6-K
GSK plc (GSK)
6-K
2020-07-29
For: 2020-07-29
View Original
Added on
April 10, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July 2020
Commission File Number 001-15170
GlaxoSmithKline plc
(Translation of registrant's name into English)
980 Great West Road, Brentford, Middlesex, TW8 9GS
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F . . . .X. . . . Form 40-F . . . . . . . .
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
| Issued:<br>Wednesday, 29 July 2020, London U.K. | |
|---|---|
| GSK<br>delivers Q2 sales of £7.6 billion -2% AER, -3% CER (Pro-forma<br>-10% CER*)<br><br><br>Total EPS 45.5p >100% AER; >100% CER; Adjusted EPS 19.2p -37%<br>AER, -38% CER | |
| --- | |
| Financial and product<br>highlights | |
| --- | --- |
| ● | Reported Group sales 7.6 billion -2% AER, -3% CER (Pro-forma<br>-10% CER*; -8% CER<br>excluding divestments/brands under review). Pharmaceuticals 4.1 billion -5% AER, -5%<br>CER; Vaccines 1.1 billion -29% AER, -29% CER; Consumer<br>Healthcare 2.4 billion +25% AER, +25% CER (Pro-forma -6%<br>CER) |
| ● | H1<br>Reported group sales 16.7 billion 8% AER, 8% CER (Pro-forma<br>flat CER*; +1% CER excluding divestments/brands under<br>review) |
| ● | Sales decline in Q2 2020 reflects expected disruption from<br>COVID-19, particularly in Vaccines as well as destocking from Q1<br>2020 in Pharmaceuticals and Consumer Healthcare |
| ● | Total Respiratory sales 883 million +17% AER, +16%<br>CER. Trelegy sales 194 million +62% AER, +58% CER.<br>Nucala<br>sales 241 million +24% AER, +21%<br>CER |
| ● | Total HIV sales 1.2 billion, -2% AER, -3% CER. Dolutegravir<br>sales 1.1 billion, -1% AER, -2% CER, two-drug regimen sales<br>181 million, >100% AER, >100% CER (Dovato sales 68 million, >100% AER, >100%<br>CER, Juluca sales 113 million, +35% AER, +33%<br>CER) |
| ● | Shingrix sales 323<br>million, -16% AER%, -19% CER |
| ● | Total Group operating margin 37.4%. Adjusted Group operating margin<br>22.9%, reflecting lower sales and growth in investment in<br>R&D |
| ● | Total EPS 45.5p; >100% AER, >100% CER reflecting profit on<br>disposal of Horlicks and other Consumer Healthcare<br>brands |
| ● | Adjusted EPS 19.2p -37% AER, -38% CER reflecting lower sales and<br>higher non-controlling interests following creation of the Consumer<br>Healthcare JV in 2019 and a higher tax rate |
| ● | Q2 net cash flow from operations 2.76 billion. Free cash flow<br>1.95 billion |
| ● | 19p dividend declared for the quarter |
| Guidance | |
| ● | Guidance for 2020 Adjusted EPS maintained; outcome is dependent in<br>particular on timing of a recovery in vaccination<br>rates |
| Pipeline<br>highlights | |
| ● | Continued strengthening of the biopharma pipeline which now<br>contains 35 medicines and 15 vaccines; over 75% of pipeline assets<br>are focused on immunology |
| ● | Three approvals in Q2: Zejula in ovarian cancer, Rukobia in HIV, Duvroq in anaemia (Japan). Expect further approval<br>decisions for assets in Oncology and<br>Respiratory |
| ● | HIV |
| - | |
| - | |
| - | |
| ● | Oncology |
| - | |
| - | |
| ● | Respiratory |
| - | |
| ● | Vaccines |
| - | |
| - | |
| GSK’s response to<br>COVID-19 | |
| ● | Multiple collaborations underway to develop adjuvanted COVID-19<br>vaccines. Phase I studies initiated by Clover Pharmaceuticals and<br>Medicago |
| ● | Announced the intention to make 1 billion doses of vaccine adjuvant<br>available in 2021. Agreement reached with UK Government to supply<br>up to 60 million doses of candidate Sanofi-GSK vaccine. Discussions<br>underway with US and EU |
| ● | Phase II/III study start expected in Q3 for Vir antibody for<br>high-risk outpatients with COVID-19. Phase IIa POC study of<br>otilimab as potential treatment for COVID-19 started |
All values are in British Pounds.
| Q2 2020 results | ||||||
|---|---|---|---|---|---|---|
| Q2 2020 | Growth | H1 2020 | Growth | |||
| £m | £% | CER% | £m | £% | CER% | |
| Turnover | 7,624 | (2) | (3) | 16,714 | 8 | 8 |
| Total<br>operating profit | 2,850 | 92 | 90 | 4,864 | 67 | 66 |
| Total<br>earnings per share | 45.5p | >100 | >100 | 77.0p | >100 | >100 |
| Adjusted<br>operating profit | 1,749 | (19) | (21) | 4,424 | 2 | 2 |
| Adjusted<br>earnings per share | 19.2p | (37) | (38) | 56.9p | (6) | (6) |
| Net<br>cash from operating activities | 2,760 | 99 | 3,725 | 82 | ||
| Free<br>cash flow | 1,949 | >100 | 2,480 | >100 | ||
| The Total results are presented under ‘Financial<br>performance’ on pages 12 and 28 and Adjusted results<br>reconciliations are presented on pages 24, 25, 38 and 39. Adjusted<br>results are a non-IFRS measure that may be considered in addition<br>to, but not as a substitute for, or superior to, information<br>presented in accordance with IFRS. Adjusted results are defined on<br>page 10 and % or AER% growth, CER% growth, free cash flow and<br>other non-IFRS measures are defined on page 67. GSK provides<br>guidance on an Adjusted results basis only, for the reasons set out<br>on page 11. All expectations, guidance and targets regarding future<br>performance and dividend payments should be read together with<br>‘Outlook, assumptions and cautionary statements’ on<br>pages 68 and 69. | ||||||
| --- | ||||||
| * |
All values are in British Pounds.
| Emma Walmsley, Chief Executive<br>Officer, GSK said:<br><br><br>“The fundamentals of GSK’s business remain strong and<br>we are maintaining good momentum on our strategic priorities. This<br>quarter, we presented promising data and had positive regulatory<br>reviews for new speciality pipeline medicines to treat HIV and<br>Oncology; and made further progress with our Consumer Healthcare<br>integration and Future Ready programmes, both of which will prepare<br>the company for separation.<br><br><br><br><br><br>“We continue to believe that multiple options will be needed<br>to prevent and treat COVID-19 and are working at pace with our<br>partners to develop potential adjuvanted vaccines and therapeutics<br>to fight the virus. At the same time, we have made strategic<br>investments in next-generation vaccine and antibody technologies,<br>most recently through our new collaboration with<br>CureVac.<br><br><br><br><br><br>“As expected, our performance this quarter was disrupted by<br>COVID-19, particularly in our Vaccines business, as visits to<br>healthcare professionals were limited due to lockdown measures.<br>Overall, we are seeing good underlying demand for our major<br>products and are confident this will be reflected in future<br>performance when the impact of COVID measures<br>eases.” | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 guidance | ||||||||
| --- | ||||||||
| At the time of announcing full-year 2019 results on 5 February 2020<br>we provided guidance with respect to expected full-year 2020<br>Adjusted EPS, being a decline in the range of -1% to -4% at<br>CER.<br><br><br><br><br><br>This guidance reflected our expectations for growth in key new<br>products, and the start of a two-year period in which we would<br>continue to increase investment in these products and in our<br>R&D pipeline, alongside implementation of our new programme<br>which will prepare the Group for separation.<br><br><br><br><br><br>The guidance excluded any impact in 2020 from any further material<br>divestments beyond those previously announced and any potential<br>impact on our business from the Coronavirus outbreak.<br><br><br><br><br><br>The COVID-19 pandemic has impacted Group performance during the<br>first half of 2020. As we anticipated, in Q2 2020 performance was<br>disrupted, particularly in the Vaccines business, as visits to<br>healthcare professionals were limited due to containment<br>measures.<br><br><br><br><br><br>While we are maintaining our 2020 Adjusted EPS guidance, there<br>remain notable risks to business performance over the balance of<br>the year. In particular, the outcome is dependent on the timing of<br>a recovery in vaccination rates, particularly in the US, which we<br>anticipate in the third quarter. If we were to experience a delay<br>in this recovery we could see a significant impact in 2020. In the<br>case of, for example, a three month delay, the impact on adjusted<br>EPS would be up to 5 percentage points.<br><br><br><br><br><br>All expectations, guidance and targets regarding future performance<br>and dividend payments should be read together with ‘Outlook,<br>assumptions and cautionary statements’ on pages 68 and<br>69. If exchange rates were to hold at the closing rates on<br>30 June 2020 ($1.23/£1, €1.10/£1 and Yen<br>132/£1) for the rest of 2020, the estimated impact on 2020<br>Sterling turnover growth would be around flat and if exchange gains<br>or losses were recognised at the same level as in 2019, the<br>estimated impact on 2020 Sterling Adjusted EPS growth would also be<br>around flat. | ||||||||
| Results<br>presentation | ||||||||
| --- | ||||||||
| A<br>webcast of the quarterly results presentation hosted by Emma<br>Walmsley, GSK CEO, will be held at 2pm BST on 29 July 2020.<br>Presentation materials will be published on www.gsk.com prior to the webcast and a<br>transcript of the webcast will be published<br>subsequently.<br><br><br><br><br><br>Information<br>available on GSK’s website does not form part of, and is not<br>incorporated by reference into, this Results<br>Announcement. | ||||||||
| Operating performance – Q2 2020 | ||||||||
| --- | ||||||||
| Turnover | Q2 2020 | |||||||
| --- | --- | --- | --- | --- | ||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | Pro-forma<br><br><br>growth<br><br><br>CER% | |||||
| Pharmaceuticals | 4,102 | (5) | (5) | (5) | ||||
| Vaccines | 1,133 | (29) | (29) | (29) | ||||
| Consumer<br>Healthcare | 2,389 | 25 | 25 | (6) | ||||
| 7,624 | (2) | (3) | (10) | |||||
| Corporate<br>and other unallocated turnover | - | |||||||
| Group<br>turnover | 7,624 | (2) | (3) | (10) | ||||
| Group turnover was £7,624 million in the quarter, down 2% AER,<br>3% CER and 10% CER on a pro-forma basis.<br><br><br>On a pro-forma basis, Group turnover was down 10% CER, and down 8%<br>CER excluding the impact of divestments in Vaccines and brands<br>divested or under review in Consumer Healthcare. Sales decline<br>reflects expected disruption from COVID-19, particularly in<br>Vaccines as well as destocking from Q1 2020 in Pharmaceuticals and<br>Consumer Healthcare.<br><br><br><br><br><br>Pharmaceuticals<br>turnover in the quarter was £4,102 million, down 5% AER, 5%<br>CER. HIV sales were down 2% AER, 3% CER, to £1,185 million,<br>with growth in Juluca and<br>Dovato offset by declines<br>in Tivicay and Triumeq including destocking.<br>Respiratory sales were up 17% AER, 16% CER, to £883 million,<br>on growth of Trelegy and<br>Nucala. Sales of<br>Established Pharmaceuticals declined 17% AER, 17% CER, to<br>£1,780 million, reflecting destocking and lower demand for<br>antibiotics due to COVID-19.<br><br><br><br><br><br>Vaccines turnover declined 29% AER, 29% CER to £1,133 million,<br>primarily driven by the adverse impact of the COVID-19 pandemic on<br>DTPa-containing, Hepatitis, Shingles and Meningitis vaccines,<br>together with the Rabipur and Encepur divestment.<br><br><br><br><br><br>Reported<br>Consumer Healthcare sales grew 25% AER, 25% CER to £2,389<br>million in the quarter, largely driven by the inclusion of the<br>Pfizer portfolio. On a pro-forma basis, sales declined 6% CER, and<br>were flat at CER excluding brands divested/under review, including reversal of stockbuilding<br>in Q1 2020.<br><br><br><br><br><br>Operating profit<br><br><br>Total<br>operating profit was £2,850 million in Q2 2020 compared with<br>£1,484 million in Q2 2019. The total operating margin was<br>37.4%. Adjusted operating profit was £1,749 million, down 19%<br>AER, 21% CER on a turnover decrease of 3% CER. The Adjusted<br>operating margin was 22.9%. On a pro-forma basis, Adjusted<br>operating profit was 27% lower at CER on a turnover decrease of 10%<br>CER. The pro-forma Adjusted operating margin was<br>22.9%.<br><br><br><br><br><br>The<br>increase in Total operating profit reflected the profit on disposal<br>of the Horlicks and other<br>Consumer Healthcare brands and resultant sale of shares in<br>Hindustan Unilever with increased income from asset disposals. This<br>was partly offset by higher re-measurement charges on the<br>contingent consideration liabilities. The decrease in pro-forma<br>Adjusted operating profit primarily reflected reduced leverage from<br>the reduction in sales across all three businesses, continuing<br>price pressures particularly in Respiratory and an increase in<br>R&D investment.<br><br><br><br><br><br>Earnings per share<br><br><br>Total<br>EPS was 45.5p, compared with 19.5p in Q2 2019. The increase in EPS<br>primarily reflected the net profit on disposal of Horlicks and other Consumer Healthcare<br>brands as well as increased income from asset disposals, partly<br>offset by higher re-measurement charges on the contingent<br>consideration liabilities and lower operating performance as a<br>result of COVID-19 impact on the Vaccines business and destocking<br>in Pharmaceuticals and Consumer Healthcare following a strong<br>operating performance in Q1 2020.<br><br><br><br><br><br>Adjusted<br>EPS was 19.2p compared with 30.5p in Q2 2019, down 37% AER, 38%<br>CER. This reduction primarily resulted from lower sales and a<br>higher non-controlling interest allocation of Consumer Healthcare<br>profits and a higher effective tax rate.<br><br><br><br><br><br>Cash flow<br><br><br>The net<br>cash inflow from operating activities for the quarter was<br>£2,760 million (Q2 2019: £1,389 million) and free cash<br>flow was £1,949 million (Q2 2019: £370 million). The<br>increase primarily reflected a significant reduction in trade<br>receivables as a result of collections following strong sales in<br>Q1, the beneficial timing of payments for returns and rebates and<br>taxes, higher disposals of intangible assets partly offset by<br>reduced operating profits, increased inventory and higher dividends<br>to non-controlling interests. | ||||||||
| --- | ||||||||
| Operating performance – H1 2020 | ||||||||
| --- | ||||||||
| Turnover | H1 2020 | |||||||
| --- | --- | --- | --- | --- | ||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | Pro-forma<br><br><br>growth<br><br><br>CER% | |||||
| Pharmaceuticals | 8,498 | - | - | - | ||||
| Vaccines | 2,938 | (5) | (6) | (6) | ||||
| Consumer<br>Healthcare | 5,251 | 35 | 36 | 2 | ||||
| 16,687 | 8 | 8 | - | |||||
| Corporate<br>and other unallocated turnover | 27 | |||||||
| Group<br>turnover | 16,714 | 8 | 8 | - | ||||
| Group turnover was £16,714<br>million in the six months up 8% AER, 8% CER and flat on a pro-forma<br>basis.<br><br><br>On a<br>pro-forma basis, Group turnover was flat, and up 1% excluding the<br>impact of divestments in Vaccines and brands divested or under<br>review in Consumer Healthcare. Sales performance reflects<br>disruption from COVID-19 primarily in vaccines in Q2<br>2020.<br><br><br><br><br><br>Pharmaceuticals<br>turnover in the six months was £8,498 million, flat at both<br>AER and CER. HIV sales were up 3% AER, 2% CER, to £2,392<br>million, with growth in Juluca and Dovato partly offset by declines in<br>Tivicay and Triumeq. Respiratory sales were up 27%<br>AER, 26% CER, to £1,754 million, on growth of Trelegy and Nucala. Sales of Established<br>Pharmaceuticals declined 12% AER, 11% CER to £3,866 million,<br>reflecting lower demand for antibiotics in the COVID-19<br>period.<br><br><br><br><br><br>Vaccines turnover declined 5% AER, 6% CER to £2,938 million,<br>primarily driven by the adverse impact of the COVID-19 pandemic on<br>Hepatitis, DTPa-containing, Meningitis and Shingles vaccines,<br>partially offset by growth in Shingrix in Q1 2020.<br><br><br><br><br><br>Reported<br>Consumer Healthcare sales grew 35% AER, 36% CER to £5,251<br>million in the six months, largely driven by the inclusion of the<br>Pfizer portfolio. On a pro-forma basis, sales grew 2% CER, and 7%<br>CER excluding brands divested/under review. | ||||||||
| --- | ||||||||
| Operating profit<br><br><br>Total operating profit was £4,864 million compared with<br>£2,912 million in H1 2019. Adjusted operating profit was<br>£4,424 million, up 2% AER, 2% CER on a turnover increase of 8%<br>CER. The Adjusted operating margin of 26.5% was 1.5 percentage<br>points lower at AER, and 1.7 percentage points lower on a CER basis<br>than in H1 2019. The pro-forma Adjusted operating margin was<br>26.5%.<br><br><br><br><br><br>The<br>reduction in pro-forma Adjusted operating profit primarily<br>reflected the adverse impact from the reduction in sales in<br>Vaccines as a result of the COVID-19 pandemic, continuing price<br>pressure, particularly in Respiratory, investment in R&D, and<br>investments in promotional product support, particularly for new<br>launches in Vaccines, HIV and Respiratory. This was partly offset<br>by a favourable mix in Vaccines, reduced promotional and variable<br>spending across all three business as a result of the COVID-19<br>lockdowns, the continuing benefit of restructuring in<br>Pharmaceuticals and Consumer Healthcare and the tight control of<br>ongoing costs, particularly in non-promotional spending across all<br>three businesses.<br><br><br><br><br><br>Earnings per share<br><br><br>Total<br>EPS was 77.0p, compared with 36.3p in H1 2019. The increase in EPS<br>primarily reflected the net profit on disposal of Horlicks and other Consumer Healthcare<br>brands as well as increased income from asset disposals, partly<br>offset by higher re-measurement charges on the contingent<br>consideration liabilities and a one-off benefit in H1 2019 from the<br>increased share of after tax profits of the associate<br>Innoviva.<br><br><br><br><br><br>Adjusted<br>EPS was 56.9p compared with 60.6p in H1 2019, down 6% AER, 6% CER.<br>The reduction primarily resulted from a higher non-controlling<br>interest allocation of Consumer Healthcare profits, reduced share<br>of after tax profits of associates resulting from a non-recurring<br>income tax benefit in Innoviva partly offset by a reduced effective<br>tax rate.<br><br><br><br><br><br>Cash flow<br><br><br>The net cash inflow from operating activities for the six months<br>was £3,725 million (H1 2019: £2,052 million) and free<br>cash flow was £2,480 million for the six months (H1 2019:<br>£535 million). The increase primarily reflected a reduction in<br>trade receivables as a result of collections following strong sales<br>in Q1 2020, the beneficial timing of payments for returns and<br>rebates and taxes, a lower seasonal increase of inventory, improved<br>operating profits and higher disposals of intangible assets and<br>milestone income. | ||||||||
| --- | ||||||||
| R&D pipeline news flow highlights since Q1 2020 | ||||||||
| --- | ||||||||
| 35 medicines in development, 15 Vaccines | ||||||||
| --- | ||||||||
| COVID-19 | ||||||||
| --- | ||||||||
| Collaborations | ||||||||
| --- | --- | |||||||
| ● | COVID-19<br>vaccine development collaboration with Clover Biopharmaceuticals<br>began clinical trials with a Phase I study using GSK’s<br>pandemic adjuvant in combination with COVID-19 vaccine candidate<br>SCB-2019. | |||||||
| ● | Announced<br>the intention to produce 1 billion doses of pandemic vaccine<br>adjuvant in 2021 to support COVID-19 vaccine<br>collaborations. | |||||||
| ● | Agreement reached with UK Government to supply up to 60 million<br>doses of candidate Sanofi-GSK vaccine. Discussions underway with US<br>and EU | |||||||
| ● | Announced<br>collaboration with Medicago to develop a novel adjuvanted COVID-19<br>candidate vaccine. Collaboration will also explore vaccine<br>development opportunities for other infectious<br>diseases. | |||||||
| Otilimab (aGM-CSF antibody) | ||||||||
| --- | --- | |||||||
| ● | The<br>first patient was dosed in the Phase IIa proof of concept OSCAR<br>study of otilimab, an anti GM-CSF antibody, in patients with severe<br>pulmonary COVID-19 related disease. Data are expected in H1<br>2021. | |||||||
| Oncology | ||||||||
| --- | ||||||||
| Zejula<br>(niraparib, PARP inhibitor) | ||||||||
| --- | --- | |||||||
| ● | The US<br>FDA approved Zejula as the<br>only once-daily PARP inhibitor in first-line monotherapy<br>maintenance treatment for women with platinum-responsive advanced<br>ovarian cancer regardless of biomarker status. | |||||||
| Belantamab<br>mafodotin (GSK2857916, BCMA immunoconjugate) | ||||||||
| --- | --- | |||||||
| ● | The<br>EMA’s Committee for Medicinal Products for Human Use issued a<br>positive opinion for belantamab mafodotin in patients with<br>relapsed/refractory multiple myeloma. | |||||||
| ● | An FDA<br>Advisory Committee meeting voted 12-0 in favour of the positive<br>benefit/risk profile of belantamab mafodotin for patients with<br>relapsed/refractory multiple myeloma. | |||||||
| ● | The<br>first patient was dosed in the pivotal second line multiple myeloma<br>study, DREAMM-7, of belantamab mafodotin in combination with<br>bortezomib and dexamethasone. | |||||||
| ● | The<br>first patient was dosed in the pivotal third line multiple myeloma<br>study, DREAMM-3, of belantamab mafodotin monotherapy. | |||||||
| ● | The<br>first patient was dosed in a Phase Ib combination study evaluating<br>belantamab mafodotin with SpringWorks investigational gamma<br>secretase inhibitor, nirogacestat, in patients with<br>relapsed/refractory multiple myeloma. This combination is being<br>evaluated as a sub-study in the ongoing DREAMM-5 platform<br>trial. | |||||||
| ● | 16<br>presentations, including new analyses from the pivotal DREAMM-2<br>study and initial results from the DREAMM-4 study, were shared at<br>the European Hematology Association (EHA) Annual<br>Congress. | |||||||
| ● | DREAMM-2<br>and DREAMM-6 data reinforcing the potential of investigational<br>belantamab mafodotin in patients with relapsed/refractory multiple<br>myeloma were shared at the American Society of Clinical Oncology<br>(ASCO). Please note the mOS from the DREAMM-2 13-month analysis has<br>been corrected to 13.7 months following the identification of<br>discrepancies in patient data used to calculate<br>survival. | |||||||
| Bintrafusp alfa (TGF beta trap/anti-PDL1) | ||||||||
| --- | --- | |||||||
| ● | Two-year<br>follow-up data for first-in-class bifunctional immunotherapy<br>bintrafusp alfa targeting TGF-b/PD-L1, in second-line NSCLC, were<br>shared at ASCO. | |||||||
| GSK’609 (ICOS<br>receptor agonist) | ||||||||
| --- | --- | |||||||
| ● | Reported<br>findings from ongoing studies into the anti-tumour potential of<br>targeting the ICOS receptor through GSK’609 alone and in<br>combination with immune checkpoint therapies for the treatment of<br>head and neck squamous cell carcinoma were shared at<br>ASCO. | |||||||
| IDEAYA partnership | ||||||||
| --- | --- | |||||||
| ● | A broad<br>partnership with IDEAYA was announced in synthetic lethality, an<br>emerging field in precision medicine oncology covering three IDEAYA<br>synthetic lethality programmes – MAT2A, Pol Theta and Werner<br>Helicase, which are projected to reach clinical trials within the<br>next three years. | |||||||
| GSK’608 (CD96) | ||||||||
| --- | --- | |||||||
| ● | The<br>first patient was dosed in a Phase I study of GSK’608 in<br>monotherapy and in combination with dostarlimab for patients with<br>advanced solid tumour cancers. | |||||||
| GSK’091 (TLR4<br>agonist) | ||||||||
| --- | --- | |||||||
| ● | GSK’091<br>for cancer was terminated due to portfolio<br>prioritisation. | |||||||
| HIV/Infectious diseases | ||||||||
| --- | ||||||||
| Cabenuva<br>(cabotegravir + rilpivirine) | ||||||||
| --- | --- | |||||||
| ● | Cabenuva was resubmitted in the US as a treatment for HIV;<br>regulatory decision is anticipated in Q1 2021. | |||||||
| ● | Positive<br>data from the CUSTOMIZE trial, the first ever implementation<br>research study on how best to integrate an investigational<br>once-monthly injectable HIV treatment in US healthcare practices,<br>were presented at AIDS 2020. | |||||||
| Cabotegravir (long acting integrase inhibitor) | ||||||||
| --- | --- | |||||||
| ● | Final<br>data from the HPTN 083 study presented at AIDS 2020 showed<br>investigational long acting injectable cabotegravir administered<br>every two months is 66% more effective than daily pills in<br>preventing HIV-1 acquisition. | |||||||
| Rukobia<br>(fostemsavir, attachment inhibitor) | ||||||||
| --- | --- | |||||||
| ● | The US<br>FDA approved Rukobia, a<br>first-in-class treatment for HIV in adults with few treatment<br>options available. | |||||||
| Tivicay<br>(dolutegravir) | ||||||||
| --- | --- | |||||||
| ● | The US<br>FDA approved the first-ever dispersible tablet formulation of<br>dolutegravir, Tivicay PD, a<br>once-daily treatment for children living with HIV. | |||||||
| GSK’394<br>(combinectin, entry inhibitor) | ||||||||
| --- | --- | |||||||
| ● | GSK’394<br>for HIV was terminated due to portfolio<br>prioritisation. | |||||||
| Immuno-inflammation | ||||||||
| --- | ||||||||
| Benlysta<br>(belimumab) | ||||||||
| --- | --- | |||||||
| ● | Regulatory<br>submissions to the US FDA and EMA were made for Benlysta in lupus<br>nephritis. | |||||||
| Respiratory | ||||||||
| --- | ||||||||
| Nucala<br>(mepolizumab) | ||||||||
| --- | --- | |||||||
| ● | The US<br>FDA granted a priority review of Nucala for patients with<br>hypereosinophilic syndrome (HES). | |||||||
| GSK’078 (SARM) | ||||||||
| --- | --- | |||||||
| ● | GSK’078<br>for COPD muscle weakness was terminated as data did not support<br>progression in this indication. | |||||||
| GSK’557 (nemiralisib, PI3Kd inhibitor) | ||||||||
| --- | --- | |||||||
| ● | GSK’557<br>for activated phosphoinositide 3-kinase delta syndrome was<br>terminated due to portfolio prioritisation. | |||||||
| Other pharmaceuticals | ||||||||
| --- | ||||||||
| Duvroq<br>(daprodustat, HIF-PHI) | ||||||||
| --- | --- | |||||||
| ● | The<br>first regulatory approval for Duvroq was received in Japan for<br>patients with anaemia due to chronic kidney disease. | |||||||
| Vaccines | ||||||||
| --- | ||||||||
| Shingrix | ||||||||
| --- | --- | |||||||
| ● | The<br>EMA’s Committee for Medicinal Products for Human Use issued a<br>positive opinion for Shingrix immuno compromised<br>patients. | |||||||
