Interim Results - Part 2
GlaxoSmithKline PLC
24 July 2001
PART 2
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
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Q2 2001 Q2 2000 2000
£m £m £m
------- ------- -------
BUSINESS PERFORMANCE OPERATING PROFIT 1,609 1,358 5,300
Depreciation and other non-cash items 174 110 626
Decrease/(increase) in working capital 251 (286) (297)
Increase in net liabilities 159 140 271
------- ------- -------
2,193 1,322 5,900
Restructuring/integration costs paid (251) (50) (362)
Merger transaction costs (15) (2) (97)
------- ------- -------
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,927 1,270 5,441
Earnings from joint ventures and associates - - 1
Returns on investment and servicing of finance (53) (56) (322)
Taxation paid (484) (148) (1,240)
------- ------- -------
FREE CASH FLOW 1,390 1,066 3,880
------- ------- -------
Purchase of tangible fixed assets (220) (236) (1,007)
Sale of tangible fixed assets 23 30 46
Purchase of intangible fixed assets - (15) (96)
------- ------- -------
(197) (221) (1,057)
Product divestments 8 - 1,529
Purchase of own shares (32) (47) (1,232)
Proceeds from own shares for staff options 98 59 206
Purchase of equity investments (7) (12) (62)
Sale of equity investments 97 35 289
------- ------- -------
Capital expenditure and financial investment (33) (186) (327)
------- ------- -------
Purchase of businesses - (1) (25)
Business disposal - - (62)
Investment in joint ventures and associates - (2) (2)
Disposal of interests in associates 124 155 155
------- ------- -------
Acquisitions and disposals 124 152 66
------- ------- -------
Equity dividends paid (1,067) (1,016) (2,028)
------- ------- -------
NET CASH INFLOW 414 16 1,591
Issue of ordinary share capital 45 40 185
Other financing cash flows 27 (19) (47)
Other non-cash movements (17) - (7)
Exchange movements (7) (65) 24
------- ------- -------
DECREASE/(INCREASE) IN NET DEBT IN PERIOD 462 (28) 1,746
NET DEBT AT BEGINNING OF PERIOD (1,604) (2,796) (2,357)
------- ------- -------
NET DEBT AT END OF PERIOD (1,142) (2,824) (611)
======= ======= =======
BALANCE SHEET
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H1 2001 H1 2000 2000
£m £m £m
------- ------- -------
Goodwill 178 170 170
Intangible fixed assets 1,603 992 966
Tangible fixed assets 6,860 6,597 6,642
Investments 2,571 2,439 2,544
------- ------- -------
FIXED ASSETS 11,212 10,198 10,322
------- ------- -------
Equity investments 154 68 171
Stocks 2,324 2,345 2,277
Debtors 5,539 5,284 5,399
Liquid investments 1,474 1,737 2,138
Cash at bank 935 492 1,283
------- ------- -------
CURRENT ASSETS 10,426 9,926 11,268
------- ------- -------
Loans and overdrafts (1,983) (3,100) (2,281)
Other creditors (6,830) (5,593) (6,803)
------- ------- -------
CREDITORS: amounts due within one year (8,813) (8,693) (9,084)
------- ------- -------
NET CURRENT ASSETS 1,613 1,233 2,184
------- ------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 12,825 11,431 12,506
------- ------- -------
Loans (1,568) (1,953) (1,751)
Other creditors (150) (159) (143)
------- ------- -------
CREDITORS: amounts due after one year (1,718) (2,112) (1,894)
------- ------- -------
PROVISIONS FOR LIABILITIES AND CHARGES (1,822) (1,758) (1,657)
------- ------- -------
NET ASSETS 9,285 7,561 8,955
======= ======= =======
Called up share capital 1,559 1,552 1,556
Share premium account 117 - 30
Other reserves 6,801 4,813 6,125
------- ------- -------
EQUITY SHAREHOLDERS' FUNDS 8,477 6,365 7,711
Non-equity minority interest 638 1,025 1,039
Equity minority interests 170 171 205
------- ------- -------
CAPITAL EMPLOYED 9,285 7,561 8,955
======= ======= =======
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
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H1 2001 H1 2000 2000
£m £m £m
------- ------- -------
Equity shareholders' funds at beginning of period 7,711 5,464 5,464
Total recognised gains and losses for the period 1,675 1,698 4,147
Dividends (1,092) (862) (2,097)
Ordinary Shares issued 90 74 185
Exchange movements on goodwill written off 6 (9) 10
to reserves
Goodwill written off to profit and loss account 87 - 2
account ------- ------- -------
Equity shareholders' funds at end of period 8,477 6,365 7,711
======= ======= =======
FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET
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Cash flow
---------
Operating cash flow, after restructuring costs, was nearly £2 billion
in Q2 2001. This substantial increase over the comparable period was
sufficient to fund the routine cash flow of tax and capital
expenditure and both the second interim dividend for 2000 of Glaxo
Wellcome and the fourth quarter 2000 interim dividend of SmithKline
Beecham. Receipts of £143 million from the exercise of share options,
representing £98 million satisfied from shares held by the Employee
Share Ownership Trusts (ESOTs) and £45 million from new shares, were
only partly offset by additional funding amounting to £32 million
provided to the ESOTs for the purchase of GlaxoSmithKline shares in
the market to satisfy future share options. The Group also disposed of
part of its interest in Quest Diagnostics, Inc. for the sum of £124
million. In total net debt decreased by nearly £500 million from 31st
March 2001.
