 and will be paid on 6th January
2004.
Internet
This Announcement, and other information about GSK, is available on the company's website at: http://www.gsk.com.
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