| RSV older adults vaccine | ||||||||
| --- | --- | |||||||
| ● | A Phase<br>I/II study of RSV older adult vaccine achieved its primary endpoint<br>and supports progression to Phase III. | |||||||
| RSV maternal vaccine | ||||||||
| --- | --- | |||||||
| ● | A Phase<br>I/II study of RSV maternal vaccine achieved its primary endpoint<br>and supports progression to Phase III. | |||||||
| COPD vaccine | ||||||||
| --- | --- | |||||||
| ● | Initial<br>data of the proof-of-concept study on the COPD candidate vaccine<br>showed it did not meet the primary endpoint. Work is ongoing to<br>better understand the data; no progression to Phase III is<br>planned. | |||||||
| Staphylococcus aureus | ||||||||
| --- | --- | |||||||
| ● | The<br>first patient was dosed in a Phase I study seeking to develop a<br>vaccine for the prevention of primary and recurrent<br>soft-skin-tissue infections caused by S.aureus. | |||||||
| CureVac | ||||||||
| --- | --- | |||||||
| ● | A<br>strategic mRNA technology collaboration with CureVac was announced<br>for the research, development, manufacturing and commercialisation<br>of up to five mRNA-based vaccines and monoclonal antibodies (mAbs)<br>targeting infectious disease pathogens. | |||||||
| Contents | Page | |||||||
| --- | --- | |||||||
| Total<br>and Adjusted results | 10 | |||||||
| Financial<br>performance – Q2 2020 | 12 | |||||||
| Financial<br>performance – H1 2020 | 28 | |||||||
| Cash<br>generation | 43 | |||||||
| Returns<br>to shareholders | 44 | |||||||
| Income<br>statements | 46 | |||||||
| Statement<br>of comprehensive income – three months ended 30 June<br>2020 | 47 | |||||||
| Statement<br>of comprehensive income – six months ended 30 June<br>2020 | 48 | |||||||
| Pharmaceuticals<br>turnover – three months ended 30 June 2020 | 49 | |||||||
| Pharmaceuticals<br>turnover – six months ended 30 June 2020 | 50 | |||||||
| Vaccines<br>turnover – three months ended 30 June 2020 | 51 | |||||||
| Vaccines<br>turnover – six months ended 30 June 2020 | 52 | |||||||
| Balance<br>sheet | 53 | |||||||
| Statement<br>of changes in equity | 54 | |||||||
| Cash<br>flow statement – six months ended 30 June 2020 | 55 | |||||||
| Segment<br>information | 56 | |||||||
| Legal<br>matters | 58 | |||||||
| Additional<br>information | 59 | |||||||
| Reconciliation<br>of cash flow to movements in net debt | 65 | |||||||
| Net<br>debt analysis | 65 | |||||||
| Free<br>cash flow reconciliation | 65 | |||||||
| Principal<br>risks and uncertainties | 66 | |||||||
| Reporting<br>definitions | 67 | |||||||
| Outlook,<br>assumptions and cautionary statements | 68 | |||||||
| Directors’<br>responsibility statement | 70 | |||||||
| Independent<br>review report | 71 | |||||||
| Contacts | ||||||||
| --- | ||||||||
| GSK –<br>one of the world’s leading research-based pharmaceutical and<br>healthcare companies – is committed to improving the quality<br>of human life by enabling people to do more, feel better and live<br>longer. For further information please<br>visit<br><br><br>www.gsk.com. | ||||||||
| --- | ||||||||
| GSK enquiries: | ||||||||
| --- | --- | --- | --- | |||||
| UK<br>Media enquiries: | Simon<br>Steel | +44 (0)<br>20 8047 5502 | (London) | |||||
| Tim<br>Foley | +44 (0)<br>20 8047 5502 | (London) | ||||||
| Mary<br>Hinks-Edwards | +44 (0)<br>20 8047 5502 | (London) | ||||||
| US<br>Media enquiries: | Kristen<br>Neese | +1 215<br>751 3335 | (Philadelphia) | |||||
| Kathleen<br>Quinn | +1 202<br>603 5003 | (Washington) | ||||||
| Analyst/Investor<br>enquiries: | Sarah<br>Elton-Farr | +44 (0)<br>20 8047 5194 | (London) | |||||
| Sonya<br>Ghobrial | +44 (0)<br>7392 784784 | (Consumer) | ||||||
| James<br>Dodwell | +44 (0)<br>20 8047 2406 | (London) | ||||||
| Danielle<br>Morris | +44 (0)<br>20 8047 7562 | (London) | ||||||
| Jeff<br>McLaughlin | +1 215<br>751 7002 | (Philadelphia) | ||||||
| Frannie<br>DeFranco | +1 215<br>751 4855 | (Philadelphia) | ||||||
| Registered<br>in England & Wales:<br><br><br>No. 3888792 | ||||||||
| --- | ||||||||
| Registered<br>Office:<br><br><br>980 Great West<br>Road<br><br><br>Brentford,<br>Middlesex<br><br><br>TW8 9GS | ||||||||
| Total and Adjusted results | ||||||||
| --- | ||||||||
| Total<br>reported results represent the Group’s overall<br>performance.<br><br><br><br><br><br>GSK<br>also uses a number of adjusted, non-IFRS, measures to report the<br>performance of its business. Adjusted results and other non-IFRS<br>measures may be considered in addition to, but not as a substitute<br>for or superior to, information presented in accordance with IFRS.<br>Adjusted results are defined below and pro-forma growth and other<br>non-IFRS measures are defined on page 67.<br><br><br><br><br><br>GSK<br>believes that Adjusted results, when considered together with Total<br>results, provide investors, analysts and other stakeholders with<br>helpful complementary information to understand better the<br>financial performance and position of the Group from period to<br>period, and allow the Group’s performance to be more easily<br>compared against the majority of its peer companies. These measures<br>are also used by management for planning and reporting purposes.<br>They may not be directly comparable with similarly described<br>measures used by other companies.<br><br><br><br><br><br>GSK<br>encourages investors and analysts not to rely on any single<br>financial measure but to review GSK’s quarterly results<br>announcements, including the financial statements and notes, in<br>their entirety.<br><br><br><br><br><br>GSK is<br>committed to continuously improving its financial reporting, in<br>line with evolving regulatory requirements and best practice. In<br>line with this practice, GSK expects to continue to review and<br>refine its reporting framework.<br><br><br><br><br><br>Adjusted<br>results exclude the following items from Total results, together<br>with the tax effects of all of these items: | ||||||||
| --- | ||||||||
| ● | amortisation<br>of intangible assets (excluding computer software) | |||||||
| --- | --- | |||||||
| ● | impairment<br>of intangible assets (excluding computer software) and<br>goodwill | |||||||
| ● | Major<br>restructuring costs, which include impairments of tangible assets<br>and computer software, (under specific Board approved programmes<br>that are structural, of a significant scale and where the costs of<br>individual or related projects exceed £25 million), including<br>integration costs following material acquisitions | |||||||
| ● | transaction-related<br>accounting or other adjustments related to significant<br>acquisitions | |||||||
| ● | proceeds<br>and costs of disposal of associates, products and businesses;<br>significant legal charges (net of insurance recoveries) and<br>expenses on the settlement of litigation and government<br>investigations; other operating income other than royalty income,<br>and other items | |||||||
| ● | separation<br>costs | |||||||
| Costs<br>for all other ordinary course smaller scale restructuring and legal<br>charges and expenses are retained within both Total and Adjusted<br>results.<br><br><br><br><br><br>As<br>Adjusted results include the benefits of Major restructuring<br>programmes but exclude significant costs (such as significant<br>legal, major restructuring and transaction items) they should not<br>be regarded as a complete picture of the Group’s financial<br>performance, which is presented in Total results. The exclusion of<br>other Adjusting items may result in Adjusted earnings being<br>materially higher or lower than Total earnings. In particular, when<br>significant impairments, restructuring charges and legal costs are<br>excluded, Adjusted earnings will be higher than Total<br>earnings.<br><br><br><br><br><br>GSK has<br>undertaken a number of Major restructuring programmes in response<br>to significant changes in the Group’s trading environment or<br>overall strategy, or following material acquisitions. Costs, both<br>cash and non-cash, of these programmes are provided for as<br>individual elements are approved and meet the accounting<br>recognition criteria. As a result, charges may be incurred over a<br>number of years following the initiation of a Major restructuring<br>programme.<br><br><br><br><br><br>Significant<br>legal charges and expenses are those arising from the settlement of<br>litigation or government investigations that are not in the normal<br>course and materially larger than more regularly occurring<br>individual matters. They also include certain major legacy<br>matters.<br><br><br><br><br><br>Reconciliations<br>between Total and Adjusted results, providing further information<br>on the key Adjusting items, are set out on pages 24, 25, 38 and<br>39.<br><br><br><br><br><br>GSK<br>provides earnings guidance to the investor community on the basis<br>of Adjusted results. This is in line with peer companies and<br>expectations of the investor community, supporting easier<br>comparison of the Group’s performance with its peers. GSK is<br>not able to give guidance for Total results as it cannot reliably<br>forecast certain material elements of the Total results,<br>particularly the future fair value movements on contingent<br>consideration and put options that can and have given rise to<br>significant adjustments driven by external factors such as currency<br>and other movements in capital markets. | ||||||||
| --- | ||||||||
| Pro-forma growth<br><br><br>The<br>acquisition of the Pfizer consumer healthcare business completed on<br>31 July 2019 and so GSK’s reported results for Q2 2020<br>include three months of results of the former Pfizer consumer<br>healthcare business from 1 April 2020.<br><br><br><br><br><br>The<br>Group has presented pro-forma growth rates at CER for turnover,<br>Adjusted operating profit and operating profit by business taking<br>account of this transaction. Pro-forma growth rates for the quarter<br>are calculated comparing reported results for Q2 2020, calculated<br>applying the exchange rates used in the comparative period, with<br>the results for Q2 2019 adjusted to include the equivalent three<br>months of results of the former Pfizer consumer healthcare business<br>during Q2 2019, as consolidated (in US$) and included in<br>Pfizer’s US GAAP results. Similarly, pro-forma growth rates<br>at CER for the six months to 30 June 2020 are calculated comparing<br>reported results for the six months to 30 June 2020, calculated<br>applying the exchange rates used in the comparative period, with<br>the results for the six months to 30 June 2019, adjusted to include<br>the equivalent six months of results of the former Pfizer consumer<br>healthcare business, as consolidated (in US$) and included in<br>Pfizer’s US GAAP results.<br><br><br><br><br><br>ViiV Healthcare<br><br><br>ViiV<br>Healthcare is a subsidiary of the Group and 100% of its operating<br>results (turnover, operating profit, profit after tax) are included<br>within the Group income statement.<br><br><br><br><br><br>Earnings<br>are allocated to the three shareholders of ViiV Healthcare on the<br>basis of their respective equity shareholdings (GSK 78.3%, Pfizer<br>11.7% and Shionogi 10%) and their entitlement to preferential<br>dividends, which are determined by the performance of certain<br>products that each shareholder contributed. As the relative<br>performance of these products changes over time, the proportion of<br>the overall earnings allocated to each shareholder also changes. In<br>particular, the increasing proportion of sales of<br>dolutegravir-containing products has a favourable impact on the<br>proportion of the preferential dividends that is allocated to GSK.<br>Adjusting items are allocated to shareholders based on their equity<br>interests. GSK was entitled to approximately 85% of the Total<br>earnings and 82% of the Adjusted earnings of ViiV Healthcare for<br>2019.<br><br><br><br><br><br>As<br>consideration for the acquisition of Shionogi’s interest in<br>the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi<br>received the 10% equity stake in ViiV Healthcare and ViiV<br>Healthcare also agreed to pay additional future cash consideration<br>to Shionogi, contingent on the future sales performance of the<br>products being developed by that joint venture, principally<br>dolutegravir. Under IFRS 3 ‘Business combinations’, GSK<br>was required to provide for the estimated fair value of this<br>contingent consideration at the time of acquisition and is required<br>to update the liability to the latest estimate of fair value at<br>each subsequent period end. The liability for the contingent<br>consideration recognised in the balance sheet at the date of<br>acquisition was £659 million. Subsequent re-measurements are<br>reflected within other operating income/expense and within<br>Adjusting items in the income statement in each period. At 30 June<br>2020, the liability, which is discounted at 8.5%, stood at<br>£5,436 million, on a post-tax basis.<br><br><br><br><br><br>Cash<br>payments to settle the contingent consideration are made to<br>Shionogi by ViiV Healthcare each quarter, based on the actual sales<br>performance of the relevant products in the previous quarter. These<br>payments reduce the balance sheet liability and hence are not<br>recorded in the income statement. The cash payments made to<br>Shionogi by ViiV Healthcare in H1 2020 were £445<br>million.<br><br><br><br><br><br>Because<br>the liability is required to be recorded at the fair value of<br>estimated future payments, there is a significant timing difference<br>between the charges that are recorded in the Total income statement<br>to reflect movements in the fair value of the liability and the<br>actual cash payments made to settle the liability.<br><br><br><br><br><br>Further<br>explanation of the acquisition-related arrangements with ViiV<br>Healthcare are set out on pages 50 and 51 of the Annual Report<br>2019. | ||||||||
| --- | ||||||||
| Financial performance – Q2 2020 | ||||||||
| --- | ||||||||
| Total results | ||||||||
| --- | ||||||||
| The<br>Total results for the Group are set out below. | ||||||||
| --- | ||||||||
| Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | Growth<br><br><br>£% | Growth<br><br><br>CER% | |||||
| --- | --- | --- | --- | --- | ||||
| Turnover | 7,624 | 7,809 | (2) | (3) | ||||
| Cost of<br>sales | (2,449) | (2,637) | (7) | (7) | ||||
| Gross<br>profit | 5,175 | 5,172 | - | (1) | ||||
| Selling,<br>general and administration | (2,709) | (2,590) | 5 | 5 | ||||
| Research<br>and development | (1,301) | (1,113) | 17 | 15 | ||||
| Royalty income | 75 | 78 | (4) | (10) | ||||
| Other<br>operating income/(expense) | 1,610 | (63) | ||||||
| Operating<br>profit | 2,850 | 1,484 | 92 | 90 | ||||
| Finance<br>income | 1 | 21 | ||||||
| Finance<br>expense | (229) | (237) | ||||||
| Share<br>of after tax profits/(losses) of associates and joint<br>ventures | 19 | (4) | ||||||
| Profit before taxation | 2,641 | 1,264 | >100 | >100 | ||||
| Taxation | (201) | (214) | ||||||
| Tax rate % | 7.6% | 16.9% | ||||||
| Profit after taxation | 2,440 | 1,050 | >100 | >100 | ||||
| Profit<br>attributable to non-controlling interests | 177 | 86 | ||||||
| Profit<br>attributable to shareholders | 2,263 | 964 | ||||||
| 2,440 | 1,050 | >100 | >100 | |||||
| Earnings per share | 45.5p | 19.5p | >100 | >100 | ||||
| Adjusted results<br><br><br><br><br><br>The<br>Adjusted results for the Group are set out below. Reconciliations<br>between Total results and Adjusted results for Q2 2020 and Q2 2019<br>are set out on pages 24 and 25. | ||||||||
| --- | ||||||||
| Q2 2020 | ||||||||
| --- | --- | --- | --- | --- | --- | |||
| £m | %<br>of<br><br><br>turnover | Growth<br><br><br>£% | Reported<br><br><br>growth<br><br><br>CER% | Pro-forma<br><br><br>growth<br><br><br>CER% | ||||
| Turnover | 7,624 | 100 | (2) | (3) | (10) | |||
| Cost of<br>sales | (2,249) | (29.5) | - | - | (8) | |||
| Selling,<br>general and administration | (2,530) | (33.2) | 4 | 4 | (5) | |||
| Research<br>and development | (1,171) | (15.4) | 13 | 11 | 9 | |||
| Royalty<br>income | 75 | 1.0 | (4) | (10) | (10) | |||
| Adjusted<br>operating profit | 1,749 | 22.9 | (19) | (21) | (27) | |||
| Adjusted<br>profit before tax | 1,541 | (21) | (22) | |||||
| Adjusted<br>profit after tax | 1,225 | (26) | (27) | |||||
| Adjusted<br>profit attributable to shareholders | 958 | (37) | (37) | |||||
| Adjusted<br>earnings per share | 19.2p | (37) | (38) | |||||
| Operating profit by business | Q2 2020 | |||||||
| --- | --- | --- | --- | --- | --- | |||
| £m | %<br>of<br><br><br>turnover | Growth<br><br><br>£% | Reported<br><br><br>growth<br><br><br>CER% | Pro-forma<br><br><br>growth<br><br><br>CER% | ||||
| Pharmaceuticals | 1,886 | 46.0 | (9) | (10) | (10) | |||
| Pharmaceuticals<br>R&D* | (910) | 11 | 9 | 9 | ||||
| Total<br>Pharmaceuticals | 976 | 23.8 | (22) | (23) | (23) | |||
| Vaccines | 265 | 23.4 | (57) | (58) | (58) | |||
| Consumer<br>Healthcare | 521 | 21.8 | 33 | 33 | (11) | |||
| 1,762 | 23.1 | (22) | (23) | (29) | ||||
| Corporate<br>& other unallocated costs | (13) | |||||||
| Adjusted<br>operating profit | 1,749 | 22.9 | (19) | (21) | (27) | |||
| * | Operating<br>profit of Pharmaceuticals R&D segment, which is the<br>responsibility of the Chief Scientific Officer and President,<br>R&D. It excludes ViiV Healthcare R&D expenditure, which is<br>reported within the Pharmaceuticals segment. | |||||||
| --- | --- | |||||||
| Turnover | ||||||||
| --- | ||||||||
| Pharmaceuticals turnover | ||||||||
| --- | ||||||||
| Q2 2020 | ||||||||
| --- | --- | --- | --- | |||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | ||||||
| Respiratory | 883 | 17 | 16 | |||||
| HIV | 1,185 | (2) | (3) | |||||
| Immuno-inflammation | 177 | 17 | 15 | |||||
| Oncology | 77 | 35 | 33 | |||||
| Established<br>Pharmaceuticals | 1,780 | (17) | (17) | |||||
| 4,102 | (5) | (5) | ||||||
| US | 1,801 | 1 | (1) | |||||
| Europe | 931 | (10) | (11) | |||||
| International | 1,370 | (8) | (7) | |||||
| 4,102 | (5) | (5) | ||||||
| Pharmaceuticals<br>turnover in the quarter was £4,102 million, down 5% AER, 5%<br>CER. HIV sales were down 2% AER, 3% CER, to £1,185 million,<br>with growth in Juluca and<br>Dovato offset by declines<br>in Tivicay and Triumeq. Respiratory sales were up 17%<br>AER, 16% CER, to £883 million, on growth of Trelegy and Nucala. Sales of Established<br>Pharmaceuticals declined 17% AER, 17% CER, to £1,780<br>million.<br><br><br><br><br><br>In the<br>quarter, as expected, the COVID-19 related first quarter customer<br>stockbuilding, which predominantly impacted Europe and the US,<br>broadly reversed with only a minor dolutegravir impact in Europe<br>and the US remaining. The quarter also saw lower levels of new<br>patient prescriptions in the US and Europe, reduced market demand<br>for allergy and antibiotic products in International and pressure<br>on net prices in the US.<br><br><br><br><br><br>In the<br>US, sales grew 1% AER but declined 1% CER. Continued growth of<br>Nucala, Trelegy, Benlysta and the HIV two-drug regimens<br>was more than offset by the decline and COVID-19 destocking in<br>Tivicay, Triumeq and Established<br>Pharmaceuticals, including the impact of generic albuterol<br>substitutes.<br><br><br><br><br><br>In<br>Europe, sales declined 10% AER, 11% CER, reflecting the impact of<br>destocking and generic competition and almost fully offsetting the<br>additional demand experienced in the first quarter related to<br>COVID-19.<br><br><br><br><br><br>International<br>declined 8% AER, 7% CER, with Respiratory growth offset by lower<br>Established Pharmaceutical sales including the impact of a weaker<br>allergy season in Japan, lower Augmentin sales across the region and<br>lower sales in China.<br><br><br><br><br><br>Respiratory<br><br><br>Total<br>Respiratory sales were up 17% AER, 16% CER, with strong growth from<br>Trelegy and Nucala in all regions. International<br>Respiratory sales grew 17% AER, 17% CER, including Nucala, up 42% AER, 31% CER, and<br>Relvar/Breo up 8% AER, 12%<br>CER to £81 million. In Europe, Respiratory sales grew 13% AER,<br>13% CER despite the impact of the reversal of the customer<br>stockbuilding in Q1 2020 related to the COVID-19 pandemic. In the<br>US, Trelegy and<br>Nucala growth continued<br>while Relvar/Breo sales<br>were down 11% AER, 12% CER, impacted by competitive pricing<br>pressures and the impact of generic Advair on the US ICS/LABA<br>market.<br><br><br><br><br><br>Sales<br>of Nucala were £241<br>million in the quarter and grew 24% AER, 21% CER, with US sales up<br>28% AER, 26% CER to £150 million. Europe sales of £54<br>million grew 4% AER, 6% CER and International sales of £37<br>million grew 42% AER, 31% CER including growth of the at-home use<br>application.<br><br><br><br><br><br>Trelegy sales were up 62% AER, 58% CER to £194 million<br>with strong growth in all regions. In the US, sales grew 65% AER,<br>60% CER, reflecting continued market share growth. In Europe, sales<br>grew 64% AER, 59% CER and in International sales grew 38% AER, 46%<br>CER.<br><br><br><br><br><br>Relvar/Breo sales were up 2% AER, 2% CER to £242<br>million in the quarter. In the US, Relvar/Breo declined 11% AER, 12% CER,<br>reflecting competitive pricing pressures and the impact of generic<br>Advair on the US ICS/LABA<br>market. In Europe and International, Relvar/Breo continued to grow, up 11%<br>AER, 9% CER and 8% AER, 12% CER, respectively.<br><br><br><br><br><br>HIV<br><br><br>HIV<br>sales were £1,185 million, down 2% AER, 3% CER in the quarter.<br>The dolutegravir franchise declined 1% AER, 2% CER, delivering<br>sales of £1,140 million. The remaining portfolio, with sales<br>of £45 million and 4% of total HIV sales, declined 27% AER,<br>32% CER and reduced the overall growth of total HIV by one<br>percentage point.<br><br><br><br><br><br>Sales<br>of dolutegravir products were £1,140 million in the quarter.<br>Sales were impacted by customer destocking following the customer<br>stockbuilding in Q1 2020 due to COVID-19, mainly on Tivicay and Triumeq. Tivicay delivered sales of £373<br>million and declined 9% AER, 10% CER. Triumeq delivered sales of £586<br>million and declined 9% AER, 11% CER. The two-drug regimens,<br>Juluca and Dovato delivered sales of £181<br>million in the quarter, with combined growth more than offsetting<br>the decline of the three-drug regimen Triumeq.<br><br><br><br><br><br>In the<br>US, dolutegravir sales grew 1% AER, but declined 2% CER and in<br>Europe sales declined 4% AER, 5% CER impacted by customer<br>destocking following the customer stockbuilding in Q1 2020 due to<br>COVID-19. Following recent launches of Dovato, combined sales of the two-drug<br>regimens were £139 million in the US and £38 million in<br>Europe, with growth more than offsetting the decline in<br>Triumeq. International was<br>flat at AER, but grew 4% CER, driven by Tivicay.<br><br><br><br><br><br>Oncology<br><br><br>Sales<br>of Zejula, the PARP<br>inhibitor asset acquired from Tesaro in Q1 2019 were £77<br>million in the quarter, up 35% AER, 32% CER. Sales comprised<br>£47 million in the US and £30 million in<br>Europe.<br><br><br><br><br><br>Immuno-inflammation<br><br><br>Sales<br>of Benlysta in the quarter<br>were up 18% AER, 15% CER to £177 million, including sales of<br>the sub-cutaneous formulation of £89 million. In the US,<br>Benlysta grew 16% AER, 14%<br>CER to £153 million.<br><br><br><br><br><br>Established Pharmaceuticals<br><br><br>Sales<br>of Established Pharmaceuticals in the quarter were £1,780<br>million, down 17% AER, 17% CER.<br><br><br><br><br><br>Established<br>Respiratory products declined 12% AER, 12% CER to £805<br>million. This reflected the impact of generic albuterol substitutes<br>on Ventolin in the US, the<br>impact of COVID-19 pandemic related destocking in Europe and<br>allergy market contraction in Japan. In the US, sales of<br>Advair/Seretide grew 36%<br>AER, 34% CER to £143 million, reflecting a spike in the<br>ICS/LABA class during April and May. In Europe and International,<br>Seretide sales were down<br>12% AER, 13% CER and 7% AER, 6% CER, respectively, impacted by<br>generic competition in Europe, COVID-19 related<br>destocking.<br><br><br><br><br><br>The<br>remainder of the Established Pharmaceuticals portfolio declined 20%<br>AER, 20% CER to £975 million on lower demand for Dermatology<br>products and Antibiotics during the COVID-19 pandemic period, the<br>impact of government mandated changes increasing the use of<br>generics in China, and comparison with a strong Q2 2019, which<br>included a European Relenza<br>contract. | ||||||||
| --- | ||||||||
| Vaccines turnover | ||||||||
| --- | ||||||||
| Q2 2020 | ||||||||
| --- | --- | --- | --- | |||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | ||||||
| Meningitis | 167 | (29) | (29) | |||||
| Influenza | 15 | (12) | (6) | |||||
| Shingles | 323 | (16) | (19) | |||||
| Established<br>Vaccines | 628 | (34) | (34) | |||||
| 1,133 | (29) | (29) | ||||||
| US | 448 | (42) | (45) | |||||
| Europe | 288 | (29) | (29) | |||||
| International | 397 | (2) | - | |||||
| 1,133 | (29) | (29) | ||||||