Net assets
----------
The book value of net assets increased from £8,955 million at 31st
December 2000 to £9,285 million at 30th June 2001, an increase of £330
million. This reflects retained profits of £617 million, after
providing for the first and second 2001 interim dividends, partly
offset by the use in the first quarter of liquid resources to finance
the redemption of some of the non-equity minority interest. There was
no significant net effect on net assets from exchange rate movements.
Fixed asset investments comprise investment in associates, equity
investments and an investment in own shares held by the ESOTs. At 30th
June 2001 the ESOTs held 154.9 million GlaxoSmithKline ordinary shares
at a carrying value of £2,314 million against the future exercise of
share options and share awards.
Equity shareholders' funds
--------------------------
Equity shareholders' funds increased from £7,711 million at 31st
December 2000 to £8,477 million at 30th June 2001. The increase arises
from retained profits, shares issued under share option schemes and
the write-back from reserves to the profit and loss account of the
goodwill on a business disposal.
Legal proceedings
-----------------
Legal proceedings in which GlaxoSmithKline is involved are described
in the Annual Report 2000. Developments since the date of the Annual
Report and the Results Announcement for the first quarter 2001 are set
out below.
On 31st May 2001 Geneva Pharmaceuticals, a subsidiary of Novartis
Pharmaceuticals, commenced an action in the US District Court for the
Eastern District of Virginia over four patents recently issued to
GlaxoSmithKline covering clavulanic acid, a key ingredient in
Augmentin and Timentin. Geneva has asked the court to declare the new
patents, which expire in 2017 and 2018, invalid. Geneva alleges in
its suit that it is the holder of a pending ANDA filed on 11th
February 2000 by another Novartis subsidiary. The case is in its
early stages.
Recently, the US Patent and Trademark Office, following a request by a
third party for re-examination of three of the newly issued patents
referred to above, together with an earlier issued patent expiring in
December 2002, ruled that they will re-affirm all four of the patents
subject to the re-examination request.
Although the outcome of claims, legal proceedings and other matters in
which GlaxoSmithKline is involved cannot be predicted with any
certainty, the Directors, having taken appropriate legal advice, do
not expect GlaxoSmithKline's ultimate liability for such matters,
after taking into account provisions, tax benefits and insurance, to
have a material adverse effect on its financial condition, the results
of its operations or its cash flows.
EXCHANGE RATES
--------------
The results and net assets of the Group, as reported in sterling, are
affected by movements in exchange rates between sterling and overseas
currencies. GSK uses the average of exchange rates prevailing during
the period to translate the results and cash flows of overseas Group
subsidiary and associated undertakings into sterling and period end
rates to translate the net assets of those undertakings. The
currencies which most influence these translations, and the relevant
exchange rates, are:
H1 2001 H1 2000 2000
------- ------- -------
Average rates:
£/US$ 1.44 1.57 1.52
£/Euro 1.61 1.64 1.64
£/Yen 173.00 166.00 163.46
Period end rates:
£/US$ 1.41 1.51 1.49
£/Euro 1.66 1.58 1.61
£/Yen 175.00 160.00 171.00
On average during the first half of 2001 sterling exchange rates were
weaker against the US dollar and the Euro and stronger against the yen
compared to the first half of 2000. In aggregate, currency movements
in H1 2001 compared to H1 2000 had a net favourable effect on sterling
results of 5% in respect of sales and 6% in respect of business
performance earnings per share. Comparing H1 2001 period-end rates
with 2000 year-end rates, sterling was weaker against the US dollar
and stronger against the Euro and yen.
In order to illustrate underlying business performance, excluding the
effect of exchange rate movements on translation, it is the company's
practice to discuss the Group results in terms of constant exchange
rate growth (CER). This represents growth calculated as if the
exchange rates used to translate the results of overseas companies
into sterling had remained unchanged from those used in the
corresponding period.
In this Announcement growth rates are at constant exchange rates (CER)
unless otherwise stated.
ACCOUNTING POLICIES AND PRESENTATION
------------------------------------
This Announcement is prepared in accordance with the accounting
policies expected to apply for 2001. These are unchanged from those
set out in the Annual Report 2000, except that the company has
implemented the following new Financial Reporting Standard: FRS 18
'Accounting policies'. The FRS updates an existing standard. There is
no effect on the results or the net assets of the Group.
Figures quoted for market share and market growth rates relate to the
year ended 31st March 2001 (or later where available). These are GSK
estimates based on the most recent data from independent external
sources, valued in sterling at relevant exchange rates. Figures
quoted for product market share reflect sales by GSK and licensees.
The profit and loss account and cash flow statement for the year
ended, and the balance sheet at, 31st December 2000 are an abridged
statement of the full Group accounts for that period, which have been
delivered to the Registrar of Companies and on which the report of the
auditors was unqualified and did not contain a statement under either
section 237 (2) or section 237 (3) of the Companies Act 1985.
INVESTOR INFORMATION
--------------------
Announcement of Results Q2 2001
-------------------------------
The Results Announcement was approved by the Board of Directors on
Tuesday 24th July 2001.
Financial calendar
------------------
The company will announce third quarter 2001 results on 23rd October
2001. The third quarter interim dividend will have an ex-dividend date
of 31st October and a record date of 2nd November and will be paid on
3rd January 2002.
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