| Vaccines turnover declined 29% AER, 29% CER to £1,133 million,<br>primarily driven by the adverse impact of the COVID-19 pandemic on<br>DTPa-containing, Hepatitis, Shingles and Meningitis vaccines,<br>together with the Rabipur and Encepur divestment.<br><br><br><br><br><br>Vaccines performance in the second quarter across all regions was<br>affected by lower demand due to limited visits to healthcare<br>practitioners and points of vaccination during the pandemic and<br>government stay-at-home directives. In areas where government<br>restrictions were lifted, wellness visits and vaccination rates<br>have started to recover, with paediatric vaccinations returning to<br>near pre-COVID-19 levels by the end of the quarter, while<br>adolescent and adult immunisations improved at a slower<br>pace.<br><br><br><br><br><br>Meningitis<br><br><br>Meningitis sales declined 29% AER, 29% CER to £167<br>million. Bexsero and Menveo<br>sales decreased 31% AER, 30% CER to<br>£108 million and 39% AER, 39% CER to £38 million<br>respectively, reflecting lower demand across all regions due to<br>de-prioritisation of vaccination during the COVID-19 pandemic. In<br>the US, Bexsero maintained and Menveo grew market share.<br><br><br><br><br><br>Influenza<br><br><br>Fluarix/FluLaval sales were<br>£15 million, down 12% AER, 6% CER.<br><br><br><br><br><br>Shingles<br><br><br>Shingrix sales<br>declined 16% AER, 19% CER to £323 million, primarily<br>driven by lower adult wellness visits and vaccination rates related<br>to the COVID-19 pandemic stay-at-home directives in the US, partly<br>offset by favourable return and rebate movements in the US. Total<br>US prescriptions for Shingrix reflected partial recovery of demand by the end of<br>the quarter. In Europe, a strong performance was recorded in<br>Germany due to robust underlying demand in post-lockdown<br>conditions.<br><br><br><br><br><br>Established Vaccines<br><br><br>Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) declined 42% AER, 43% CER. Infanrix/Pediarix<br>sales declined 39% AER, 40% CER to<br>£119 million, reflecting lower demand due to the COVID-19<br>pandemic conditions in the US, unfavourable year-on-year US CDC<br>stockpile movements and supply constraints in<br>Europe.<br><br><br><br><br><br>Boostrix sales were down 47%<br>AER, 47% CER to £76 million primarily due to the negative<br>impact of COVID-19 restrictions on vaccination rates across all<br>regions.<br><br><br><br><br><br>Hepatitis vaccines declined 62% AER, 62% CER to £86 million,<br>adversely impacted in the US and Europe by the COVID-19 pandemic<br>and related travel restrictions, together with competition<br>returning to market in the US.<br><br><br><br><br><br>Synflorix sales declined by 4%<br>AER, 5% CER to £103 million, primarily due to lower tender<br>volume demand in Europe.<br><br><br><br><br><br>Rotarix sales were up 10% AER,<br>9% CER to £128 million, reflecting favourable phasing in<br>Emerging Markets and in International, partly offset by lower<br>demand in the US due to COVID-19 confinement<br>measures.<br><br><br><br><br><br>MMRV vaccines sales grew 8% AER, 8% CER to £54 million,<br>largely driven by improved supply in Europe. | ||||||||
| --- | ||||||||
| Consumer Healthcare turnover | ||||||||
| --- | ||||||||
| Q2 2020 | ||||||||
| --- | --- | --- | --- | |||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | ||||||
| Oral<br>health | 639 | (2) | (1) | |||||
| Pain<br>relief | 529 | 38 | 38 | |||||
| Vitamins,<br>minerals and supplements | 404 | >100 | >100 | |||||
| Respiratory<br>health | 214 | 9 | 8 | |||||
| Digestive<br>health and other | 487 | 22 | 22 | |||||
| 2,273 | 37 | 37 | ||||||
| Brands<br>divested/under review | 116 | (55) | (54) | |||||
| 2,389 | 25 | 25 | ||||||
| US | 829 | 75 | 70 | |||||
| Europe | 602 | 4 | 4 | |||||
| International | 958 | 11 | 15 | |||||
| 2,389 | 25 | 25 | ||||||
| Pro-forma<br>growth | (6) | |||||||
| On a<br>reported basis, sales grew 25% AER, 25% CER to £2,389 million<br>in the quarter, largely driven by the inclusion of the Pfizer<br>portfolio. On a pro-forma basis, sales declined 6% CER and were<br>flat at CER excluding brands divested/under review.<br><br><br><br><br><br>At a<br>regional level, China returned to growth as the mandated retailer<br>shutdowns were lifted, but weaker performance resulted due to the<br>expected unwinding of accelerated purchases seen in the previous<br>quarter, particularly in Europe and to a lesser extent in the US.<br>Quarterly sales growth also benefited by approximately two<br>percentage points, largely in the Digestive health and Pain relief<br>categories, from increased retailer stocking ahead of a systems<br>cutover in North America which is expected to reverse in the third<br>quarter. The majority of the benefit from the accelerated<br>purchasing related to COVID-19 seen in the first quarter has now<br>reversed, although Vitamins, minerals and supplements continued to<br>benefit from an increased consumer focus on health and<br>wellness.<br><br><br><br><br><br>Oral health<br><br><br>Oral<br>health sales declined 2% AER, 1% CER to £639 million. Sensodyne grew in low single-digits but<br>continued to gain share, with growth negatively impacted by the<br>unwind of prior quarter accelerated purchases which also affected<br>Denture care and Gum health, and which has now largely reversed.<br>Overall growth was also impacted by a decline in non-strategic<br>brands.<br><br><br><br><br><br>Pain relief<br><br><br>Pain relief grew 38% AER, 38% CER to £529 million. On a<br>pro-forma basis, sales declined in low single digits. Continued<br>strong performance of Panadol, and the successful Rx to OTC switch and launch<br>of Voltaren OTC in the US, were partly offset by a weaker<br>performance of Voltaren in Europe. Overall performance was also impacted<br>by the unwinding of accelerated purchases seen in the prior quarter.<br><br><br><br><br><br>Vitamins, minerals and supplements<br><br><br>Vitamins,<br>minerals and supplements more than doubled at AER and CER to<br>£404 million. On a pro-forma basis, sales grew in the<br>high-teens per cent, with strong performances from Centrum and Emergen-C, reflecting continued<br>strong consumer demand for the<br>category, particularly in the US and China.<br><br><br><br><br><br>Respiratory health<br><br><br>Respiratory<br>health sales grew 9% AER, 8% CER to £214 million. On a<br>pro-forma basis, sales declined in low double-digits. Continued<br>growth of Theraflu was<br>offset by the unwinding of accelerated purchases seen in the<br>previous quarter and reduced demand for seasonal nasal spray<br>products.<br><br><br><br><br><br>Digestive health and other<br><br><br>Digestive<br>health and other brands grew 22% AER, 22% CER to £487 million.<br>On a pro-forma basis, sales declined in low single digits, reflecting continued weaker<br>Skin health performance, the expected unwinding of<br>accelerated purchases of Digestive<br>health and other products, and also the impact of lower footfall,<br>reducing impulse purchases in retail stores due to the ongoing<br>pandemic. | ||||||||
| --- | ||||||||
| Operating performance | ||||||||
| --- | ||||||||
| Cost of sales<br><br><br>Total<br>cost of sales as a percentage of turnover was 32.1%, 1.6 percentage<br>points lower at AER and 1.5 percentage points lower in CER terms<br>compared with Q2 2019. This reflected a reduction in the costs of<br>Major restructuring programmes, primarily as a result of lower<br>write downs in a number of manufacturing sites.<br><br><br><br><br><br>Excluding<br>these and other Adjusting items, Adjusted cost of sales as a<br>percentage of turnover was 29.5%, 0.8 percentage points higher at<br>AER and 1.0 percentage points higher at CER compared with Q2 2019.<br>On a pro-forma basis, Adjusted cost of sales as a percentage of<br>turnover was 29.5%, 0.7 percentage points higher at CER, compared<br>with Q2 2019. This reflected unfavourable product mix in Vaccines,<br>primarily due to the decline of Shingrix in the US and in Consumer<br>Healthcare and continued adverse pricing pressure in<br>Pharmaceuticals, particularly in Respiratory, partly offset by<br>lower inventory adjustments in Vaccines and a further contribution<br>from integration and restructuring savings in Pharmaceuticals and<br>Consumer Healthcare.<br><br><br><br><br><br>Selling, general and administration<br><br><br>Total<br>SG&A costs as a percentage of turnover were 35.5%, 2.4<br>percentage points higher at AER and 2.5 percentage points higher at<br>CER compared with Q2 2019. This included increased major<br>restructuring costs partly offset by lower significant legal and<br>transaction costs.<br><br><br><br><br><br>Excluding<br>these and other Adjusting items, Adjusted SG&A costs as a<br>percentage of turnover were 33.2%, 2.0 percentage points higher at<br>AER than in Q2 2019 and 2.2 percentage points higher on a CER<br>basis. On a pro-forma basis, Adjusted SG&A costs as a<br>percentage of turnover were 33.2%, 1.9 percentage points higher at<br>CER, compared with Q2 2019.<br><br><br><br><br><br>Adjusted<br>SG&A costs grew 4% AER, 4% CER but declined 5% CER on a<br>pro-forma basis, which reflected reduced promotional and variable<br>spending across all three business as a result of the COVID-19<br>lockdowns as well as the continuing benefit of restructuring in<br>Pharmaceuticals and Consumer Healthcare and the tight control of<br>ongoing costs, partly offset by increased investment for new<br>launches in Respiratory and HIV and an adverse comparison to income<br>from favourable settlements in Vaccines in Q2 2019.<br><br><br><br><br><br>Research and development<br><br><br>Total<br>R&D expenditure was £1,301 million (17.1% of turnover), up<br>17% AER, 15% CER, including an increase in impairment charges.<br>Adjusted R&D expenditure was £1,171 million (15.4% of<br>turnover), 13% higher at AER, 11% higher at CER than in Q2 2019. On<br>a pro-forma basis, Adjusted R&D expenditure grew 9% CER<br>compared with Q2 2019.<br><br><br><br><br><br>Pharmaceuticals<br>R&D expenditure was £922 million, up 15% AER, 13% CER,<br>reflecting a continued significant increase in Oncology investment<br>across multiple mid and late-stage assets including the legacy<br>Tesaro portfolio and a number of other programmes including<br>belantamab mafodotin, ICOS and bintrafusp alfa. In addition to the<br>Oncology investment there has also been increased spending on the<br>progression of key assets in the Specialty and primary care<br>portfolio such as otilimab for RA, the initiation of several<br>COVID-19 programmes as well as on daprodustat which recently<br>received approval in Japan. These increases in investment were<br>partly offset by reduced spending in HIV and the ongoing benefits<br>of the R&D portfolio re-prioritisation decisions in 2019.<br>R&D expenditure in Vaccines and Consumer Healthcare was<br>£175 million and £74 million, respectively.<br><br><br><br><br><br>Royalty income<br><br><br>Royalty<br>income was £75 million (Q2 2019: £78 million), down 4%<br>AER, 10% CER, primarily reflecting adverse movements in Consumer<br>Healthcare. | ||||||||
| --- | ||||||||
| Other operating income/(expense)<br><br><br>Net<br>other operating income of £1,610 million (Q2 2019: £63<br>million expense) primarily reflected the net profit on disposal in<br>the quarter of the Horlicks<br>and other Consumer Healthcare brands of £2,304 million in Q2<br>2020, which was after reversal of £776 million of embedded<br>derivative gains on the value of the shares taken in prior years<br>and Q1 2020. This was partly offset by the related loss on sale of<br>the shares in Hindustan Unilever in Q2 2020 of £476 million.<br>Other operating income also included an increase in profit and<br>milestone income from a number of asset disposals.<br><br><br><br><br><br>The<br>gains were partly offset by accounting charges of £368 million<br>(Q2 2019: £188 million) arising from the re-measurement of the<br>contingent consideration liabilities related to the acquisitions of<br>the former Shionogi-ViiV Healthcare joint venture and the former<br>Novartis Vaccines business and the liabilities for the Pfizer put<br>option and Pfizer and Shionogi preferential dividends in ViiV<br>Healthcare. This included a re-measurement charge of £343<br>million (Q2 2019: £226 million) for the contingent<br>consideration liability due to Shionogi, primarily arising from<br>changes in sales forecasts and exchange rate assumptions as well as<br>the unwind of the discounting. | ||||||||
| --- | ||||||||
| Operating profit<br><br><br>Total<br>operating profit was £2,850 million in Q2 2020 compared with<br>£1,484 million in Q2 2019. This reflected the profit on<br>disposal of the Horlicks<br>and other Consumer Healthcare brands and resultant sale of shares<br>in Hindustan Unilever as well as increased income from asset<br>disposals. This was partly offset by higher re-measurement charges<br>on the contingent consideration liabilities.<br><br><br><br><br><br>Excluding<br>these and other Adjusting items, Adjusted operating profit was<br>£1,749 million, 19% lower than Q2 2019 at AER and 21% lower at<br>CER on a turnover decrease of 3% CER. The Adjusted operating margin<br>of 22.9% was 4.9 percentage points lower at AER, and 5.1 percentage<br>points lower on a CER basis than in Q2 2019. On a pro-forma basis,<br>Adjusted operating profit was 27% lower at CER on a turnover<br>decrease of 10% CER. The Adjusted pro-forma operating margin of<br>22.9% was 5.3 percentage points lower on a CER basis than in Q2<br>2019.<br><br><br><br><br><br>The<br>reduction in pro-forma Adjusted operating profit primarily<br>reflected the adverse impact from reduction in sales across all<br>three businesses as a result of the COVID-19 pandemic, including a<br>reduction in customer demand primarily in Vaccines and destocking<br>in the quarter in Pharmaceuticals and Consumer Healthcare and<br>increased investment in R&D including a significant increase in<br>Oncology investments and initiation of several COVID-19 programmes.<br>In addition, there was adverse mix in Vaccines and Consumer<br>Healthcare, continuing price pressure, particularly in Respiratory<br>and increased investment for new launches in Respiratory and HIV.<br>This was partly offset by reduced promotional and variable spending<br>overall across all three businesses as a result of the COVID-19<br>lockdowns and the continued benefit of restructuring and tight<br>control of ongoing costs across all three businesses.<br><br><br><br><br><br>Contingent<br>consideration cash payments which are made to Shionogi and other<br>companies reduce the balance sheet liability and hence are not<br>recorded in the income statement. Total contingent consideration<br>cash payments in Q2 2020 amounted to £240 million (Q2 2019:<br>£226 million). This included cash payments made to Shionogi of<br>£232 million (Q2 2019: £220 million).<br><br><br><br><br><br>Operating profit by business<br><br><br>Pharmaceuticals<br>operating profit was £976 million, down 22% AER, 23% CER on a<br>turnover decrease of 5% CER. The operating margin of 23.8% was 5.4<br>percentage points lower at AER than in Q2 2019 and 5.4 percentage<br>points lower on a CER basis. This primarily reflected the negative<br>operating leverage from the COVID-19 related sales decline, a<br>significant increase in Oncology R&D and initiation of several<br>COVID-19 programmes, increase in cost of sales percentage due to<br>the continued impact of lower prices, particularly in Respiratory,<br>and investment in new product support and targeted priority<br>markets. This was partly offset by reduced promotional and variable<br>spending as a result of the COVID-19 lockdowns and tight control of<br>ongoing costs.<br><br><br><br><br><br>Vaccines operating profit was £265 million, down 57% AER, 58%<br>CER on a turnover decrease of 29% CER. The operating margin of<br>23.4% was 15.2 percentage points lower at AER than in Q2 2019 and<br>15.7 percentage points lower on a CER basis. This was primarily<br>driven by the negative operating leverage from the significant<br>COVID-19-related sales decline, as well as adverse mix and an<br>adverse comparison to income from one-off settlements in Q2 2019,<br>partly offset by lower inventory adjustments.<br><br><br><br><br><br>Consumer<br>Healthcare operating profit was £521 million, up 33% AER, 33%<br>CER on a turnover increase of 25% CER. On a pro-forma basis,<br>operating profit was £521 million, 11% CER lower on a turnover<br>decrease of 6% CER. The operating margin of 21.8% was 1.4<br>percentage points higher at AER and 1.3 percentage points higher on<br>a CER basis than in Q2 2019. The pro-forma operating margin of<br>21.8% was 1.2 percentage points lower on a CER basis. This was<br>primarily driven by reduced leverage from a decline in sales growth<br>in the quarter due to COVID-19 customer destocking and lower<br>customer footfall. This decline was partly offset by synergy<br>benefits from the Pfizer integration and targeted areas of lower<br>promotional investment.<br><br><br><br><br><br>Net finance costs<br><br><br>Total<br>net finance costs were £228 million compared with £216<br>million in Q2 2019. Adjusted net finance costs were £227<br>million compared with £220 million in Q2 2019. The increase<br>primarily reflected reduced swap interest income on foreign<br>currency hedges and lower interest income on reduced overseas cash<br>following the divestment of Horlicks and other Consumer Healthcare<br>nutrition products in India and a number of other countries. The<br>increase was partly offset by favourable refinancing of term<br>debt.<br><br><br><br><br><br>Share of after tax profits of associates and joint<br>ventures<br><br><br>The<br>share of after tax profits of associates and joint ventures was<br>£19 million (Q2 2019: £4 million losses).<br><br><br><br><br><br>Taxation<br><br><br>The<br>charge of £201 million represented an effective tax rate on<br>Total results of 7.6% (Q2 2019: 16.9%) and reflected the different<br>tax effects of the various Adjusting items, including the disposal<br>of Horlicks and other<br>Consumer Healthcare brands to Unilever and the subsequent disposal<br>of shares received in Hindustan Unilever. Tax on Adjusted profit<br>amounted to £316 million and represented an effective Adjusted<br>tax rate of 20.5% (Q2 2019: 15.4%), reflecting delays in settlement<br>of open periods and an updated forecast profit mix for the<br>year.<br><br><br><br><br><br>Issues<br>related to taxation are described in Note 14,<br>‘Taxation’ in the Annual Report 2019. The Group<br>continues to believe it has made adequate provision for the<br>liabilities likely to arise from periods which are open and not yet<br>agreed by tax authorities. The ultimate liability for such matters<br>may vary from the amounts provided and is dependent upon the<br>outcome of agreements with relevant tax authorities.<br><br><br><br><br><br>Non-controlling interests<br><br><br>The<br>allocation of Total earnings to non-controlling interests amounted<br>to £177 million (Q2 2019: £86 million). The increase was<br>primarily due to the allocation of Consumer Healthcare profits of<br>£137 million (Q2 2019: £nil) following the completion of<br>the new Consumer Healthcare Joint Venture with Pfizer on 31 July<br>2019, partly offset by reduced allocation of ViiV Healthcare<br>profits of £24 million (Q2 2019: £75 million), including<br>increased charges for re-measurement of contingent consideration<br>liabilities.<br><br><br><br><br><br>The<br>allocation of Adjusted earnings to non-controlling interests<br>amounted to £267 million (Q2 2019: £138 million). The<br>increase in allocation primarily reflected an increased allocation<br>of Consumer Healthcare profits of £138 million (Q2 2019:<br>£nil) following the completion of the new Consumer Healthcare<br>Joint Venture with Pfizer on 31 July 2019 partly offset by a<br>reduced allocation of ViiV Healthcare profits of £113 million<br>(Q2 2019: £127 million).<br><br><br><br><br><br>Earnings per share<br><br><br>Total<br>EPS was 45.5p, compared with 19.5p in Q2 2019. The increase in EPS<br>primarily reflected the net profit on disposal of Horlicks and other Consumer Healthcare<br>brands as well as increased income from asset disposals, partly<br>offset by higher re-measurement charges on the contingent<br>consideration liabilities and lower operating performance as a<br>result of the COVID-19 impact on the Vaccines business and<br>destocking in Pharmaceuticals and Consumer Healthcare following a<br>strong operating performance in Q1 2020.<br><br><br><br><br><br>Adjusted<br>EPS was 19.2p compared with 30.5p in Q2 2019, down 37% AER, 38%<br>CER, on a 21% CER decrease in Adjusted operating profit. This<br>reduction primarily resulted from a higher effective tax rate and a<br>higher non-controlling interest allocation of Consumer Healthcare<br>profits.<br><br><br><br><br><br>Currency impact on Q2 2020 results<br><br><br>The<br>results for Q2 2020 are based on average exchange rates,<br>principally £1/$1.25, £1/€1.13 and £1/Yen 134.<br>Comparative exchange rates are given on page 59. The period-end<br>exchange rates were £1/$1.23, £1/€1.10 and<br>£1/Yen 132.<br><br><br><br><br><br>In the<br>quarter, turnover decreased 2% AER, 3% CER. Total EPS was 45.5p<br>compared with 19.5p in Q2 2019. Adjusted EPS was 19.2p compared<br>with 30.5p in Q2 2019, down 37% AER, 38% CER. The marginally<br>positive currency impact primarily reflected the weakness in<br>Sterling, particularly against the US$ and Yen, partly offset by<br>weakness in emerging market currencies relative to Q2 2019.<br>Exchange gains or losses on the settlement of intercompany<br>transactions had a negligible impact on the positive currency<br>impact of one percentage point on Adjusted EPS. | ||||||||
| --- | ||||||||
| Adjusting<br>items<br><br><br>The<br>reconciliations between Total results and Adjusted results for Q2<br>2020 and Q2 2019 are set out below. | ||||||||
| --- | ||||||||
| Three months ended 30 June 2020 | ||||||||
| --- | ||||||||
| Total<br><br><br>results<br><br><br>£m | Intangible<br><br><br>amortisation<br><br><br>£m | Intangible<br><br><br>impairment<br><br><br>£m | Major<br><br><br>restructuring<br><br><br>£m | Transaction-<br><br><br>related<br><br><br>£m | Divestments significant<br><br><br>legal and other items<br><br><br>£m | Separation<br><br><br>costs<br><br><br>£m | Adjusted<br><br><br>results<br><br><br>£m | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Turnover | 7,624 | 7,624 | ||||||
| Cost of sales | (2,449) | 180 | (2) | 12 | 10 | (2,249) | ||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Gross profit | 5,175 | 180 | (2) | 12 | 10 | 5,375 | ||
| Selling, general and administration | (2,709) | 3 | 182 | (20) | (4) | 18 | (2,530) | |
| Research and development | (1,301) | 17 | 116 | (2) | (1) | (1,171) | ||
| Royalty income | 75 | 75 | ||||||
| Other operating income/(expense) | 1,610 | 1 | 359 | (1,970) | - | |||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Operating profit | 2,850 | 197 | 117 | 193 | 349 | (1,975) | 18 | 1,749 |
| Net<br>finance costs | (228) | 1 | (227) | |||||
| Share<br>of after tax profits of associates and joint ventures | 19 | 19 | ||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Profit before taxation | 2,641 | 197 | 117 | 193 | 349 | (1,974) | 18 | 1,541 |
| Taxation | (201) | (34) | (22) | (47) | (56) | 47 | (3) | (316) |
| Tax rate % | 7.6% | 20.5% | ||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Profit after taxation | 2,440 | 163 | 95 | 146 | 293 | (1,927) | 15 | 1,225 |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Profit<br>attributable to non-controlling interests | 177 | 90 | 267 | |||||
| Profit attributable to shareholders | 2,263 | 163 | 95 | 146 | 203 | (1,927) | 15 | 958 |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Earnings per share | 45.5p | 3.2p | 1.9p | 2.9p | 4.1p | (38.7)p | 0.3p | 19.2p |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |
| Weighted<br>average number of shares (millions) | 4,977 | 4,977 | ||||||
| –––––––––––– | –––––––––––– | |||||||
| Three months ended 30 June<br>2019 | ||||||||
| --- | ||||||||
| Total<br><br><br>results<br><br><br>£m | Intangible<br><br><br>amortisation<br><br><br>£m | Intangible<br><br><br>impairment<br><br><br>£m | Major<br><br><br>restructuring<br><br><br>£m | Transaction-<br><br><br>related<br><br><br>£m | Divestments significant<br><br><br>legal and other items<br><br><br>£m | Adjusted<br><br><br>results<br><br><br>£m | ||
| --- | --- | --- | --- | --- | --- | --- | --- | |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Turnover | 7,809 | 7,809 | ||||||
| Cost of sales | (2,637) | 188 | 4 | 198 | 4 | (2,243) | ||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Gross profit | 5,172 | 188 | 4 | 198 | 4 | 5,566 | ||
| Selling, general and administration | (2,590) | 2 | 67 | 41 | 47 | (2,433) | ||
| Research and development | (1,113) | 17 | 11 | 44 | 1 | (1,040) | ||
| Royalty income | 78 | 78 | ||||||
| Other operating (expense)/income | (63) | 202 | (139) | - | ||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Operating profit | 1,484 | 205 | 17 | 309 | 247 | (91) | 2,171 | |
| Net finance costs | (216) | (4) | (220) | |||||
| Share of after tax losses of associates and joint<br>ventures | (4) | (4) | ||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Profit before taxation | 1,264 | 205 | 17 | 309 | 247 | (95) | 1,947 | |
| Taxation | (214) | (39) | (2) | (59) | (61) | 75 | (300) | |
| Tax rate % | 16.9% | 15.4% | ||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Profit after taxation | 1,050 | 166 | 15 | 250 | 186 | (20) | 1,647 | |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Profit<br>attributable to non-controlling interests | 86 | 52 | 138 | |||||
| Profit attributable to shareholders | 964 | 166 | 15 | 250 | 134 | (20) | 1,509 | |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Earnings per share | 19.5p | 3.3p | 0.3p | 5.1p | 2.7p | (0.4)p | 30.5p | |
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||
| Weighted average number of shares (millions) | 4,947 | 4,947 | ||||||
| –––––––––––– | –––––––––––– | |||||||
| Major restructuring and integration<br><br><br>Within<br>the Pharmaceuticals sector, the highly regulated manufacturing<br>operations and supply chains and long lifecycle of the business<br>mean that restructuring programmes, particularly those that involve<br>the rationalisation or closure of manufacturing or R&D sites<br>are likely to take several years to complete. | ||||||||
| --- | ||||||||
| Total<br>Major restructuring charges incurred in Q2 2020 were £193<br>million (Q2 2019: £309 million), analysed as<br>follows: | ||||||||
| --- | ||||||||
| Q2 2020 | Q2<br>2019 | |||||||
| --- | --- | --- | --- | --- | --- | --- | ||
| Cash<br><br><br>£m | Non-cash<br><br><br>£m | Total<br><br><br>£m | Cash<br><br>m | Non-cash<br><br><br>£m | Total<br><br><br>£m | |||
| 2018<br>major restructuring programme (incl. Tesaro) | 30 | 15 | 45 | 87 | 192 | 279 | ||
| Consumer<br>Healthcare Joint Venture integration programme | 82 | 15 | 97 | 21 | - | 21 | ||
| Separation<br>Preparation restructuring programme | 42 | 3 | 45 | - | - | - | ||
| Combined<br>restructuring and integration programme | (3) | 9 | 6 | - | 9 | 9 | ||
| 151 | 42 | 193 | 108 | 201 | 309 |
All values are in British Pounds.
| Cash<br>charges primarily arose from restructuring of Vaccines<br>Manufacturing and R&D functions as well as commercial<br>pharmaceuticals restructuring under the Separation Preparation<br>programme, integration costs under the Consumer Healthcare Joint<br>Venture integration programme and restructuring of the<br>manufacturing organisation, R&D and some administrative<br>functions as well as the integration of Tesaro under the 2018 major<br>restructuring programme. Non-cash charges under the 2018 major<br>restructuring programme primarily related to write down of sites on<br>disposal of sites as part of plans to restructure the manufacturing<br>network.<br><br><br><br><br><br>Total<br>cash payments made in Q2 2020 were £163 million (Q2 2019:<br>£111 million), £31 million for the existing Combined<br>restructuring and integration programme (Q2 2019: £63<br>million), £47 million (Q2 2019: £28 million) under the<br>2018 major restructuring programme including the settlement of<br>certain charges accrued in previous quarters, a further £65<br>million (Q2 2019: £20 million) relating to the Consumer<br>Healthcare Joint Venture integration programme and £20 million<br>relating to the Separation Preparation restructuring<br>programme.<br><br><br><br><br><br>The<br>analysis of Major restructuring charges by business was as<br>follows: | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| Pharmaceuticals | 44 | 232 | ||||||||||
| Vaccines | (14) | 17 | ||||||||||
| Consumer<br>Healthcare | 105 | 41 | ||||||||||
| 135 | 290 | |||||||||||
| Corporate<br>& central functions | 58 | 19 | ||||||||||
| Total<br>Major restructuring costs | 193 | 309 | ||||||||||
| The<br>analysis of Major restructuring charges by Income statement line<br>was as follows: | ||||||||||||
| --- | ||||||||||||
| Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| Cost of<br>sales | 12 | 198 | ||||||||||
| Selling,<br>general and administration | 182 | 67 | ||||||||||
| Research<br>and development | (2) | 44 | ||||||||||
| Other<br>operating expense | 1 | - | ||||||||||
| Total<br>Major restructuring costs | 193 | 309 | ||||||||||
| The<br>benefit in the quarter from the 2018 major restructuring programme<br>was £0.1 billion and the benefit from the Consumer Healthcare<br>Joint Venture integration was £0.1 billion. Given its early<br>stage the benefit from the Separation Preparation restructuring<br>programme was less than £0.1 billion. | ||||||||||||
| --- | ||||||||||||
| Transaction-related adjustments<br><br><br>Transaction-related<br>adjustments resulted in a net charge of £349 million (Q2 2019:<br>£247 million). This included a net £368 million<br>accounting charge for the re-measurement of the contingent<br>consideration liabilities related to the acquisitions of the former<br>Shionogi-ViiV Healthcare joint venture and the former Novartis<br>Vaccines business and the liabilities for the Pfizer put option and<br>Pfizer and Shionogi preferential dividends in ViiV<br>Healthcare. | ||||||||||||
| --- | ||||||||||||
| Charge/(credit) | Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | ||||||||||
| --- | --- | --- | ||||||||||
| Contingent<br>consideration on former Shionogi-ViiV Healthcare joint venture<br>(including Shionogi preferential dividends) | 343 | 226 | ||||||||||
| ViiV<br>Healthcare put options and Pfizer preferential<br>dividends | 10 | (47) | ||||||||||
| Contingent<br>consideration on former Novartis Vaccines business | 15 | 9 | ||||||||||
| Other<br>adjustments | (19) | 59 | ||||||||||
| Total<br>transaction-related charges | 349 | 247 | ||||||||||
| The<br>£343 million charge relating to the contingent consideration<br>for the former Shionogi-ViiV Healthcare joint venture represented<br>an increase in the valuation of the contingent consideration due to<br>Shionogi, primarily as a result of a £99 million unwind of the<br>discount and a £244 million charge primarily from adjustments<br>to sales forecasts as well as updated exchange rate<br>assumptions.<br><br><br><br><br><br>The<br>ViiV Healthcare contingent consideration liability is valued on a<br>long-term basis. The potential impact of the COVID-19 pandemic<br>remains uncertain and at 30 June 2020, it has been assumed that<br>there will be no significant impact on the long-term value of the<br>liability. This position remains under review and the amount of the<br>liability will be updated in future quarters as further information<br>on the impact of the pandemic becomes available. An explanation of<br>the accounting for the non-controlling interests in ViiV Healthcare<br>is set out on page 11.<br><br><br><br><br><br>Divestments, significant legal charges and other items<br><br><br>Divestments<br>and other items included a gain in the period of £1,828<br>million arising from the net profit on disposal in the quarter of<br>the Horlicks and other<br>Consumer Healthcare brands of £2,304 million in Q2 2020,<br>partly offset by the related loss on sale of the shares in<br>Hindustan Unilever in Q2 2020 of £476 million. The net profit<br>on disposal in the quarter was net of reversal of £776 million<br>of embedded derivative gains on the value of the shares taken in<br>prior years and Q1 2020. Divestments and other items also included<br>a gain from a number of asset disposals and certain other Adjusting<br>items. A charge of £1 million (Q2 2019: £47 million) for<br>significant legal matters included the settlement of existing<br>matters as well as provisions for ongoing litigation. Significant<br>legal cash payments were £1 million (Q2 2019: £4<br>million).<br><br><br><br><br><br>Separation costs<br><br><br>From Q2<br>2020, the Group has started to report additional one-time costs to<br>prepare for Consumer Healthcare separation. | ||||||||||||
| --- | ||||||||||||
| Financial performance – H1 2020 | ||||||||||||
| --- | ||||||||||||
| Total results | ||||||||||||
| --- | ||||||||||||
| The<br>Total results for the Group are set out below. | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | Growth<br><br><br>£% | Growth<br><br><br>CER% | |||||||||
| --- | --- | --- | --- | --- | ||||||||
| Turnover | 16,714 | 15,470 | 8 | 8 | ||||||||
| Cost of<br>sales | (5,648) | (5,370) | 5 | 6 | ||||||||
| Gross<br>profit | 11,066 | 10,100 | 10 | 10 | ||||||||
| Selling,<br>general and administration | (5,625) | (5,067) | 11 | 12 | ||||||||
| Research<br>and development | (2,488) | (2,119) | 17 | 16 | ||||||||
| Royalty income | 142 | 151 | (6) | (8) | ||||||||
| Other<br>operating income/(expense) | 1,769 | (153) | ||||||||||
| Operating<br>profit | 4,864 | 2,912 | 67 | 66 | ||||||||
| Finance<br>income | 42 | 55 | ||||||||||
| Finance<br>expense | (458) | (461) | ||||||||||
| Share<br>of after tax profits of associates and joint ventures | 28 | 53 | ||||||||||
| Profit before taxation | 4,476 | 2,559 | 75 | 74 | ||||||||
| Taxation | (357) | (524) | ||||||||||
| Tax rate % | 8.0% | 20.5% | ||||||||||
| Profit after taxation | 4,119 | 2,035 | >100 | >100 | ||||||||
| Profit<br>attributable to non-controlling interests | 291 | 241 | ||||||||||
| Profit<br>attributable to shareholders | 3,828 | 1,794 | ||||||||||
| 4,119 | 2,035 | >100 | >100 | |||||||||
| Earnings per share | 77.0p | 36.3p | >100 | >100 | ||||||||
| Adjusted results | ||||||||||||
| --- | ||||||||||||
| The<br>Adjusted results for the Group are set out below. Reconciliations<br>between Total results and Adjusted results for H1 2020 and H1 2019<br>are set out on pages 38 and 39. | ||||||||||||
| --- | ||||||||||||
| H1 2020 | ||||||||||||
| --- | --- | --- | --- | --- | --- | |||||||
| £m | %<br>of<br><br><br>turnover | Growth<br><br><br>£% | Reported<br>growth<br><br><br>CER% | Pro-forma<br>growth<br><br><br>CER% | ||||||||
| Turnover | 16,714 | 100 | 8 | 8 | - | |||||||
| Cost of<br>sales | (4,859) | (29.1) | 9 | 10 | - | |||||||
| Selling,<br>general and administration | (5,316) | (31.8) | 10 | 11 | 1 | |||||||
| Research<br>and development | (2,257) | (13.5) | 12 | 11 | 9 | |||||||
| Royalty<br>income | 142 | 0.9 | (6) | (8) | (8) | |||||||
| Adjusted<br>operating profit | 4,424 | 26.5 | 2 | 2 | (7) | |||||||
| Adjusted<br>profit before tax | 4,038 | 1 | 1 | |||||||||
| Adjusted<br>profit after tax | 3,380 | 3 | 3 | |||||||||
| Adjusted<br>profit attributable to shareholders | 2,831 | (5) | (6) | |||||||||
| Adjusted<br>earnings per share | 56.9p | (6) | (6) | |||||||||
| Operating profit by business | H1 2020 | |||||||||||
| --- | --- | --- | --- | --- | --- | |||||||
| £m | %<br>of<br><br><br>turnover | Growth<br><br><br>£% | Reported<br>growth<br><br><br>CER% | Pro-forma<br>growth<br><br><br>CER% | ||||||||
| Pharmaceuticals | 3,904 | 45.9 | (3) | (4) | (4) | |||||||
| Pharmaceuticals<br>R&D* | (1,745) | 13 | 11 | 11 | ||||||||
| Total<br>Pharmaceuticals | 2,159 | 25.4 | (13) | (14) | (14) | |||||||
| Vaccines | 1,123 | 38.2 | (8) | (10) | (10) | |||||||
| Consumer<br>Healthcare | 1,287 | 24.5 | 57 | 59 | 8 | |||||||
| 4,569 | 27.3 | 1 | - | (8) | ||||||||
| Corporate<br>& other unallocated costs | (145) | |||||||||||
| Adjusted<br>operating profit | 4,424 | 26.5 | 2 | 2 | (7) | |||||||
| * | Operating<br>profit of Pharmaceuticals R&D segment, which is the<br>responsibility of the Chief Scientific Officer and President,<br>R&D. It excludes ViiV Healthcare R&D expenditure, which is<br>reported within the Pharmaceuticals segment. | |||||||||||
| --- | --- | |||||||||||
| Turnover | ||||||||||||
| --- | ||||||||||||
| Pharmaceuticals turnover | ||||||||||||
| --- | ||||||||||||
| H1 2020 | ||||||||||||
| --- | --- | --- | --- | |||||||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | ||||||||||
| Respiratory | 1,754 | 27 | 26 | |||||||||
| HIV | 2,392 | 3 | 2 | |||||||||
| Immuno-inflammation | 328 | 21 | 19 | |||||||||
| Oncology | 158 | 58 | 57 | |||||||||
| Established<br>Pharmaceuticals | 3,866 | (12) | (11) | |||||||||
| 8,498 | - | - | ||||||||||
| US | 3,559 | 3 | 1 | |||||||||
| Europe | 2,073 | 2 | 2 | |||||||||
| International | 2,866 | (3) | (2) | |||||||||
| 8,498 | - | - | ||||||||||
| Pharmaceuticals<br>turnover in the six months was £8,498 million, flat at both<br>AER and CER. HIV sales were up 3% AER, 2% CER, to £2,392<br>million, with growth in Juluca and Dovato partly offset by Tivicay and Triumeq. Respiratory sales were up 27%<br>AER, 26% CER, to £1,754 million, on growth of Trelegy and Nucala. Sales of Established<br>Pharmaceuticals declined 12% AER, 11% CER to £3,866<br>million.<br><br><br><br><br><br>Towards<br>the end of the first quarter, additional demand related to the<br>COVID-19 pandemic had a positive impact on growth of HIV and<br>Respiratory products. As expected, this effect has broadly reversed<br>in the second quarter, with only a minor dolutegravir impact in<br>Europe and US remaining. The second quarter also saw lower levels<br>of new patient prescriptions in the US and Europe, reduced market<br>demand for allergy and antibiotic products in International and<br>pressure on net prices in the US.<br><br><br><br><br><br>In the<br>US, sales grew 3% AER, 1% CER. Continued growth of Nucala, Trelegy, Benlysta and the HIV two-drug regimens<br>was partly offset by the decline and COVID-19 destocking in<br>Tivicay, Triumeq and Established Products,<br>including the impact of generic albuterol substitutes.<br><br><br><br><br><br>In<br>Europe, sales grew 2% AER, 2% CER, with strong growth from<br>Respiratory, HIV, Oncology and Benlysta partly offset by the decline<br>of Established Pharmaceutical sales, with the net impact of<br>COVID-19 broadly neutral over the six months.<br><br><br><br><br><br>International<br>declined 3% AER, 2% CER, with Respiratory, HIV and Benlysta growth more than offset by<br>lower Established Pharmaceutical sales including the impact of a<br>weaker allergy season in Japan and lower sales in China including<br>the impact of government mandated changes increasing the use of<br>generics.<br><br><br><br><br><br>Respiratory<br><br><br>Total<br>Respiratory sales were up 27% AER, 26% CER, with strong growth in<br>all regions. International Respiratory sales grew 26% AER, 26% CER<br>including Nucala, up 46% AER, 42% CER, and Relvar/Breo, up 13% AER, 14% CER to<br>£164 million. In Europe, Respiratory sales were £466<br>million up 26% AER, 27% CER. In the US, Trelegy and Nucala growth continued and<br>Relvar/Breo benefited from<br>the impact of a prior period RAR adjustment in the first<br>quarter.<br><br><br><br><br><br>Sales<br>of Nucala were £451<br>million in the six months and grew 30% AER, 28% CER, with US sales<br>up 31% AER, 29% CER to £265 million. Europe sales of £116<br>million grew 20% AER, 21% CER and International sales of £70<br>million grew 46% AER, 42% CER including growth of the at-home use<br>application.<br><br><br><br><br><br>Trelegy sales were up 87% AER, 85% CER to £387 million<br>driven by growth in all regions. In the US, sales grew 81% AER, 77%<br>CER, reflecting continued market share growth. In Europe, sales<br>grew 90% AER, 90% CER and in International sales were £35<br>million in the six months.<br><br><br><br><br><br>Relvar/Breo sales were up 16% AER, 16% CER to £527<br>million in the six months. In the US, Relvar/Breo grew 16% AER, 14% CER,<br>benefiting from the impact of a prior period RAR adjustment in the<br>first quarter. In Europe and International, Relvar/Breo also continued to grow, up<br>20% AER, 20% CER and 13% AER, 14% CER respectively.<br><br><br><br><br><br>HIV<br><br><br>HIV<br>sales were £2,392 million up 3% AER, 2% CER in the six months.<br>The dolutegravir franchise grew 4% AER, 3% CER, delivering sales of<br>£2,301 million. The remaining portfolio, with sales of<br>£91 million and 4% of total HIV sales, declined 22% AER, 23%<br>CER and reduced the overall growth of total HIV by one percentage<br>point.<br><br><br><br><br><br>Sales<br>of dolutegravir products were £2,301 million in the six<br>months. Sales benefited from customer stock building due to<br>COVID-19, mainly on Tivicay<br>and Triumeq that has not<br>yet fully reversed. Tivicay<br>delivered sales of £785 million, down 1% AER, 2% CER and<br>Triumeq sales were<br>£1,149 million, down 9% AER, 10% CER. The two-drug regimens,<br>Juluca and Dovato delivered sales of £367<br>million in the six months, with combined growth more than<br>offsetting decline in the three-drug regimen, Triumeq.<br><br><br><br><br><br>In the<br>US, dolutegravir sales grew 2% AER, but were flat at CER, and in<br>Europe sales grew 6% AER, 6% CER. The growth was driven by two-drug<br>regimen share growth and benefited from customer stocking due to<br>COVID-19 not fully reversed in the six months. Following recent<br>launches of Dovato,<br>combined sales of the two-drug regimens were £278 million in<br>the US and £81 million in Europe, with growth offsetting the<br>decline in Triumeq.<br>International continued to grow strongly with total dolutegravir<br>sales growth of 10% AER, 14% CER, driven by Tivicay tender business.<br><br><br><br><br><br>Oncology<br><br><br>Sales<br>of Zejula, the PARP<br>inhibitor asset acquired from Tesaro in Q1 2019 were £158<br>million in the six months, up 60% AER, 58% CER benefiting from a<br>favourable comparison with H1 2019. Sales comprised £95<br>million in the US and £63 million in Europe.<br><br><br><br><br><br>Immuno-inflammation<br><br><br>Sales<br>of Benlysta in the six<br>months were up 21% AER, 19% CER to £328 million, including<br>sales of the sub-cutaneous formulation of £156 million. In the<br>US, Benlysta grew 18% AER,<br>16% CER to £279 million.<br><br><br><br><br><br>Established Pharmaceuticals<br><br><br>Sales<br>of Established Pharmaceuticals in the six months were £3,866<br>million, down 12% AER, 11% CER.<br><br><br><br><br><br>Established<br>Respiratory products declined 11% AER, 11% CER to £1,770<br>million. Advair/Seretide<br>and Ventolin were impacted<br>by generic substitutes in the US and Europe, and in the<br>International region allergy sales were impacted by market<br>contraction in Japan.<br><br><br><br><br><br>The<br>remainder of the Established Pharmaceuticals portfolio declined 12%<br>AER, 11% CER to £2,096 million, including the impact of lower<br>demand for antibiotics and Dermatology products during the COVID-19<br>pandemic period, the impact of government mandated changes<br>increasing the use of generics in China, and a strong comparator,<br>including the European Relenza contract. | ||||||||||||
| --- | ||||||||||||
| Vaccines turnover | ||||||||||||
| --- | ||||||||||||
| H1 2020 | ||||||||||||
| --- | --- | --- | --- | |||||||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | ||||||||||
| Meningitis | 392 | (12) | (10) | |||||||||
| Influenza | 36 | 13 | 22 | |||||||||
| Shingles | 970 | 31 | 28 | |||||||||
| Established<br>Vaccines | 1,540 | (18) | (18) | |||||||||
| 2,938 | (5) | (6) | ||||||||||
| US | 1,461 | (6) | (8) | |||||||||
| Europe | 636 | (14) | (14) | |||||||||
| International | 841 | 4 | 6 | |||||||||
| 2,938 | (5) | (6) | ||||||||||
| Vaccines turnover declined 5% AER, 6% CER to £2,938 million,<br>primarily driven by the adverse impact of the COVID-19 pandemic on<br>Hepatitis, DTPa-containing, Meningitis and Shingles vaccines,<br>partially offset by growth in Shingrix in Q1 2020.<br><br><br><br><br><br>Vaccines performance across all regions was affected by lower<br>demand due to limited visits to healthcare practitioners and points<br>of vaccination during the pandemic and government stay-at-home<br>directives. In areas where lockdowns were lifted, wellness visits<br>and vaccination rates have started to recover, with paediatric<br>vaccination near pre-COVID levels by the end of the period, while<br>adolescent and adult immunisations improved at a slower<br>pace.<br><br><br><br><br><br>Meningitis<br><br><br>Meningitis sales declined 12% AER, 10% CER to £392<br>million. Bexsero sales declined 13% AER, 11% CER to £272<br>million, reflecting lower demand across all regions due to the<br>COVID-19 pandemic. Menveo sales declined 18% AER, 17% CER to £78<br>million, primarily driven by the negative impact of COVID-19<br>lockdowns on vaccination rates partly offset by higher demand in<br>Europe. In the US, Bexsero and Menveo grew market share.<br><br><br><br><br><br>Influenza<br><br><br>Fluarix/FluLaval sales were<br>£36 million, up 13% AER, 22% CER, reflecting favourable<br>phasing and higher demand in the International<br>region.<br><br><br><br><br><br>Shingles<br><br><br>Shingrix sales<br>grew 31% AER, 28% CER to £970 million, primarily<br>driven by strong uptake in Q1 2020 and favourable returns and<br>rebates, partly offset by a decline in demand in Q2 2020 due to<br>lower adult wellness visits and vaccination rates related to<br>COVID-19 pandemic stay-at-home directives in the US. In Europe, a<br>strong performance was recorded in Germany due to robust underlying<br>demand in post-lockdown conditions<br><br><br><br><br><br>Established Vaccines<br><br><br>Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) declined by 24% AER, 25% CER.<br>Infanrix/Pediarix<br>sales declined 21% AER, 21% CER to<br>£299 million, reflecting lower demand due to the COVID-19<br>pandemic in the US, unfavourable year-on-year US CDC stockpile<br>movements and supply constraints in Europe.<br><br><br><br><br><br>Hepatitis vaccines declined 35% AER, 36% CER to £299 million,<br>impacted in the US and Europe by the COVID-19 pandemic and related<br>travel restrictions, together with competition returning to market<br>in the US.<br><br><br><br><br><br>Synflorix sales were £226<br>million, down 1% AER, but flat at CER, primarily due to lower<br>tender volume demand in Europe partly offset by higher demand in<br>International.<br><br><br><br><br><br>Rotarix sales were up 12% AER,<br>12% CER to £279 million, reflecting favourable phasing in<br>Emerging Markets and in International, partly offset by lower<br>demand in the US due to COVID-19 confinement<br>measures.<br><br><br><br><br><br>MMRV vaccines sales grew 6% AER, 8% CER to £111 million,<br>largely driven by improved supply in Europe. | ||||||||||||
| --- | ||||||||||||
| Consumer Healthcare turnover | ||||||||||||
| --- | ||||||||||||
| H1 2020 | ||||||||||||
| --- | --- | --- | --- | |||||||||
| £m | Growth<br><br><br>£% | Growth<br><br><br>CER% | ||||||||||
| Oral<br>health | 1,372 | 4 | 6 | |||||||||
| Pain<br>relief | 1,140 | 51 | 53 | |||||||||
| Vitamins,<br>minerals and supplements | 767 | >100 | >100 | |||||||||
| Respiratory<br>health | 653 | 34 | 34 | |||||||||
| Digestive<br>health and other | 939 | 26 | 26 | |||||||||
| 4,871 | 45 | 46 | ||||||||||
| Brands<br>divested/under review | 380 | (30) | (28) | |||||||||
| 5,251 | 35 | 36 | ||||||||||
| US | 1,798 | 87 | 83 | |||||||||
| Europe | 1,348 | 15 | 15 | |||||||||
| International | 2,105 | 20 | 24 | |||||||||
| 5,251 | 35 | 36 | ||||||||||
| Pro-forma<br>growth | 2 | |||||||||||
| On a<br>reported basis, sales grew 35% AER, 36% CER to £5,251 million<br>in the six months, largely driven by the inclusion of the Pfizer<br>portfolio. On a pro-forma basis, sales grew 2% CER, and 7% CER<br>excluding brands divested/under review. This reflected the strong<br>performance in the first quarter, continued strong demand of<br>Vitamins, minerals and supplements products and increased retailer<br>stocking ahead of a systems cutover in North America which<br>benefited sales by one percentage point in the six months. The<br>remaining small stocking benefit from COVID-19 is expected to fully<br>unwind in the second half of the year, and the sales cutover<br>benefit to reverse in the third quarter.<br><br><br><br><br><br>Oral health<br><br><br>Oral<br>health sales grew 4% AER, 6% CER to £1,372 million.<br>Sensodyne continued to<br>perform strongly, reporting low double-digit growth, reflecting<br>underlying strength of the brand, supported by recent innovations<br>including Sensodyne Sensitivity<br>& Gum. Gum health grew in double digits, while Denture<br>care was flat. Growth in Oral health was impacted by a decline in<br>the non-strategic brands.<br><br><br><br><br><br>Pain relief<br><br><br>Pain<br>relief grew 51% AER, 53% CER to £1,140 million. On a pro-forma<br>basis, sales grew in mid-single digits, with significant growth of<br>Panadol and Advil reflecting accelerated purchases<br>and increased consumption due to the COVID-19 pandemic,<br>particularly in Q1 2020. The successful launch of Voltaren OTC in the US contributed to<br>overall growth for the brand, although performance was impacted by<br>a weaker performance in Europe.<br><br><br><br><br><br>Vitamins, minerals and supplements<br><br><br>Vitamins,<br>minerals and supplements growth more than doubled to £767<br>million. On a pro-forma basis, sales grew in the high teens per<br>cent, with strong performance from Centrum and Emergen-C driven by increased consumer demand for the category,<br>particularly in the US and China.<br><br><br><br><br><br>Respiratory health<br><br><br>Respiratory<br>health sales grew 34% AER, 34% CER to £653 million. On a<br>pro-forma basis, sales grew in low double-digits, with broad-based<br>growth across the category, although the accelerated purchases and<br>increased consumption in response to the COVID-19 pandemic seen in<br>the first quarter largely unwound in the second<br>quarter.<br><br><br><br><br><br>Digestive health and other<br><br><br>Digestive<br>health and other brands grew 26% AER, 26% CER to £939 million.<br>On a pro-forma basis, sales declined in low single-digits, with<br>growth in Smokers’ health and Digestive health products<br>offset by a low double digit decline<br>in Skin health products and a decline in other non-strategic<br>brands. | ||||||||||||
| --- | ||||||||||||
| Operating<br>performance | ||||||||||||
| --- | ||||||||||||
| Cost of sales<br><br><br>Total<br>cost of sales as a percentage of turnover was 33.8%, 0.9 percentage<br>points lower at AER and 0.8 percentage points lower in CER terms<br>compared with H1 2019. This reflected a reduction in the costs of<br>Major restructuring programmes, primarily as a result of lower<br>write downs in a number of manufacturing sites, partly offset by<br>the unwinding of the fair market value uplift on inventory arising<br>on completion of the Consumer Healthcare Joint Venture with<br>Pfizer.<br><br><br><br><br><br>Excluding<br>these and other Adjusting items, Adjusted cost of sales as a<br>percentage of turnover was 29.1%, 0.3 percentage points higher at<br>AER, 0.5 percentage points higher at CER compared with H1 2019. On<br>a pro-forma basis, Adjusted cost of sales as a percentage of<br>turnover was 29.1%, 0.1 percentage points higher at CER, compared<br>with H1 2019. This reflected continued adverse pricing pressure in<br>Pharmaceuticals, particularly in Respiratory and unfavourable<br>product mix in Consumer Healthcare, partly offset by a more<br>favourable product mix in Vaccines, and a further contribution from<br>integration savings in Consumer Healthcare.<br><br><br><br><br><br>Selling, general and administration<br><br><br>Total<br>SG&A costs as a percentage of turnover were 33.7%, 0.9<br>percentage points higher at AER and 1.1 percentage points higher at<br>CER compared with H1 2019. This reflected increased Major<br>restructuring costs partly offset by lower significant legal and<br>transaction costs.<br><br><br><br><br><br>Excluding<br>these and other Adjusting items, Adjusted SG&A costs as a<br>percentage of turnover were 31.8%, 0.6 percentage points higher at<br>AER than in H1 2019 and 0.8 percentage points higher on a CER<br>basis. On a pro-forma basis, Adjusted SG&A costs as a<br>percentage of turnover were 31.8%, 0.5 percentage points higher at<br>CER, compared with H1 2019.<br><br><br><br><br><br>The<br>growth in Adjusted SG&A costs of 10% AER, 11% CER and 1% CER on<br>a pro-forma basis reflected increased investment resulting from the<br>acquisition of Tesaro and in promotional product support,<br>particularly for new launches in Vaccines, Respiratory and HIV as<br>well as increased costs for a number of legal settlements. This was<br>partly offset by reduced promotional and variable spending across<br>all three business as a result of the COVID-19 lockdowns, the<br>continuing benefit of restructuring in Pharmaceuticals and Consumer<br>Healthcare and the tight control of ongoing costs, particularly in<br>non-promotional spending across all three businesses.<br><br><br><br><br><br>Research and development<br><br><br>Total<br>R&D expenditure was £2,488 million (14.9% of turnover), up<br>17% AER, 16% CER, including an increase in Major restructuring<br>costs. Adjusted R&D expenditure was £2,257 million (13.5%<br>of turnover), 12% higher at AER, 11% higher at CER than in H1 2019.<br>On a pro-forma basis, Adjusted R&D expenditure grew 9% CER<br>compared with H1 2019.<br><br><br><br><br><br>Pharmaceuticals<br>R&D expenditure was £1,775 million, up 15% AER, 13% CER,<br>primarily driven by a continued significant increase in investment<br>in Oncology reflecting the assets from the Tesaro acquisition<br>(primarily Zejula and<br>dostarlimab) and progression of a number of other programmes<br>including belantamab mafodotin, ICOS and bintrafusp alfa as well as<br>the initiation of several programmes focused on COVID-19. This<br>increased investment has been partly offset by a reduction in<br>investment in Research due to the early phase portfolio<br>reprioritisation in 2019. R&D expenditure in Vaccines and<br>Consumer Healthcare was £333 million and £149 million,<br>respectively.<br><br><br><br><br><br>Royalty income<br><br><br>Royalty<br>income was £142 million (H1 2019: £151 million), down 6%<br>AER, 8% CER, primarily reflecting adverse movements in Consumer<br>Healthcare. | ||||||||||||
| --- | ||||||||||||
| Other operating income/(expense)<br><br><br>Net<br>other operating income of £1,769 million (H1 2019: £153<br>million expense) primarily reflected the net profit on disposal of<br>the Horlicks and other<br>Consumer Healthcare brands of £2,815 million in Q2 2020, which<br>was after reversal of £240 million of embedded derivative<br>gains on the value of the shares taken in prior years. This was<br>partly offset by the related loss on sale of the shares in<br>Hindustan Unilever in Q2 2020 of £476 million. Other operating<br>income also included an increase in profit and milestone income<br>from a number of asset disposals.<br><br><br><br><br><br>This<br>was partly offset by accounting charges of £841 million (H1<br>2019: £103 million) arising from the re-measurement of the<br>contingent consideration liabilities related to the acquisitions of<br>the former Shionogi-ViiV Healthcare joint venture and the former<br>Novartis Vaccines business and the liabilities for the Pfizer put<br>option and Pfizer and Shionogi preferential dividends in ViiV<br>Healthcare. This included a re-measurement charge of £778<br>million (H1 2019: £166 million) for the contingent<br>consideration liability due to Shionogi, primarily arising from<br>changes in exchange rate assumptions as well as sales forecasts and<br>the unwind of the discounting. | ||||||||||||
| --- | ||||||||||||
| Operating profit<br><br><br>Total<br>operating profit was £4,864 million in H1 2020 compared with<br>£2,912 million in H1 2019. This reflected the profit on<br>disposal of the Horlicks<br>and other Consumer Healthcare brands and resultant sale of shares<br>in Hindustan Unilever as well as increased income from asset<br>disposals. This was partly offset by higher re-measurement charges<br>on the contingent consideration liabilities.<br><br><br><br><br><br>Excluding<br>these and other Adjusting items, Adjusted operating profit was<br>£4,424 million, 2% higher than H1 2019 at AER and 2% higher at<br>CER on a turnover increase of 8% CER. The Adjusted operating margin<br>of 26.5% was 1.5 percentage points lower at AER, and 1.7 percentage<br>points lower on a CER basis than in H1 2019. On a pro-forma basis,<br>Adjusted operating profit was 7% lower at CER on a turnover which<br>was flat at CER. The Adjusted pro-forma operating margin of 26.5%<br>was 1.9 percentage points lower on a CER basis than in H1<br>2019.<br><br><br><br><br><br>The<br>reduction in pro-forma Adjusted operating profit primarily<br>reflected the adverse impact from the reduction in sales in<br>Vaccines as a result of the COVID-19 pandemic, investment in<br>R&D including a significant increase in Oncology investment,<br>partly on the assets from the Tesaro acquisition and initiation of<br>several COVID-19 programmes, continuing price pressure,<br>particularly in Respiratory, including the impact of the launch of<br>a generic version of Advair<br>in the US in February 2019 and investments in promotional product<br>support, particularly for new launches in Vaccines, HIV and<br>Respiratory. This was partly offset by a favourable mix in<br>Vaccines, reduced promotional and variable spending across all<br>three business as a result of the COVID-19 lockdowns, the<br>continuing benefit of restructuring in Pharmaceuticals and Consumer<br>Healthcare and the tight control of ongoing costs, particularly in<br>non-promotional spending across all three businesses.<br><br><br><br><br><br>Contingent<br>consideration cash payments which are made to Shionogi and other<br>companies reduce the balance sheet liability and hence are not<br>recorded in the income statement. Total contingent consideration<br>cash payments in H1 2020 amounted to £455 million (H1 2019:<br>£443 million). This included cash payments made to Shionogi of<br>£445 million (H1 2019: £439 million).<br><br><br><br><br><br>Operating profit by business<br><br><br>Pharmaceuticals<br>operating profit was £2,159 million, down 13% AER, 14% CER on<br>turnover that was flat at CER. The operating margin of 25.4% was<br>4.1 percentage points lower at AER than in H1 2019 and 4.2<br>percentage points lower on a CER basis. This primarily reflected a<br>significant increase in Oncology R&D, the increase in cost of<br>sales percentage due to the continued impact of lower prices,<br>particularly in Respiratory, including the impact of the launch of<br>a generic version of Advair<br>in the US in February 2019, and investment in new product support<br>and targeted priority markets, together with higher provisions for<br>legal settlements and costs in the six months. This was partly<br>offset by the reduced promotional and variable spending as a result<br>of the COVID-19 lockdowns, the continued benefit of restructuring<br>and tight control of ongoing costs.<br><br><br><br><br><br>Vaccines<br>operating profit was £1,123 million, down 8% AER, 10% CER on a<br>turnover decrease of 6% CER. The operating margin of 38.2% was 1.2<br>percentage points lower at AER than in H1 2019 and 1.6 percentage<br>points lower on a CER basis. This was primarily driven by negative<br>operating leverage from the COVID-19 related decline in sales,<br>investment behind key brands and income from one-off settlements in<br>2019, partly offset by positive product mix.<br><br><br><br><br><br>Consumer<br>Healthcare operating profit was £1,287 million, up 57% AER,<br>59% CER on a turnover increase of 36% CER. On a pro-forma basis,<br>operating profit was £1,287 million, 8% CER higher on a<br>turnover increase of 2% CER. The operating margin of 24.5% was 3.4<br>percentage points higher at AER and 3.5 percentage points higher on<br>a CER basis than in Q2 2019. The pro-forma operating margin of<br>24.5% was 1.2 percentage points higher on a CER basis. The higher<br>margin was driven by higher than normal sales growth in Q1 2020,<br>partly offset by a decline and unwind in Q2 2020, primarily due to<br>COVID-19 buying patterns. Margin growth was also supported by<br>synergy delivery from the Pfizer integration and targeted areas of<br>lower promotional investment due to lockdown impacts.<br><br><br><br><br><br>Net finance costs<br><br><br>Total<br>net finance costs were £416 million compared with £406<br>million in H1 2019. Adjusted net finance costs were £414<br>million compared with £407 million in H1 2019. The increase<br>primarily reflected reduced interest income on overseas cash<br>following the divestment of Horlicks and other Consumer Healthcare<br>nutrition products in India and a number of other countries plus<br>reduced swap interest income on foreign currency hedges. The<br>increase was partly offset by favourable refinancing of term<br>debt.<br><br><br><br><br><br>Share of after tax profits of associates and joint<br>ventures<br><br><br>The<br>share of after tax profits of associates was £28 million (H1<br>2019: £53 million). H1 2019 included a one-off adjustment of<br>£51 million to reflect GSK’s share of increased after<br>tax profits of Innoviva primarily as a result of a non-recurring<br>income tax benefit.<br><br><br><br><br><br>Taxation<br><br><br>The<br>charge of £357 million represented an effective tax rate on<br>Total results of 8.0% (H1 2019: 20.5%) and reflected the different<br>tax effects of the various Adjusting items, including the disposal<br>of Horlicks and other<br>Consumer Healthcare brands to Unilever and subsequent disposal of<br>shares received in Hindustan Unilever. Tax on Adjusted profit<br>amounted to £658 million and represented an effective Adjusted<br>tax rate of 16.3% (H1 2019: 17.6%), reflecting cancellation by the<br>UK Government of a reduction in the UK corporation tax rate from<br>19% to 17% resulting in an increase in the value of balance sheet<br>deferred tax assets.<br><br><br><br><br><br>Issues<br>related to taxation are described in Note 14,<br>‘Taxation’ in the Annual Report 2019. The Group<br>continues to believe it has made adequate provision for the<br>liabilities likely to arise from periods which are open and not yet<br>agreed by tax authorities. The ultimate liability for such matters<br>may vary from the amounts provided and is dependent upon the<br>outcome of agreements with relevant tax authorities.<br><br><br><br><br><br>Non-controlling interests<br><br><br>The<br>allocation of Total earnings to non-controlling interests amounted<br>to £291 million (H1 2019: £241 million). The increase was<br>primarily due to an increased allocation of Consumer Healthcare<br>profits of £196 million (H1 2019: £nil) following the<br>completion of the new Consumer Healthcare Joint Venture with Pfizer<br>on 31 July 2019, and which included the unwind of the fair value<br>uplift on acquired inventory and major restructuring costs. This<br>was partly offset by a reduced allocation of ViiV Healthcare<br>profits of £64 million (H1 2019: £204 million), including<br>increased charges for re-measurement of contingent consideration<br>liabilities.<br><br><br><br><br><br>The<br>allocation of Adjusted earnings to non-controlling interests<br>amounted to £549 million (H1 2019: £287 million). The<br>increase in allocation primarily reflected an increased allocation<br>of Consumer Healthcare profits of £277 million (H1 2019:<br>£nil) following the completion of the new Consumer Healthcare<br>Joint Venture with Pfizer on 31 July 2019 partly offset by a<br>reduced allocation of ViiV Healthcare profits of £241 million<br>(H1 2019: £250 million), and lower net profits in some of the<br>Group’s other entities with non-controlling interests,<br>primarily Consumer Healthcare India following the Horlicks and other Consumer brands<br>disposal.<br><br><br><br><br><br>Earnings per share<br><br><br>Total<br>EPS was 77.0p, compared with 36.3p in H1 2019. The increase in EPS<br>primarily reflected the net profit on disposal of Horlicks and other Consumer Healthcare<br>brands as well as increased income from asset disposals, partly<br>offset by higher re-measurement charges on the contingent<br>consideration liabilities and a one-off benefit in H1 2019 from<br>increased share of after tax profits of the associate<br>Innoviva.<br><br><br><br><br><br>Adjusted<br>EPS was 56.9p compared with 60.6p in H1 2019, down 6% AER, 6% CER,<br>on a 2% CER increase in Adjusted operating profit. The reduction<br>primarily resulted from a higher non-controlling interest<br>allocation of Consumer Healthcare profits, reduced share of after<br>tax profits of associates resulting from a non-recurring income tax<br>benefit in Innoviva and partly offset by a reduced effective tax<br>rate.<br><br><br><br><br><br>Currency impact on H1 2020 results<br><br><br>The<br>results for H1 2020 are based on average exchange rates,<br>principally £1/$1.27, £1/€1.15 and £1/Yen 137.<br>Comparative exchange rates are given on page 59. The period-end<br>exchange rates were £1/$1.23, £1/€1.10 and<br>£1/Yen 132.<br><br><br><br><br><br>In the<br>six months, turnover increased 8% AER, 8% CER. Total EPS was 77.0p<br>compared with 36.3p in H1 2019. Adjusted EPS was 56.9p compared<br>with 60.6p in H1 2019, down 6% AER, 6% CER. The flat currency<br>impact primarily reflected the weakness of Sterling, particularly<br>against the US$ and Yen, offset by weakness in emerging market<br>currencies relative to H1 2019. Exchange gains or losses on the<br>settlement of intercompany transactions had a negligible impact on<br>the flat currency impact on Adjusted EPS. | ||||||||||||
| --- | ||||||||||||
| Adjusting items<br><br><br>The<br>reconciliations between Total results and Adjusted results for H1<br>2020 and H1 2019 are set out below. | ||||||||||||
| --- | ||||||||||||
| Six months ended 30 June 2020 | ||||||||||||
| --- | ||||||||||||
| Total<br><br><br>results<br><br><br>£m | Intangible<br><br><br>amortisation<br><br><br>£m | Intangible<br><br><br>impairment<br><br><br>£m | Major<br><br><br>restructuring<br><br><br>£m | Transaction-<br><br><br>related<br><br><br>£m | Divestments, significant<br><br><br>legal and other items<br><br><br>£m | Separation<br><br><br>costs<br><br><br>£m | Adjusted<br><br><br>results<br><br><br>£m | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Turnover | 16,714 | 16,714 | ||||||||||
| Cost of sales | (5,648) | 351 | 27 | 305 | 106 | (4,859) | ||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Gross profit | 11,066 | 351 | 27 | 305 | 106 | 11,855 | ||||||
| Selling, general and administration | (5,625) | 17 | 288 | (20) | 6 | 18 | (5,316) | |||||
| Research and development | (2,488) | 34 | 116 | 82 | (1) | (2,257) | ||||||
| Royalty income | 142 | 142 | ||||||||||
| Other operating income/(expense) | 1,769 | 1 | 832 | (2,602) | - | |||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Operating profit | 4,864 | 385 | 160 | 676 | 918 | (2,597) | 18 | 4,424 | ||||
| Net finance costs | (416) | 1 | 1 | (414) | ||||||||
| Share of after tax profits of associates and joint<br>ventures | 28 | 28 | ||||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Profit before taxation | 4,476 | 385 | 160 | 677 | 918 | (2,596) | 18 | 4,038 | ||||
| Taxation | (357) | (73) | (28) | (152) | (114) | 69 | (3) | (658) | ||||
| Tax rate % | 8.0% | 16.3% | ||||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Profit after taxation | 4,119 | 312 | 132 | 525 | 804 | (2,527) | 15 | 3,380 | ||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Profit<br>attributable to non-controlling interests | 291 | 258 | 549 | |||||||||
| Profit attributable to shareholders | 3,828 | 312 | 132 | 525 | 546 | (2,527) | 15 | 2,831 | ||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Earnings per share | 77.0p | 6.3p | 2.6p | 10.5p | 11.0p | (50.8)p | 0.3p | 56.9p | ||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | |||||
| Weighted average number of shares (millions) | 4,971 | 4,971 | ||||||||||
| –––––––––––– | –––––––––––– | |||||||||||
| Six months ended 30 June<br>2019 | ||||||||||||
| --- | ||||||||||||
| Total<br><br><br>results<br><br><br>£m | Intangible<br><br><br>amortisation<br><br><br>£m | Intangible<br><br><br>impairment<br><br><br>£m | Major<br><br><br>restructuring<br><br><br>£m | Transaction-<br><br><br>related<br><br><br>£m | Divestments, significant<br><br><br>legal and other items<br><br><br>£m | Adjusted<br><br><br>results<br><br><br>£m | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | |||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Turnover | 15,470 | 15,470 | ||||||||||
| Cost of sales | (5,370) | 359 | 17 | 539 | 9 | (4,446) | ||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Gross profit | 10,100 | 359 | 17 | 539 | 9 | 11,024 | ||||||
| Selling, general and administration | (5,067) | 6 | 92 | 70 | 69 | (4,830) | ||||||
| Research and development | (2,119) | 34 | 13 | 59 | 2 | (2,011) | ||||||
| Royalty income | 151 | 151 | ||||||||||
| Other operating (expense)/income | (153) | (1) | 115 | 39 | - | |||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Operating profit | 2,912 | 393 | 36 | 689 | 194 | 110 | 4,334 | |||||
| Net finance costs | (406) | 1 | (2) | (407) | ||||||||
| Share of after tax profits of associates and joint<br>ventures | 53 | 53 | ||||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Profit before taxation | 2,559 | 393 | 36 | 690 | 194 | 108 | 3,980 | |||||
| Taxation | (524) | (76) | (5) | (117) | (53) | 75 | (700) | |||||
| Tax rate % | 20.5% | 17.6% | ||||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Profit after taxation | 2,035 | 317 | 31 | 573 | 141 | 183 | 3,280 | |||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Profit<br>attributable to non-controlling interests | 241 | 46 | 287 | |||||||||
| Profit attributable to shareholders | 1,794 | 317 | 31 | 573 | 95 | 183 | 2,993 | |||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Earnings per share | 36.3p | 6.4p | 0.7p | 11.6p | 1.9p | 3.7p | 60.6p | |||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Weighted average number of shares (millions) | 4,942 | 4,942 | ||||||||||
| –––––––––––– | –––––––––––– | |||||||||||
| Major restructuring and integration<br><br><br>Within<br>the Pharmaceuticals sector, the highly regulated manufacturing<br>operations and supply chains and long lifecycle of the business<br>mean that restructuring programmes, particularly those that involve<br>the rationalisation or closure of manufacturing or R&D sites<br>are likely to take several years to complete. | ||||||||||||
| --- | ||||||||||||
| Total<br>Major restructuring charges incurred in H1 2020 were £676<br>million (H1 2019: £689 million), analysed as<br>follows: | ||||||||||||
| --- | ||||||||||||
| H1 2020 | H1<br>2019 | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | ||||||
| Cash<br><br><br>£m | Non-cash<br><br><br>£m | Total<br><br><br>£m | Cash<br><br><br>£m | Non-cash<br><br><br>£m | Total<br><br><br>£m | |||||||
| 2018<br>major restructuring programme (incl. Tesaro) | 56 | 170 | 226 | 111 | 504 | 615 | ||||||
| Consumer<br>Healthcare Joint Venture integration programme | 139 | 17 | 156 | 31 | - | 31 | ||||||
| Separation<br>Preparation restructuring programme | 279 | 3 | 282 | - | - | - | ||||||
| Combined<br>restructuring and integration programme | - | 12 | 12 | 22 | 21 | 43 | ||||||
| 474 | 202 | 676 | 164 | 525 | 689 | |||||||
| Cash<br>charges primarily arose from restructuring of Vaccines<br>Manufacturing and R&D functions as well as commercial<br>pharmaceuticals and some administrative functions restructuring<br>under the Separation Preparation programme, integration costs under<br>the Consumer Healthcare Joint Venture integration programme and<br>restructuring of the manufacturing organisation, R&D and some<br>administrative functions as well as the integration of Tesaro under<br>the 2018 major restructuring programme. Non-cash charges under the<br>2018 major restructuring programme primarily related to write down<br>of sites on disposal of sites as part of plans to restructure the<br>manufacturing network.<br><br><br><br><br><br>Total<br>cash payments made in H1 2020 were £331 million (H1 2019:<br>£285 million), £65 million for the existing Combined<br>restructuring and integration programme (H1 2019: £219<br>million), £100 million (H1 2019: £46 million) under the<br>2018 major restructuring programme including the settlement of<br>certain charges accrued in previous quarters, a further £135<br>million (H1 2019: £20 million) relating to the Consumer<br>Healthcare Joint Venture integration programme and £31 million<br>relating to the Separation Preparation restructuring<br>programme.<br><br><br><br><br><br>The<br>analysis of Major restructuring charges by business was as<br>follows: | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| Pharmaceuticals | 216 | 568 | ||||||||||
| Vaccines | 196 | 17 | ||||||||||
| Consumer<br>Healthcare | 179 | 62 | ||||||||||
| 591 | 647 | |||||||||||
| Corporate<br>& central functions | 85 | 42 | ||||||||||
| Total<br>Major restructuring costs | 676 | 689 | ||||||||||
| The<br>analysis of Major restructuring charges by Income statement line<br>was as follows: | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| Cost of<br>sales | 305 | 539 | ||||||||||
| Selling,<br>general and administration | 288 | 92 | ||||||||||
| Research<br>and development | 82 | 59 | ||||||||||
| Other<br>operating expense | 1 | (1) | ||||||||||
| Total<br>Major restructuring costs | 676 | 689 | ||||||||||
| The<br>benefit in the six months from the 2018 major restructuring<br>programme was £0.2 billion and the benefit from the Consumer<br>Healthcare Joint Venture integration was £0.1 billion. Given<br>its early stage the benefit from the Separation Preparation<br>restructuring programme was less than £0.1<br>billion.<br><br><br><br><br><br>The<br>2018 major restructuring programme, including Tesaro, is expected<br>to cost £1.75 billion over the period to 2021, with cash costs<br>of £0.85 billion and non-cash costs of £0.9 billion, and<br>is expected to deliver annual savings of around £450 million<br>by 2021 (at 2019 rates). These savings are intended to be fully<br>re-invested to help fund targeted increases in R&D and<br>commercial support of new products.<br><br><br><br><br><br>The<br>completion of the new Consumer Healthcare Joint Venture with Pfizer<br>is expected to realise substantial cost synergies, generating total<br>annual cost savings of £0.5 billion by 2022 for expected cash<br>costs of £0.7 billion and non-cash charges of £0.3<br>billion, plus additional capital expenditure of £0.2 billion.<br>Up to 25% of the cost savings are intended to be reinvested in the<br>business to support innovation and other growth<br>opportunities.<br><br><br><br><br><br>The<br>Group initiated in Q1 2020 a two-year Separation Preparation<br>programme to prepare for the separation of GSK into two companies:<br>New GSK, a biopharma company with an R&D approach focused on<br>science related to the immune system, the use of genetics and new<br>technologies, and a new leader in Consumer Healthcare. The<br>programme aims to: | ||||||||||||
| --- | ||||||||||||
| ● | Drive a<br>common approach to R&D with improved capital<br>allocation | |||||||||||
| --- | --- | |||||||||||
| ● | Align<br>and improve the capabilities and efficiency of global support<br>functions to support New GSK | |||||||||||
| ● | Further<br>optimise the supply chain and product portfolio, including the<br>divestment of non-core assets. A strategic review of prescription<br>dermatology is underway | |||||||||||
| ● | Prepare<br>Consumer Healthcare to operate as a standalone company | |||||||||||
| The<br>programme will target delivery of £0.7 billion of annual<br>savings by 2022 and £0.8 billion by 2023, with total costs<br>estimated at £2.4 billion, of which £1.6 billion is<br>expected to be cash costs. The proceeds of anticipated divestments<br>are largely expected to cover the cash costs of the<br>programme. | ||||||||||||
| --- | ||||||||||||
| Transaction-related adjustments<br><br><br>Transaction-related<br>adjustments resulted in a net charge of £918 million (H1 2019:<br>£194 million). This included a net £841 million<br>accounting charge for the re-measurement of the contingent<br>consideration liabilities related to the acquisitions of the former<br>Shionogi-ViiV Healthcare joint venture and the former Novartis<br>Vaccines business and the liabilities for the Pfizer put option and<br>Pfizer and Shionogi preferential dividends in ViiV<br>Healthcare. | ||||||||||||
| --- | ||||||||||||
| Charge/(credit) | H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | ||||||||||
| --- | --- | --- | ||||||||||
| Contingent<br>consideration on former Shionogi-ViiV Healthcare joint venture<br>(including Shionogi preferential dividends) | 778 | 166 | ||||||||||
| ViiV<br>Healthcare put options and Pfizer preferential<br>dividends | 59 | (71) | ||||||||||
| Contingent<br>consideration on former Novartis Vaccines business | 4 | 8 | ||||||||||
| Release<br>of fair value uplift on acquired Pfizer inventory | 91 | - | ||||||||||
| Other<br>adjustments | (14) | 91 | ||||||||||
| Total<br>transaction-related charges | 918 | 194 | ||||||||||
| The<br>£778 million charge relating to the contingent consideration<br>for the former Shionogi-ViiV Healthcare joint venture represented<br>an increase in the valuation of the contingent consideration due to<br>Shionogi, as a result of a £193 million unwind of the discount<br>and £585 million primarily from updated exchange rate<br>assumptions as well as adjustments to sales forecasts. The £59<br>million charge relating to the ViiV Healthcare put options and<br>Pfizer preferential dividends represented an increase in the<br>valuation of the put option as a result of updated exchange rate<br>assumptions as well as adjustments to multiples and sales<br>forecasts.<br><br><br><br><br><br>The<br>ViiV Healthcare contingent consideration liability is valued on a<br>long-term basis. The potential impact of the COVID-19 pandemic<br>remains uncertain and at 30 June 2020, it has been assumed that<br>there will be no significant impact on the long-term value of the<br>liability. This position remains under review and the amount of the<br>liability will be updated in future quarters as further information<br>on the impact of the pandemic becomes available. An explanation of<br>the accounting for the non-controlling interests in ViiV Healthcare<br>is set out on page 11.<br><br><br><br><br><br>Divestments, significant legal charges and other items<br><br><br>Divestments<br>and other items included a gain in the period of £2,339<br>million arising from the net profit on disposal of the Horlicks and other Consumer Healthcare<br>brands of £2,815 million in Q2 2020, after reversal of<br>£240 million of embedded derivative gains on the value of the<br>shares taken in prior years. This was partly offset by the related<br>loss on sale of the shares in Hindustan Unilever in Q2 2020 of<br>£476 million. Divestments and other items also included a gain<br>from a number of asset disposals and certain other Adjusting items.<br>A charge of £6 million (H1 2019: £69 million) for<br>significant legal matters included the settlement of existing<br>matters as well as provisions for ongoing litigation. Significant<br>legal cash payments were £6 million (H1 2019: £8<br>million).<br><br><br><br><br><br>Separation costs<br><br><br>From Q2<br>2020, the Group has started to report additional one-time costs to<br>prepare Consumer Healthcare for separation. These are estimated at<br>£600-700 million, excluding transaction costs. | ||||||||||||
| --- | ||||||||||||
| Cash generation | ||||||||||||
| --- | ||||||||||||
| Cash flow | ||||||||||||
| --- | ||||||||||||
| Q2 2020 | H1<br>2020 | H1<br>2019 | ||||||||||
| --- | --- | --- | --- | |||||||||
| Net<br>cash inflow from operating activities (£m) | 2,760 | 3,725 | 2,052 | |||||||||
| Free<br>cash flow* (£m) | 1,949 | 2,480 | 535 | |||||||||
| Free<br>cash flow growth (%) | >100% | >100% | (35)% | |||||||||
| Free<br>cash flow conversion* (%) | 86% | 65% | 30% | |||||||||
| Net<br>debt** (£m) | 23,435 | 23,435 | 28,721 | |||||||||
| * | Free<br>cash flow and free cash flow conversion are defined on page<br>67. | |||||||||||
| --- | --- | |||||||||||
| ** | Net<br>debt is analysed on page 65. | |||||||||||
| Q2 2020<br><br><br>The net<br>cash inflow from operating activities for the quarter was<br>£2,760 million (Q2 2019: £1,389 million). The increase<br>primarily reflected a significant reduction in trade receivables as<br>a result of collections following strong sales in Q1 and beneficial<br>timing of payments for returns and rebates and taxes partly offset<br>by reduced operating profits and increased inventory.<br><br><br><br><br><br>Total<br>cash payments to Shionogi in relation to the ViiV Healthcare<br>contingent consideration liability in the quarter were £232<br>million (Q2 2019: £220 million), of which £203 million<br>was recognised in cash flows from operating activities and £29<br>million was recognised in contingent consideration paid within<br>investing cash flows. These payments are deductible for tax<br>purposes.<br><br><br><br><br><br>Free<br>cash flow was £1,949 million for the quarter (Q2 2019:<br>£370 million). The increase primarily reflected a significant<br>reduction in trade receivables as a result of collections following<br>strong sales in Q1 2020, beneficial timing of payments for returns<br>and rebates and taxes and higher disposals of intangible assets<br>partly offset by increased inventory and higher dividends to<br>non-controlling interests. | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>The net<br>cash inflow from operating activities for the six months was<br>£3,725 million (H1 2019: £2,052 million). The increase<br>primarily reflected a reduction in trade receivables as a result of<br>collections following strong sales in Q1, beneficial timing of<br>payments for returns and rebates and taxes, a lower seasonal<br>increase of inventory and improved operating profits.<br><br><br><br><br><br>Total<br>cash payments to Shionogi in relation to the ViiV Healthcare<br>contingent consideration liability in the six months were £445<br>million (H1 2019: £439 million), of which £388 million<br>was recognised in cash flows from operating activities and £57<br>million was recognised in contingent consideration paid within<br>investing cash flows. These payments are deductible for tax<br>purposes.<br><br><br><br><br><br>Free<br>cash flow was £2,480 million for the six months (H1 2019:<br>£535 million). The increase primarily reflected a reduction in<br>trade receivables as a result of collections following strong sales<br>in Q1 2020, beneficial timing of payments for returns and rebates<br>and taxes, a lower seasonal increase of inventory and higher<br>disposals of intangible assets and milestone income, partly offset<br>by higher dividends to non-controlling interests. | ||||||||||||
| --- | ||||||||||||
| Net debt<br><br><br>At 30<br>June 2020, net debt was £23.4 billion, compared with<br>£25.2 billion at 31 December 2019, comprising gross debt of<br>£31.7 billion and cash and liquid investments of £8.3<br>billion. Net debt decreased due to the £3.3 billion proceeds<br>from the Horlicks and other<br>Consumer brands disposal including shares in Hindustan Unilever of<br>£2.7 billion and £0.6 billion of other assets, £0.3<br>billion of other business and asset disposals together with<br>£2.5 billion free cash flow, partly offset by cash divested of<br>£0.5 billion, dividends paid to shareholders of £2.1<br>billion, £1.5 billion of unfavourable exchange impacts from<br>the translation of non-Sterling denominated debt and exchange on<br>other financing items and £0.2 billion in additional<br>investments.<br><br><br><br><br><br>At 30<br>June 2020, GSK had short-term borrowings (including overdrafts and<br>lease liabilities) repayable within 12 months of £6.0 billion<br>with loans of £4.7 billion repayable in the subsequent<br>year. | ||||||||||||
| --- | ||||||||||||
| Returns to shareholders | ||||||||||||
| --- | ||||||||||||
| Quarterly dividends<br><br><br>The<br>Board has declared a second interim dividend for 2020 of 19 pence<br>per share (Q2 2019: 19 pence per share).<br><br><br><br><br><br>GSK<br>recognises the importance of dividends to shareholders and aims to<br>distribute regular dividend payments that will be determined<br>primarily with reference to the free cash flow generated by the<br>business after funding the investment necessary to support the<br>Group’s future growth.<br><br><br><br><br><br>The<br>Board currently intends to maintain the dividend for 2020 at the<br>current level of 80p per share, subject to any material change in<br>the external environment or performance expectations. Over time, as<br>free cash flow strengthens, it intends to build free cash flow<br>cover of the annual dividend to a target range of 1.25-1.50x,<br>before returning the dividend to growth.<br><br><br><br><br><br>Payment of dividends<br><br><br>The<br>equivalent interim dividend receivable by ADR holders will be<br>calculated based on the exchange rate on 6 October 2020. An annual<br>fee of $0.03 per ADS (or $0.0075 per ADS per quarter) is charged by<br>the Depositary.<br><br><br><br><br><br>The<br>ex-dividend date will be 13 August 2020, with a record date of 14<br>August 2020 and a payment date of 8 October 2020. | ||||||||||||
| --- | ||||||||||||
| Paid/payable | Pence<br>per share | £m | ||||||||||
| --- | --- | --- | --- | |||||||||
| 2020 | ||||||||||||
| First<br>interim | 9 July<br>2020 | 19 | 946 | |||||||||
| Second<br>interim | 8<br>October 2020 | 19 | 946 | |||||||||
| 2019 | ||||||||||||
| --- | --- | --- | --- | |||||||||
| First<br>interim | 11 July<br>2019 | 19 | 940 | |||||||||
| Second<br>interim | 10 October<br>2019 | 19 | 941 | |||||||||
| Third<br>interim | 9 January<br>2020 | 19 | 941 | |||||||||
| Fourth<br>interim | 9 April<br>2020 | 23 | 1,144 | |||||||||
| 80 | 3,966 | |||||||||||
| Weighted average number of shares | ||||||||||||
| --- | --- | --- | ||||||||||
| Q2 2020<br><br><br>millions | Q2<br>2019<br><br><br>millions | |||||||||||
| Weighted<br>average number of shares – basic | 4,977 | 4,947 | ||||||||||
| Dilutive<br>effect of share options and share awards | 46 | 44 | ||||||||||
| Weighted<br>average number of shares – diluted | 5,023 | 4,991 | ||||||||||
| Weighted average number of shares | ||||||||||||
| --- | --- | --- | ||||||||||
| H1 2020<br><br><br>millions | H1<br>2019<br><br><br>millions | |||||||||||
| Weighted<br>average number of shares – basic | 4,971 | 4,942 | ||||||||||
| Dilutive<br>effect of share options and share awards | 46 | 43 | ||||||||||
| Weighted<br>average number of shares – diluted | 5,017 | 4,985 | ||||||||||
| At 30<br>June 2020, 4,977 million shares (30 June 2019: 4,948 million) were<br>in free issue (excluding Treasury shares and shares held by the<br>ESOP Trusts). GSK made no share repurchases during the period. The<br>company issued 0.2 million shares under employee share schemes in<br>the quarter for proceeds of £3 million (Q2 2019: £6<br>million). | ||||||||||||
| --- | ||||||||||||
| At 30 June 2020, the ESOP Trust held 39.7 million GSK shares<br>against the future exercise of share options and share awards. The<br>carrying value of £330 million has been deducted from other<br>reserves. The market value of these shares was £656<br>million.<br><br><br><br><br><br>At 30 June 2020, the company held 367.7 million Treasury shares at<br>a cost of £5,144 million, which has been deducted from<br>retained earnings. | ||||||||||||
| --- | ||||||||||||
| Financial information | ||||||||||||
| --- | ||||||||||||
| Income statements | ||||||||||||
| --- | ||||||||||||
| Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | |||||||||
| --- | --- | --- | --- | --- | ||||||||
| TURNOVER | 7,624 | 7,809 | 16,714 | 15,470 | ||||||||
| Cost of<br>sales | (2,449) | (2,637) | (5,648) | (5,370) | ||||||||
| Gross<br>profit | 5,175 | 5,172 | 11,066 | 10,100 | ||||||||
| Selling,<br>general and administration | (2,709) | (2,590) | (5,625) | (5,067) | ||||||||
| Research<br>and development | (1,301) | (1,113) | (2,488) | (2,119) | ||||||||
| Royalty income | 75 | 78 | 142 | 151 | ||||||||
| Other<br>operating income/(expense) | 1,610 | (63) | 1,769 | (153) | ||||||||
| OPERATING PROFIT | 2,850 | 1,484 | 4,864 | 2,912 | ||||||||
| Finance<br>income | 1 | 21 | 42 | 55 | ||||||||
| Finance<br>expense | (229) | (237) | (458) | (461) | ||||||||
| Share<br>of after tax profits/(losses) of associates and joint<br>ventures | 19 | (4) | 28 | 53 | ||||||||
| PROFIT BEFORE TAXATION | 2,641 | 1,264 | 4,476 | 2,559 | ||||||||
| Taxation | (201) | (214) | (357) | (524) | ||||||||
| Tax rate % | 7.6% | 16.9% | 8.0% | 20.5% | ||||||||
| PROFIT AFTER TAXATION | 2,440 | 1,050 | 4,119 | 2,035 | ||||||||
| Profit<br>attributable to non-controlling interests | 177 | 86 | 291 | 241 | ||||||||
| Profit<br>attributable to shareholders | 2,263 | 964 | 3,828 | 1,794 | ||||||||
| 2,440 | 1,050 | 4,119 | 2,035 | |||||||||
| EARNINGS PER SHARE | 45.5p | 19.5p | 77.0p | 36.3p | ||||||||
| Diluted<br>earnings per share | 45.0p | 19.3p | 76.3p | 36.0p | ||||||||
| Statement of comprehensive<br>income | ||||||||||||
| --- | ||||||||||||
| Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| Profit<br>for the period | 2,440 | 1,050 | ||||||||||
| Items that may be reclassified subsequently to income<br>statement: | ||||||||||||
| Exchange<br>movements on overseas net assets and net investment<br>hedges | 182 | (120) | ||||||||||
| Reclassification<br>of exchange movements on liquidation or disposal of overseas<br>subsidiaries | 36 | - | ||||||||||
| Fair<br>value movements on cash flow hedges | (5) | (73) | ||||||||||
| Reclassification<br>of cash flow hedges to income statement | 51 | - | ||||||||||
| Deferred<br>tax on fair value movements on cash flow hedges | (3) | 1 | ||||||||||
| 261 | (192) | |||||||||||
| Items that will not be reclassified to income<br>statement: | ||||||||||||
| Exchange<br>movements on overseas net assets of non-controlling<br>interests | 42 | 8 | ||||||||||
| Fair<br>value movements on equity investments | 224 | 6 | ||||||||||
| Deferred<br>tax on fair value movements on equity investments | (24) | (20) | ||||||||||
| Re-measurement<br>losses on defined benefit plans | (1,445) | (131) | ||||||||||
| Tax on<br>re-measurement losses on defined benefit plans | 279 | 27 | ||||||||||
| (924) | (110) | |||||||||||
| Other<br>comprehensive expense for the period | (663) | (302) | ||||||||||
| Total<br>comprehensive income for the period | 1,777 | 748 | ||||||||||
| Total<br>comprehensive income for the period attributable to: | ||||||||||||
| Shareholders | 1,558 | 654 | ||||||||||
| Non-controlling<br>interests | 219 | 94 | ||||||||||
| 1,777 | 748 | |||||||||||
| Statement of comprehensive<br>income | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| Profit<br>for the period | 4,119 | 2,035 | ||||||||||
| Items that may be reclassified subsequently to income<br>statement: | ||||||||||||
| Exchange<br>movements on overseas net assets and net investment<br>hedges | 360 | (45) | ||||||||||
| Reclassification<br>of exchange movements on liquidation or disposal of overseas<br>subsidiaries | 36 | - | ||||||||||
| Fair<br>value movements on cash flow hedges | (23) | (73) | ||||||||||
| Reclassification<br>of cash flow hedges to income statement | 52 | 1 | ||||||||||
| Deferred<br>tax on fair value movements on cash flow hedges | (3) | - | ||||||||||
| 422 | (117) | |||||||||||
| Items that will not be reclassified to income<br>statement: | ||||||||||||
| Exchange<br>movements on overseas net assets of non-controlling<br>interests | 95 | (10) | ||||||||||
| Fair<br>value movements on equity investments | 185 | 44 | ||||||||||
| Deferred<br>tax on fair value movements on equity investments | (14) | (30) | ||||||||||
| Re-measurement<br>losses on defined benefit plans | (445) | (573) | ||||||||||
| Tax on<br>re-measurement losses on defined benefit plans | 92 | 102 | ||||||||||
| (87) | (467) | |||||||||||
| Other<br>comprehensive income/(expense) for the period | 335 | (584) | ||||||||||
| Total<br>comprehensive income for the period | 4,454 | 1,451 | ||||||||||
| Total<br>comprehensive income for the period attributable to: | ||||||||||||
| Shareholders | 4,068 | 1,220 | ||||||||||
| Non-controlling<br>interests | 386 | 231 | ||||||||||
| 4,454 | 1,451 | |||||||||||
| Pharmaceuticals turnover –<br>three months ended 30 June 2020 | ||||||||||||
| --- | ||||||||||||
| Total | US | Europe | International | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | |||||||||
| Growth | Growth | Growth | Growth | |||||||||
| ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | |||||||||
| £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Respiratory | 883 | 17 | 16 | 500 | 19 | 16 | 219 | 13 | 13 | 164 | 17 | 17 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Ellipta<br>products | 642 | 15 | 14 | 350 | 16 | 13 | 165 | 17 | 16 | 127 | 11 | 14 |
| Anoro Ellipta | 139 | 9 | 6 | 88 | 9 | 5 | 32 | 7 | 10 | 19 | 12 | 6 |
| Arnuity Ellipta | 8 | (43) | (50) | 6 | (50) | (50) | - | - | - | 2 | - | (50) |
| Incruse Ellipta | 59 | 4 | 2 | 33 | 6 | - | 19 | - | - | 7 | - | 14 |
| Relvar/Breo Ellipta | 242 | 2 | 2 | 83 | (11) | (12) | 78 | 11 | 9 | 81 | 8 | 12 |
| Trelegy Ellipta | 194 | 62 | 58 | 140 | 65 | 60 | 36 | 64 | 59 | 18 | 38 | 46 |
| Nucala | 241 | 24 | 21 | 150 | 28 | 26 | 54 | 4 | 6 | 37 | 42 | 31 |
| HIV | 1,185 | (2) | (3) | 740 | 1 | (2) | 270 | (7) | (7) | 175 | (5) | (2) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Dolutegravir<br>products | 1,140 | (1) | (2) | 725 | 1 | (2) | 259 | (4) | (5) | 156 | - | 4 |
| Tivicay | 373 | (9) | (10) | 208 | (14) | (16) | 87 | (12) | (14) | 78 | 10 | 15 |
| Triumeq | 586 | (9) | (11) | 378 | (6) | (9) | 134 | (16) | (16) | 74 | (12) | (10) |
| Juluca | 113 | 35 | 33 | 90 | 29 | 27 | 21 | 62 | 62 | 2 | 100 | >100 |
| Dovato | 68 | >100 | >100 | 49 | >100 | >100 | 17 | - | - | 2 | >100 | >100 |
| Epzicom/Kivexa | 9 | (59) | (64) | - | - | - | 2 | (67) | (67) | 7 | (53) | (60) |
| Selzentry | 21 | (19) | (15) | 12 | (8) | (8) | 6 | (25) | (25) | 3 | (40) | (20) |
| Other | 15 | 7 | (14) | 3 | 50 | (50) | 3 | (25) | (25) | 9 | 13 | - |
| Immuno-inflammation | 177 | 17 | 15 | 153 | 16 | 14 | 12 | 9 | - | 12 | 50 | 50 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Benlysta | 177 | 18 | 15 | 153 | 16 | 14 | 12 | 9 | - | 12 | 71 | 71 |
| Oncology | 77 | 35 | 33 | 47 | 42 | 39 | 30 | 25 | 21 | - | - | - |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Zejula | 77 | 35 | 32 | 47 | 42 | 39 | 30 | 25 | 21 | - | - | - |
| Established Pharmaceuticals | 1,780 | (17) | (17) | 361 | (22) | (24) | 400 | (23) | (23) | 1,019 | (12) | (11) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Established Respiratory | 805 | (12) | (12) | 255 | (18) | (20) | 179 | (14) | (14) | 371 | (6) | (5) |
| Seretide/Advair | 421 | 2 | 2 | 143 | 36 | 34 | 113 | (12) | (13) | 165 | (7) | (6) |
| Flixotide/Flovent | 117 | (7) | (7) | 54 | (17) | (18) | 17 | (23) | (18) | 46 | 18 | 18 |
| Ventolin | 144 | (39) | (39) | 58 | (59) | (60) | 24 | (17) | (21) | 62 | (6) | (2) |
| Avamys/Veramyst | 62 | (13) | (10) | - | - | - | 19 | (5) | (10) | 43 | (16) | (10) |
| Other<br>Respiratory | 61 | (10) | (16) | - | - | - | 6 | (25) | (12) | 55 | (10) | (16) |
| Dermatology | 95 | (11) | (9) | 1 | - | - | 30 | (27) | (24) | 64 | (2) | - |
| Augmentin | 100 | (25) | (23) | - | - | - | 21 | (45) | (45) | 79 | (17) | (15) |
| Avodart | 134 | (5) | (6) | 2 | 100 | 100 | 39 | (26) | (28) | 93 | 7 | 7 |
| Imigran/Imitrex | 27 | (25) | (28) | 10 | (41) | (41) | 12 | (8) | (15) | 5 | (17) | (17) |
| Lamictal | 135 | (5) | (6) | 66 | (8) | (10) | 28 | - | (4) | 41 | (2) | (2) |
| Seroxat/Paxil | 36 | (10) | (10) | - | - | - | 8 | (11) | (11) | 28 | (10) | (10) |
| Valtrex | 25 | - | - | 3 | >100 | >100 | 7 | - | - | 15 | (12) | (12) |
| Other | 423 | (30) | (29) | 24 | (61) | (62) | 76 | (37) | (36) | 323 | (23) | (22) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Pharmaceuticals | 4,102 | (5) | (5) | 1,801 | 1 | (1) | 931 | (10) | (11) | 1,370 | (8) | (7) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––––– | –––––––– | –––––––– | ––––––––– | –––––––– | –––––––– | ––––––––– | –––––––– | |
| Pharmaceuticals turnover – six<br>months ended 30 June 2020 | ||||||||||||
| --- | ||||||||||||
| Total | US | Europe | International | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | |||||||||
| Growth | Growth | Growth | Growth | |||||||||
| ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | |||||||||
| £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Respiratory | 1,754 | 27 | 26 | 964 | 28 | 25 | 466 | 26 | 27 | 324 | 26 | 26 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Ellipta<br>products | 1,303 | 26 | 25 | 699 | 26 | 24 | 350 | 29 | 29 | 254 | 21 | 22 |
| Anoro Ellipta | 256 | 11 | 10 | 151 | 9 | 6 | 68 | 19 | 21 | 37 | 9 | 9 |
| Arnuity Ellipta | 17 | (19) | (24) | 13 | (28) | (28) | - | - | - | 4 | 33 | - |
| Incruse Ellipta | 116 | (7) | (8) | 63 | (16) | (19) | 39 | 5 | 5 | 14 | 8 | 15 |
| Relvar/Breo Ellipta | 527 | 16 | 16 | 198 | 16 | 14 | 165 | 20 | 20 | 164 | 13 | 14 |
| Trelegy Ellipta | 387 | 87 | 85 | 274 | 81 | 77 | 78 | 90 | 90 | 35 | >100 | >100 |
| Nucala | 451 | 30 | 28 | 265 | 31 | 29 | 116 | 20 | 21 | 70 | 46 | 42 |
| HIV | 2,392 | 3 | 2 | 1,445 | 1 | (1) | 590 | 4 | 4 | 357 | 6 | 9 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Dolutegravir<br>products | 2,301 | 4 | 3 | 1,416 | 2 | - | 564 | 6 | 6 | 321 | 10 | 14 |
| Tivicay | 785 | (1) | (2) | 422 | (9) | (11) | 193 | - | - | 170 | 24 | 28 |
| Triumeq | 1,149 | (9) | (10) | 716 | (9) | (11) | 290 | (9) | (9) | 143 | (6) | (3) |
| Juluca | 233 | 51 | 49 | 184 | 40 | 38 | 45 | >100 | >100 | 4 | 100 | 100 |
| Dovato | 134 | >100 | >100 | 94 | >100 | >100 | 36 | - | - | 4 | >100 | >100 |
| Epzicom/Kivexa | 18 | (56) | (56) | 1 | (50) | (50) | 5 | (58) | (58) | 12 | (56) | (56) |
| Selzentry | 47 | (4) | (2) | 23 | (12) | (12) | 14 | (7) | (7) | 10 | 25 | 38 |
| Other | 26 | - | (12) | 5 | (29) | (57) | 7 | - | - | 14 | 17 | 8 |
| Immuno-inflammation | 328 | 21 | 19 | 279 | 18 | 16 | 26 | 18 | 18 | 23 | 77 | 77 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Benlysta | 328 | 21 | 19 | 279 | 18 | 16 | 26 | 18 | 18 | 23 | 92 | 92 |
| Oncology | 158 | 58 | 57 | 95 | 61 | 58 | 63 | 54 | 54 | - | - | - |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Zejula | 158 | 60 | 58 | 95 | 61 | 58 | 63 | 57 | 57 | - | - | - |
| Established Pharmaceuticals | 3,866 | (12) | (11) | 776 | (22) | (23) | 928 | (11) | (10) | 2,162 | (8) | (6) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Established Respiratory | 1,770 | (11) | (11) | 558 | (21) | (23) | 399 | (6) | (6) | 813 | (5) | (4) |
| Seretide/Advair | 816 | (9) | (9) | 249 | (11) | (12) | 240 | (8) | (8) | 327 | (8) | (6) |
| Flixotide/Flovent | 240 | (12) | (12) | 104 | (27) | (29) | 45 | (6) | (4) | 91 | 12 | 14 |
| Ventolin | 397 | (17) | (17) | 205 | (29) | (30) | 62 | - | - | 130 | (2) | 2 |
| Avamys/Veramyst | 171 | (8) | (7) | - | - | - | 38 | (3) | (3) | 133 | (10) | (8) |
| Other<br>Respiratory | 146 | (8) | (11) | - | - | - | 14 | (7) | (7) | 132 | (9) | (12) |
| Dermatology | 206 | (4) | (2) | 1 | (67) | (67) | 68 | (14) | (13) | 137 | 3 | 6 |
| Augmentin | 269 | (8) | (6) | - | - | - | 78 | (10) | (9) | 191 | (7) | (5) |
| Avodart | 275 | (3) | (3) | 3 | 50 | 50 | 88 | (19) | (19) | 184 | 6 | 7 |
| Imigran/Imitrex | 61 | (9) | (9) | 25 | (14) | (14) | 25 | (4) | (4) | 11 | (8) | (8) |
| Lamictal | 272 | (1) | (1) | 135 | (1) | (3) | 60 | 13 | 13 | 77 | (8) | (7) |
| Seroxat/Paxil | 72 | (10) | (10) | - | - | - | 18 | - | - | 54 | (13) | (13) |
| Valtrex | 53 | 2 | 2 | 7 | 17 | 17 | 16 | 14 | 14 | 30 | (6) | (6) |
| Other | 888 | (21) | (20) | 47 | (56) | (57) | 176 | (23) | (22) | 665 | (15) | (14) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Pharmaceuticals | 8,498 | - | - | 3,559 | 3 | 1 | 2,073 | 2 | 2 | 2,866 | (3) | (2) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––––– | –––––––– | –––––––– | ––––––––– | –––––––– | –––––––– | ––––––––– | –––––––– | |
| Vaccines turnover –<br>three months ended 30 June<br>2020 | ||||||||||||
| --- | ||||||||||||
| Total | US | Europe | International | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | |||||||||
| Growth | Growth | Growth | Growth | |||||||||
| ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | |||||||||
| £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Meningitis | 167 | (29) | (29) | 46 | (54) | (55) | 77 | (11) | (13) | 44 | (8) | (4) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Bexsero | 108 | (31) | (30) | 27 | (51) | (53) | 71 | (13) | (15) | 10 | (47) | (32) |
| Menveo | 38 | (39) | (39) | 19 | (58) | (58) | 5 | 25 | 25 | 14 | 8 | 8 |
| Other | 21 | 24 | 18 | - | - | - | 1 | - | - | 20 | 25 | 19 |
| Influenza | 15 | (12) | (6) | - | - | - | - | - | - | 15 | (6) | - |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Fluarix, FluLaval | 15 | (12) | (6) | - | - | - | - | - | - | 15 | (6) | - |
| Shingles | 323 | (16) | (19) | 268 | (24) | (26) | 44 | >100 | >100 | 11 | (48) | (52) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Shingrix | 323 | (16) | (19) | 268 | (24) | (26) | 44 | >100 | >100 | 11 | (48) | (52) |
| Established<br><br><br>Vaccines | 628 | (34) | (34) | 134 | (59) | (61) | 167 | (45) | (46) | 327 | 3 | 4 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Infanrix, Pediarix | 119 | (39) | (40) | 41 | (51) | (53) | 42 | (37) | (37) | 36 | (20) | (20) |
| Boostrix | 76 | (47) | (47) | 34 | (52) | (55) | 27 | (37) | (37) | 15 | (50) | (43) |
| Hepatitis | 86 | (62) | (62) | 41 | (68) | (69) | 25 | (65) | (66) | 20 | (13) | (9) |
| Rotarix | 128 | 10 | 9 | 17 | (32) | (36) | 28 | 4 | - | 83 | 30 | 31 |
| Synflorix | 103 | (4) | (5) | - | - | - | 10 | (33) | (40) | 93 | 1 | 1 |
| Priorix, Priorix Tetra, Varilrix | 54 | 8 | 8 | - | - | - | 27 | 13 | 13 | 27 | 4 | 4 |
| Cervarix | 34 | 21 | 25 | - | - | - | 5 | (17) | (17) | 29 | 32 | 36 |
| Other | 28 | (66) | (65) | 1 | (94) | (94) | 3 | (94) | (92) | 24 | (41) | (41) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Vaccines | 1,133 | (29) | (29) | 448 | (42) | (45) | 288 | (29) | (29) | 397 | (2) | - |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Vaccines turnover – six months<br>ended 30 June 2020 | ||||||||||||
| --- | ||||||||||||
| Total | US | Europe | International | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | ––––––––––––––––––––––––––––––––––––– | |||||||||
| Growth | Growth | Growth | Growth | |||||||||
| ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | ––––––––––––––––––––––– | |||||||||
| £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | £m | £% | CER% | |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Meningitis | 392 | (12) | (10) | 126 | (26) | (27) | 172 | 1 | 2 | 94 | (9) | (2) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Bexsero | 272 | (13) | (11) | 81 | (21) | (22) | 155 | (3) | (2) | 36 | (28) | (18) |
| Menveo | 78 | (18) | (17) | 45 | (34) | (35) | 14 | 75 | 75 | 19 | - | 11 |
| Other | 42 | 14 | 14 | - | - | - | 3 | - | - | 39 | 15 | 15 |
| Influenza | 36 | 13 | 22 | 2 | - | - | - | - | - | 34 | 13 | 23 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Fluarix, FluLaval | 36 | 13 | 22 | 2 | - | - | - | - | - | 34 | 13 | 23 |
| Shingles | 970 | 31 | 28 | 868 | 28 | 25 | 64 | >100 | >100 | 38 | (16) | (16) |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Shingrix | 970 | 31 | 28 | 868 | 28 | 25 | 64 | >100 | >100 | 38 | (16) | (16) |
| Established<br><br><br>Vaccines | 1,540 | (18) | (18) | 465 | (34) | (35) | 400 | (28) | (27) | 675 | 7 | 8 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Infanrix, Pediarix | 299 | (21) | (21) | 129 | (31) | (32) | 96 | (16) | (16) | 74 | (5) | (3) |
| Boostrix | 188 | (30) | (30) | 92 | (30) | (32) | 62 | (22) | (21) | 34 | (38) | (36) |
| Hepatitis | 299 | (35) | (36) | 169 | (41) | (42) | 80 | (34) | (34) | 50 | (9) | (7) |
| Rotarix | 279 | 12 | 12 | 58 | (17) | (19) | 59 | 5 | 5 | 162 | 31 | 31 |
| Synflorix | 226 | (1) | - | - | - | - | 29 | (12) | (12) | 197 | 1 | 2 |
| Priorix, Priorix Tetra, Varilrix | 111 | 6 | 8 | - | - | - | 56 | 10 | 10 | 55 | 2 | 6 |
| Cervarix | 46 | (4) | (2) | - | - | - | 9 | (18) | (18) | 37 | - | 3 |
| Other | 92 | (38) | (38) | 17 | (39) | (46) | 9 | (90) | (89) | 66 | 94 | 97 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Vaccines | 2,938 | (5) | (6) | 1,461 | (6) | (8) | 636 | (14) | (14) | 841 | 4 | 6 |
| –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | –––––––– | |
| Balance<br>sheet | ||||||||||||
| --- | ||||||||||||
| 30 June 2020<br><br><br>£m | 30 June<br>2019<br><br><br>£m | 31<br>December 2019<br><br><br>£m | ||||||||||
| --- | --- | --- | --- | |||||||||
| ASSETS | ||||||||||||
| Non-current assets | ||||||||||||
| Property,<br>plant and equipment | 10,490 | 10,385 | 10,348 | |||||||||
| Right<br>of use assets | 941 | 1,023 | 966 | |||||||||
| Goodwill | 10,998 | 7,026 | 10,562 | |||||||||
| Other<br>intangible assets | 31,263 | 20,134 | 30,955 | |||||||||
| Investments<br>in associates and joint ventures | 390 | 309 | 314 | |||||||||
| Other<br>investments | 2,174 | 1,380 | 1,837 | |||||||||
| Deferred<br>tax assets | 4,455 | 3,668 | 4,096 | |||||||||
| Derivative<br>financial instruments | 5 | 86 | 103 | |||||||||
| Other<br>non-current assets | 946 | 1,393 | 1,020 | |||||||||
| Total non-current assets | 61,662 | 45,404 | 60,201 | |||||||||
| Current assets | ||||||||||||
| Inventories | 6,396 | 5,959 | 5,947 | |||||||||
| Current<br>tax recoverable | 328 | 186 | 262 | |||||||||
| Trade<br>and other receivables | 7,168 | 6,875 | 7,202 | |||||||||
| Derivative<br>financial instruments | 421 | 211 | 421 | |||||||||
| Liquid<br>investments | 87 | 84 | 79 | |||||||||
| Cash<br>and cash equivalents | 8,166 | 4,123 | 4,707 | |||||||||
| Assets<br>held for sale | 412 | 790 | 873 | |||||||||
| Total current assets | 22,978 | 18,228 | 19,491 | |||||||||
| TOTAL ASSETS | 84,640 | 63,632 | 79,692 | |||||||||
| LIABILITIES | ||||||||||||
| Current liabilities | ||||||||||||
| Short-term<br>borrowings | (5,964) | (10,147) | (6,918) | |||||||||
| Contingent<br>consideration liabilities | (804) | (816) | (755) | |||||||||
| Trade<br>and other payables | (15,450) | (13,385) | (14,939) | |||||||||
| Derivative<br>financial instruments | (245) | (255) | (188) | |||||||||
| Current<br>tax payable | (685) | (502) | (629) | |||||||||
| Short-term<br>provisions | (776) | (674) | (621) | |||||||||
| Total current liabilities | (23,924) | (25,779) | (24,050) | |||||||||
| Non-current liabilities | ||||||||||||
| Long-term<br>borrowings | (25,726) | (23,313) | (23,590) | |||||||||
| Corporation<br>tax payable | (195) | (273) | (189) | |||||||||
| Deferred<br>tax liabilities | (3,967) | (1,233) | (3,810) | |||||||||
| Pensions<br>and other post-employment benefits | (3,999) | (3,352) | (3,457) | |||||||||
| Other<br>provisions | (814) | (625) | (670) | |||||||||
| Derivative<br>financial instruments | (24) | - | (1) | |||||||||
| Contingent<br>consideration liabilities | (5,026) | (5,212) | (4,724) | |||||||||
| Other<br>non-current liabilities | (828) | (878) | (844) | |||||||||
| Total non-current liabilities | (40,579) | (34,886) | (37,285) | |||||||||
| TOTAL LIABILITIES | (64,503) | (60,665) | (61,335) | |||||||||
| NET ASSETS | 20,137 | 2,967 | 18,357 | |||||||||
| EQUITY | ||||||||||||
| Share<br>capital | 1,346 | 1,345 | 1,346 | |||||||||
| Share<br>premium account | 3,278 | 3,157 | 3,174 | |||||||||
| Retained<br>earnings | 6,622 | (2,804) | 4,530 | |||||||||
| Other<br>reserves | 2,347 | 1,916 | 2,355 | |||||||||
| Shareholders’ equity | 13,593 | 3,614 | 11,405 | |||||||||
| Non-controlling<br>interests | 6,544 | (647) | 6,952 | |||||||||
| TOTAL EQUITY | 20,137 | 2,967 | 18,357 | |||||||||
| Statement<br>of changes in<br>equity | ||||||||||||
| --- | ||||||||||||
| Share<br><br><br>capital<br><br><br>£m | Share<br><br><br>premium<br><br><br>£m | Retained<br><br><br>earnings<br><br><br>£m | Other<br><br><br>reserves<br><br><br>£m | Shareholder’s<br><br><br>equity<br><br><br>£m | Non-controlling<br><br><br>interests<br><br><br>£m | Total<br><br><br>equity<br><br><br>£m | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | |||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| At 1<br>January 2020 | 1,346 | 3,174 | 4,530 | 2,355 | 11,405 | 6,952 | 18,357 | |||||
| Profit<br>for the period | 3,828 | 3,828 | 291 | 4,119 | ||||||||
| Other<br>comprehensive income for the period | 41 | 199 | 240 | 95 | 335 | |||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||||
| Total<br>comprehensive income for the period | 3,869 | 199 | 4,068 | 386 | 4,454 | |||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||||
| Distributions<br>to non-controlling interests | (652) | (652) | ||||||||||
| Contributions<br>from non-controlling interests | 3 | 3 | ||||||||||
| Changes<br>to non-controlling interests | (145) | (145) | ||||||||||
| Dividends<br>to shareholders | (2,085) | (2,085) | (2,085) | |||||||||
| Shares<br>issued | - | 26 | 26 | 26 | ||||||||
| Realised<br>after tax profits on disposal of equity investments | 36 | (36) | - | - | ||||||||
| Shares<br>acquired by ESOP Trusts | 78 | 361 | (439) | - | - | |||||||
| Write-down<br>on shares held by ESOP Trusts | (268) | 268 | - | - | ||||||||
| Share-based<br>incentive plans | 179 | 179 | 179 | |||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| At 30 June 2020 | 1,346 | 3,278 | 6,622 | 2,347 | 13,593 | 6,544 | 20,137 | |||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| As<br>previously reported | 1,345 | 3,091 | (2,137) | 2,061 | 4,360 | (688) | 3,672 | |||||
| Adjustment<br>to non-controlling interest | (579) | (579) | 579 | - | ||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| As<br>revised | 1,345 | 3,091 | (2,716) | 2,061 | 3,781 | (109) | 3,672 | |||||
| Implementation<br>of IFRS16 | (93) | (93) | (93) | |||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| At 1<br>January 2019, as adjusted | 1,345 | 3,091 | (2,809) | 2,061 | 3,688 | (109) | 3,579 | |||||
| Profit<br>for the period | 1,794 | 1,794 | 241 | 2,035 | ||||||||
| Other<br>comprehensive expense for the period | (519) | (55) | (574) | (10) | (584) | |||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||||
| Total<br>comprehensive income/(expense) for the period | 1,275 | (55) | 1,220 | 231 | 1,451 | |||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||||
| Distributions<br>to non-controlling interests | (196) | (196) | ||||||||||
| Changes<br>in non-controlling interests | 6 | 6 | ||||||||||
| Contributions<br>from non-controlling interests | ||||||||||||
| Dividends<br>to shareholders | (2,072) | (2,072) | (2,072) | |||||||||
| Shares<br>issued | - | 33 | 33 | 33 | ||||||||
| Realised<br>profits on disposal of equity investments | 6 | (6) | - | - | ||||||||
| Shares<br>acquired by ESOP Trusts | 33 | 295 | (328) | - | - | |||||||
| Write-down<br>on shares held by ESOP Trusts | (244) | 244 | - | - | ||||||||
| Share-based<br>incentive plans | 166 | 166 | 166 | |||||||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| At 30<br>June 2019 | 1,345 | 3,157 | (3,383) | 1,916 | 3,035 | (68) | 2,967 | |||||
| –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | –––––––––––– | ||||||
| Cash flow statement – six<br>months ended 30 June 2020 | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | --- | |||||||||
| Profit after tax | 4,119 | 2,035 | ||||||||||
| Tax on<br>profits | 357 | 524 | ||||||||||
| Share<br>of after tax profits of associates and joint ventures | (28) | (53) | ||||||||||
| Net<br>finance expense | 416 | 406 | ||||||||||
| Depreciation,<br>amortisation and other adjusting items | (971) | 1,959 | ||||||||||
| Increase<br>in working capital | (476) | (990) | ||||||||||
| Contingent<br>consideration paid | (393) | (392) | ||||||||||
| Increase/(decrease)<br>in other net liabilities (excluding contingent consideration<br>paid) | 1,251 | (603) | ||||||||||
| Cash generated from operations | 4,275 | 2,886 | ||||||||||
| Taxation<br>paid | (550) | (834) | ||||||||||
| Net cash inflow from operating activities | 3,725 | 2,052 | ||||||||||
| Cash flow from investing activities | ||||||||||||
| Purchase<br>of property, plant and equipment | (420) | (501) | ||||||||||
| Proceeds<br>from sale of property, plant and equipment | 12 | 70 | ||||||||||
| Purchase<br>of intangible assets | (326) | (438) | ||||||||||
| Proceeds<br>from sale of intangible assets | 636 | 12 | ||||||||||
| Purchase<br>of equity investments | (208) | (49) | ||||||||||
| Proceeds<br>from sale of equity investments | 2,871 | 39 | ||||||||||
| Purchase<br>of businesses, net of cash acquired | (6) | (3,641) | ||||||||||
| Contingent<br>consideration paid | (62) | (51) | ||||||||||
| Disposal<br>of businesses | 237 | 12 | ||||||||||
| Investment<br>in associates and joint ventures | (1) | (5) | ||||||||||
| Interest<br>received | 26 | 36 | ||||||||||
| Dividends<br>from associates and joint ventures | 14 | - | ||||||||||
| Net cash inflow/(outflow) from investing activities | 2,773 | (4,516) | ||||||||||
| Cash flow from financing activities | ||||||||||||
| Issue<br>of share capital | 26 | 33 | ||||||||||
| Increase<br>in short-term loans | - | 7,255 | ||||||||||
| Increase<br>in long-term loans | 2,354 | 2,603 | ||||||||||
| Repayment<br>of short-term loans | (3,018) | (4,246) | ||||||||||
| Net<br>repayment of obligations under lease liabilities | (111) | (104) | ||||||||||
| Interest<br>paid | (476) | (449) | ||||||||||
| Dividends<br>paid to shareholders | (2,085) | (2,072) | ||||||||||
| Distributions<br>to non-controlling interests | (652) | (196) | ||||||||||
| Contributions<br>from non-controlling interests | 3 | - | ||||||||||
| Other<br>financing items | 278 | (55) | ||||||||||
| Net cash (outflow)/inflow from financing activities | (3,681) | 2,769 | ||||||||||
| Increase in cash and bank overdrafts in the period | 2,817 | 305 | ||||||||||
| Cash<br>and bank overdrafts at beginning of the period | 4,831 | 4,087 | ||||||||||
| Exchange<br>adjustments | 28 | 14 | ||||||||||
| Increase<br>in cash and bank overdrafts | 2,817 | 305 | ||||||||||
| Cash and bank overdrafts at end of the period | 7,676 | 4,406 | ||||||||||
| Cash<br>and bank overdrafts at end of the period comprise: | ||||||||||||
| Cash<br>and cash equivalents | 8,166 | 4,123 | ||||||||||
| Cash<br>and cash equivalents reported in assets held for sale | 2 | 532 | ||||||||||
| 8,168 | 4,655 | |||||||||||
| Overdrafts | (492) | (249) | ||||||||||
| 7,676 | 4,406 | |||||||||||
| Segment<br>information | ||||||||||||
| --- | ||||||||||||
| Operating<br>segments are reported based on the financial information provided<br>to the Chief Executive Officer and the responsibilities of the<br>Corporate Executive Team (CET). GSK reports results under four<br>segments: Pharmaceuticals; Pharmaceuticals R&D; Vaccines and<br>Consumer Healthcare, and individual members of the CET are<br>responsible for each segment.<br><br><br><br><br><br>The<br>Pharmaceuticals R&D segment is the responsibility of the Chief<br>Scientific Officer and President, R&D and is reported as a<br>separate segment. The operating profit of this segment excludes the<br>ViiV Healthcare operating profit (including R&D expenditure)<br>that is reported within the Pharmaceuticals segment.<br><br><br><br><br><br>The<br>Group’s management reporting process allocates intra-Group<br>profit on a product sale to the market in which that sale is<br>recorded, and the profit analyses below have been presented on that<br>basis.<br><br><br><br><br><br>Corporate<br>and other unallocated turnover and costs include the results of<br>certain Consumer Healthcare products which are being held for sale<br>in a number of markets in order to meet anti-trust approval<br>requirements, together with the costs of corporate<br>functions. | ||||||||||||
| Turnover by<br>segment | ||||||||||||
| --- | ||||||||||||
| Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | Growth<br><br><br>£% | Growth<br><br><br>CER% | |||||||||
| --- | --- | --- | --- | --- | ||||||||
| Pharmaceuticals | 4,102 | 4,307 | (5) | (5) | ||||||||
| Vaccines | 1,133 | 1,585 | (29) | (29) | ||||||||
| Consumer<br>Healthcare | 2,389 | 1,917 | 25 | 25 | ||||||||
| Total<br>turnover | 7,624 | 7,809 | (2) | (3) | ||||||||
| Operating profit by segment | ||||||||||||
| --- | ||||||||||||
| Q2 2020<br><br><br>£m | Q2<br>2019<br><br><br>£m | Growth<br><br><br>£% | Growth<br><br><br>CER% | |||||||||
| --- | --- | --- | --- | --- | ||||||||
| Pharmaceuticals | 1,886 | 2,075 | (9) | (10) | ||||||||
| Pharmaceuticals<br>R&D | (910) | (819) | 11 | 9 | ||||||||
| Pharmaceuticals<br>including R&D | 976 | 1,256 | (22) | (23) | ||||||||
| Vaccines | 265 | 612 | (57) | (58) | ||||||||
| Consumer<br>Healthcare | 521 | 391 | 33 | 33 | ||||||||
| Segment<br>profit | 1,762 | 2,259 | (22) | (23) | ||||||||
| Corporate<br>and other unallocated costs | (13) | (88) | ||||||||||
| Adjusted<br>operating profit | 1,749 | 2,171 | (19) | (21) | ||||||||
| Adjusting<br>items | 1,101 | (687) | ||||||||||
| Total<br>operating profit | 2,850 | 1,484 | 92 | 90 | ||||||||
| Finance<br>income | 1 | 21 | ||||||||||
| Finance<br>costs | (229) | (237) | ||||||||||
| Share<br>of after tax profits/(losses) of associates and joint<br>ventures | 19 | (4) | ||||||||||
| Profit<br>before taxation | 2,641 | 1,264 | >100 | >100 | ||||||||
| Turnover by<br>segment | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | Growth<br><br><br>£% | Growth<br><br><br>CER% | |||||||||
| --- | --- | --- | --- | --- | ||||||||
| Pharmaceuticals | 8,498 | 8,465 | - | - | ||||||||
| Vaccines | 2,938 | 3,107 | (5) | (6) | ||||||||
| Consumer<br>Healthcare | 5,251 | 3,898 | 35 | 36 | ||||||||
| 16,687 | 15,470 | 8 | 8 | |||||||||
| Corporate<br>and other unallocated turnover | 27 | - | ||||||||||
| Total<br>turnover | 16,714 | 15,470 | 8 | 8 | ||||||||
| Operating profit by<br>segment | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | Growth<br><br><br>£% | Growth<br><br><br>CER% | |||||||||
| --- | --- | --- | --- | --- | ||||||||
| Pharmaceuticals | 3,904 | 4,043 | (3) | (4) | ||||||||
| Pharmaceuticals<br>R&D | (1,745) | (1,549) | 13 | 11 | ||||||||
| Pharmaceuticals<br>including R&D | 2,159 | 2,494 | (13) | (14) | ||||||||
| Vaccines | 1,123 | 1,226 | (8) | (10) | ||||||||
| Consumer<br>Healthcare | 1,287 | 821 | 57 | 59 | ||||||||
| Segment<br>profit | 4,569 | 4,541 | 1 | - | ||||||||
| Corporate<br>and other unallocated costs | (145) | (207) | ||||||||||
| Adjusted<br>operating profit | 4,424 | 4,334 | 2 | 2 | ||||||||
| Adjusting<br>items | 440 | (1,422) | ||||||||||
| Total<br>operating profit | 4,864 | 2,912 | 67 | 66 | ||||||||
| Finance<br>income | 42 | 55 | ||||||||||
| Finance<br>costs | (458) | (461) | ||||||||||
| Share<br>of after tax profits of associates and joint ventures | 28 | 53 | ||||||||||
| Profit<br>before taxation | 4,476 | 2,559 | 75 | 74 | ||||||||
| Legal matters<br><br><br>The Group is involved in significant legal and<br>administrative proceedings, principally product liability,<br>intellectual property, tax, anti-trust, consumer fraud and<br>governmental investigations, which are more fully described in the<br>‘Legal Proceedings’ note in the Annual Report 2019. At<br>30 June 2020, the Group’s aggregate provision for legal and<br>other disputes (not including tax matters described on page 22) was<br>£0.3 billion (31 December 2019: £0.2<br>billion).<br><br><br><br><br><br>The<br>Group may become involved in significant legal proceedings in<br>respect of which it is not possible to make a reliable estimate of<br>the expected financial effect, if any, that could result from<br>ultimate resolution of the proceedings. In these cases, the Group<br>would provide appropriate disclosures about such cases, but no<br>provision would be made.<br><br><br><br><br><br>Significant<br>developments since the date of the Annual Report 2019 are as<br>follows:<br><br><br><br><br><br>On 4<br>May 2020, the US Department of Justice informed the Group that it<br>would be closing its investigation without a recommendation of<br>further action with respect to the Group’s use of third-party<br>advisers in China. This followed the US Securities and Exchange<br>Commission’s notification to the Group on 8 March 2020 that<br>the SEC similarly was terminating its investigation into these<br>matters. Accordingly, this matter is now concluded.<br><br><br><br><br><br>On 18<br>June 2020, the Group received a Civil Investigative Demand (CID)<br>from the US Department of Justice (DOJ) seeking information related<br>to Zantac pursuant to the<br>False Claims Act. The Group is co-operating with the DOJ to provide<br>this information. Additionally, on 18 June 2020, the New Mexico<br>Attorney General filed a lawsuit against multiple defendants,<br>including GSK, relating to Zantac and other products containing<br>ranitidine.<br><br><br><br><br><br>The<br>ultimate liability for legal claims may vary from the amounts<br>provided and is dependent upon the outcome of litigation<br>proceedings, investigations and possible settlement negotiations.<br>The Group’s position could change over time, and, therefore,<br>there can be no assurance that any losses that result from the<br>outcome of any legal proceedings will not exceed by a material<br>amount the amount of the provisions reported in the Group’s<br>financial accounts. | ||||||||||||
| --- | ||||||||||||
| Additional<br>information | ||||||||||||
| --- | ||||||||||||
| Accounting policies and basis of preparation | ||||||||||||
| --- | ||||||||||||
| This<br>unaudited Results Announcement contains condensed financial<br>information for the three and six months ended 30 June 2020, is prepared in accordance with<br>the Disclosure and Transparency Rules (DTR) of the Financial<br>Conduct Authority and IAS 34 ‘Interim financial<br>reporting’ and should be read in conjunction with the Annual<br>Report 2019, which was prepared in accordance with<br>International Financial Reporting Standards as adopted by the<br>European Union. This Results Announcement has been prepared<br>applying consistent accounting policies to those applied by the<br>Group in the Annual Report 2019. | ||||||||||||
| This<br>Results Announcement does not constitute statutory accounts of the<br>Group within the meaning of sections 434(3) and 435(3) of the<br>Companies Act 2006. The full Group accounts for 2019 were published<br>in the Annual Report 2019, which has been delivered to the<br>Registrar of Companies and on which the report of the independent<br>auditor was unqualified and did not contain a statement under<br>section 498 of the Companies Act 2006. | ||||||||||||
| --- | ||||||||||||
| Exchange rates | ||||||||||||
| --- | ||||||||||||
| GSK<br>operates in many countries, and earns revenues and incurs costs in<br>many currencies. The results of the Group, as reported in Sterling,<br>are affected by movements in exchange rates between Sterling and<br>other currencies. Average exchange rates, as modified by specific<br>transaction rates for large transactions, prevailing during the<br>period, are used to translate the results and cash flows of<br>overseas subsidiaries, associates and joint ventures into Sterling.<br>Period-end rates are used to translate the net assets of those<br>entities. The currencies which most influenced these translations<br>and the relevant exchange rates were: | ||||||||||||
| Q2 2020 | Q2<br>2019 | H1 2020 | H1<br>2019 | 2019 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | ||||||
| Average<br>rates: | ||||||||||||
| US$/£ | 1.25 | 1.28 | 1.27 | 1.29 | 1.28 | |||||||
| Euro/£ | 1.13 | 1.14 | 1.15 | 1.14 | 1.14 | |||||||
| Yen/£ | 134 | 140 | 137 | 142 | 139 | |||||||
| Period-end<br>rates: | ||||||||||||
| US$/£ | 1.23 | 1.27 | 1.23 | 1.27 | 1.32 | |||||||
| Euro/£ | 1.10 | 1.12 | 1.10 | 1.12 | 1.18 | |||||||
| Yen/£ | 132 | 137 | 132 | 137 | 143 | |||||||
| During Q2 2020 average Sterling exchange rates were weaker against<br>the US Dollar, the Euro and Yen compared with the same period in<br>2019. During the six months ended 30 June 2020, average Sterling<br>exchange rates were weaker against the US Dollar and the Yen but<br>stronger against the Euro. Period-end Sterling exchange rates were<br>weaker against the US Dollar, the Euro and Yen compared with the<br>2019 period-end rates. | ||||||||||||
| --- | ||||||||||||
| Net assets | ||||||||||||
| --- | ||||||||||||
| The<br>book value of net assets increased by £1,780 million from<br>£18,357 million at 31 December 2019 to £20,137 million at<br>30 June 2020. This primarily reflected the Total profit for the<br>period exceeding the re-measurement losses on defined benefit plans<br>and the dividends paid during the period.<br><br><br><br><br><br>The<br>carrying value of investments in associates and joint ventures at<br>30 June 2020 was £390 million (31 December 2019: £314<br>million), with a market value of £445 million (31 December<br>2019: £396 million).<br><br><br><br><br><br>At 30<br>June 2020, the net deficit on the Group’s pension plans was<br>£2,447 million compared with £1,921 million at 31<br>December 2019. The increase in the net deficit primarily arose from<br>decreases in the rates used to discount UK pension liabilities from<br>2.0% to 1.5%, and US pension liabilities from 3.2% to 2.6%, partly<br>offset by higher UK assets and a decrease in the UK inflation rate<br>from 3.0% to 2.9%. The Group continues to monitor and review the<br>pension asset portfolios in response to the pandemic given the<br>elevated uncertainty inherent for valuations particularly for the<br>property asset class.<br><br><br><br><br><br>The<br>estimated present value of the potential redemption amount of the<br>Pfizer put option related to ViiV Healthcare, recorded in Other<br>payables in Current liabilities, was £1,069 million (31<br>December 2019: £1,011 million).<br><br><br><br><br><br>During<br>the quarter, the Group issued an exchangeable bond giving the<br>investors the right to exchange their notes into underlying shares<br>in Theravance Biopharma, Inc. The par value of the exchangeable<br>bond was $280 million and the net proceeds received were $300<br>million (£242 million).<br><br><br><br><br><br>Contingent<br>consideration amounted to £5,830 million at 30 June 2020 (31<br>December 2019: £5,479 million), of which £5,436 million<br>(31 December 2019: £5,103 million) represented the estimated<br>present value of amounts payable to Shionogi relating to ViiV<br>Healthcare and £349 million (31 December 2019: £339<br>million) represented the estimated present value of contingent<br>consideration payable to Novartis related to the Vaccines<br>acquisition.<br><br><br><br><br><br>Of the<br>contingent consideration payable (on a post-tax basis) to Shionogi<br>at 30 June 2020, £768 million (31 December 2019: £730<br>million) is expected to be paid within one year. | ||||||||||||
| Movements in contingent consideration are as follows: | ||||||||||||
| --- | ||||||||||||
| H1<br>2020 | ViiV Healthcare<br><br><br>£m | Group<br><br><br>£m | ||||||||||
| --- | --- | --- | ||||||||||
| Contingent<br>consideration at beginning of the period | 5,103 | 5,479 | ||||||||||
| Re-measurement<br>through income statement | 778 | 806 | ||||||||||
| Cash<br>payments: operating cash flows | (388) | (393) | ||||||||||
| Cash<br>payments: investing activities | (57) | (62) | ||||||||||
| Contingent<br>consideration at end of the period | 5,436 | 5,830 | ||||||||||
| H1<br>2019 | ViiV<br>Healthcare<br><br><br>£m | Group<br><br><br>£m | ||||||||||
| --- | --- | --- | ||||||||||
| Contingent<br>consideration at beginning of the period | 5,937 | 6,286 | ||||||||||
| Re-measurement<br>through income statement | 166 | 185 | ||||||||||
| Cash<br>payments: operating cash flows | (390) | (392) | ||||||||||
| Cash<br>payments: investing activities | (49) | (51) | ||||||||||
| Contingent<br>consideration at end of the period | 5,664 | 6,028 | ||||||||||
| Contingent liabilities | ||||||||||||
| --- | ||||||||||||
| There<br>were contingent liabilities at 30 June 2020 in respect of<br>guarantees and indemnities entered into as part of the ordinary<br>course of the Group’s business. No material losses are<br>expected to arise from such contingent liabilities. Provision is<br>made for the outcome of legal and tax disputes where it is both<br>probable that the Group will suffer an outflow of funds and it is<br>possible to make a reliable estimate of that outflow. Descriptions<br>of the significant legal disputes to which the Group is a party are<br>set out on page 58. | ||||||||||||
| Business acquisitions and disposals | ||||||||||||
| --- | ||||||||||||
| On 1<br>April 2020, GSK completed its divestment of Horlicks and other Consumer Healthcare<br>nutrition products in India and a number of other countries<br>(excluding Bangladesh) to Unilever and the merger of GSK’s<br>Indian listed Consumer Healthcare entity with Hindustan Unilever,<br>an Indian listed public company. GSK received a 5.7% equity stake<br>in Hindustan Unilever and approximately £395 million in<br>cash.<br><br><br><br><br><br>The<br>divestment in Bangladesh closed on 30 June 2020. Total cash<br>consideration received was approximately £177 million. GSK<br>disposed of its equity stake in Hindustan Unilever during May<br>2020.<br><br><br><br><br><br>The<br>cash divested for the disposal of Horlicks and other Consumer Healthcare<br>nutrition products in India and a number of other countries was<br>approximately £478 million. | ||||||||||||
| Financial instruments fair value disclosures | ||||||||||||
| --- | ||||||||||||
| The following tables categorise the Group’s financial assets<br>and liabilities held at fair value by the valuation methodology<br>applied in determining their fair value. Where possible, quoted<br>prices in active markets are used (Level 1). Where such prices are<br>not available, the asset or liability is classified as Level 2,<br>provided all significant inputs to the valuation model used are<br>based on observable market data. If one or more of the significant<br>inputs to the valuation model is not based on observable market<br>data, the instrument is classified as Level 3. Other investments<br>classified as Level 3 in the tables below comprise equity<br>investments in unlisted entities with which the Group has entered<br>into research collaborations and also investments in emerging life<br>science companies. | ||||||||||||
| At 30 June 2020 | Level 1<br><br><br>£m | Level 2<br><br><br>£m | Level 3<br><br><br>£m | Total<br><br><br>£m | ||||||||
| --- | --- | --- | --- | --- | ||||||||
| Financial assets at fair value | ||||||||||||
| Financial<br>assets at fair value through other comprehensive income<br>(FVTOCI): | ||||||||||||
| Other investments designated at FVTOCI | 1,266 | - | 848 | 2,114 | ||||||||
| Trade and other receivables | - | 1,592 | - | 1,592 | ||||||||
| Financial<br>assets mandatorily at fair value through profit or loss<br>(FVTPL): | ||||||||||||
| Other investments | - | - | 60 | 60 | ||||||||
| Other non-current assets | - | 756 | 43 | 799 | ||||||||
| Trade and other receivables | - | 68 | - | 68 | ||||||||
| Held for trading derivatives that are not in a<br>designated and effective hedging relationship | - | 292 | 5 | 297 | ||||||||
| Cash and cash equivalents | 5,344 | - | - | 5,344 | ||||||||
| Derivatives designated and effective as hedging<br>instruments | - | 129 | - | 129 | ||||||||
| 6,610 | 2,837 | 956 | 10,403 | |||||||||
| Financial liabilities at fair value | ||||||||||||
| --- | --- | --- | --- | --- | ||||||||
| Financial<br>liabilities mandatorily at fair value through profit or loss (FVTPL): | ||||||||||||
| Contingent consideration liabilities | - | - | (5,830) | (5,830) | ||||||||
| Held for trading derivatives that are not in a<br>designated and effective hedging relationship | - | (93) | (24) | (117) | ||||||||
| Derivatives designated and effective as hedging<br>instruments. | - | (152) | - | (152) | ||||||||
| - | (245) | (5,854) | (6,099) | |||||||||
| At 31 December 2019 | Level 1<br><br><br>£m | Level 2<br><br><br>£m | Level 3<br><br><br>£m | Total<br><br><br>£m | ||||||||
| --- | --- | --- | --- | --- | ||||||||
| Financial assets at fair value | ||||||||||||
| Financial assets at fair value through other comprehensive income<br>(FVTOCI): | ||||||||||||
| Other investments designated at FVTOCI | 1,128 | - | 653 | 1,781 | ||||||||
| Trade and other receivables | - | 1,665 | - | 1,665 | ||||||||
| Financial assets mandatorily measured at fair value through profit<br>or loss (FVTPL): | ||||||||||||
| Other investments | - | - | 56 | 56 | ||||||||
| Other non-current assets | - | 743 | 44 | 787 | ||||||||
| Trade and other receivables | - | 44 | - | 44 | ||||||||
| Held for trading derivatives that are not in a<br>designated and effective hedging relationship | - | 353 | 4 | 357 | ||||||||
| Cash and cash equivalents | 2,142 | - | - | 2,142 | ||||||||
| Derivatives designated and effective as hedging<br>instruments | - | 167 | - | 167 | ||||||||
| 3,270 | 2,972 | 757 | 6,999 | |||||||||
| At 31 December 2019 | Level 1<br><br><br>£m | Level 2<br><br><br>£m | Level 3<br><br><br>£m | Total<br><br><br>£m | ||||||||
| --- | --- | --- | --- | --- | ||||||||
| Financial liabilities at fair value | ||||||||||||
| Financial<br>liabilities mandatorily at fair value through profit or loss<br>(FVTPL): | ||||||||||||
| Contingent consideration liabilities | - | - | (5,479) | (5,479) | ||||||||
| Held for trading derivatives that are not in a<br>designated and effective hedging relationship | - | (141) | - | (141) | ||||||||
| Derivatives designated and effective as hedging<br>instruments | - | (48) | - | (48) | ||||||||
| - | (189) | (5,479) | (5,668) | |||||||||
| Movements in the six months to 30 June 2020 and the six months to<br>30 June 2019 for financial instruments measured using Level 3<br>valuation methods are presented below: | ||||||||||||
| --- | ||||||||||||
| Financial assets<br><br><br>£m | Financial liabilities<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| At 1 January 2020 | 757 | (5,479) | ||||||||||
| Gains/(losses) recognised in the income statement | 6 | (806) | ||||||||||
| Gains recognised in other comprehensive income | 151 | - | ||||||||||
| Additions | 52 | (24) | ||||||||||
| Disposals | (10) | - | ||||||||||
| Payments in the period | - | 455 | ||||||||||
| At 30 June 2020 | 956 | (5,854) | ||||||||||
| At 1 January 2019 | 754 | (6,286) | ||||||||||
| --- | --- | --- | ||||||||||
| Gains/(losses) recognised in the income statement | (13) | (185) | ||||||||||
| Losses recognised in other comprehensive income | (40) | - | ||||||||||
| Additions | 53 | - | ||||||||||
| Disposals | (15) | - | ||||||||||
| Payments in the period | (42) | 443 | ||||||||||
| Transfers from Level 3 | (37) | - | ||||||||||
| Exchange | 7 | - | ||||||||||
| At 30 June 2019 | 667 | (6,028) | ||||||||||
| Net losses of £800 million (H1 2019: net losses of £198<br>million) reported in other operating income and net gains of<br>£151 million (H1 2019: net losses of £43 million)<br>reported in other comprehensive income were attributable to Level 3<br>financial instruments held at the end of the period.<br><br><br><br><br><br>Financial liabilities measured using Level 3 valuation methods at<br>30 June included £5,436 million of contingent consideration<br>for the acquisition in 2012 of the former Shionogi-ViiV Healthcare<br>joint venture and £349 million of contingent consideration for<br>the acquisition of the Novartis Vaccines business in 2015.<br>Contingent consideration is expected to be paid over a number of<br>years and will vary in line with the future performance of<br>specified products, the achievement of certain milestone targets<br>and movements in certain foreign currencies. The financial<br>liabilities are measured at the present value of expected future<br>cash flows, the most significant inputs to the valuation models<br>being future sales forecasts, the discount rate, the Sterling/US<br>Dollar exchange rate and the probability of success in achieving<br>milestone targets. | ||||||||||||
| --- | ||||||||||||
| The table below shows, on an indicative basis, the income statement<br>and balance sheet sensitivity to reasonably possible changes in key<br>inputs to the valuation of the largest contingent consideration<br>liabilities. | ||||||||||||
| --- | ||||||||||||
| Shionogi-<br><br><br>ViiV Healthcare | Novartis<br><br><br>Vaccines | |||||||||||
| --- | --- | --- | ||||||||||
| Increase/(decrease) in financial liability | £m | £m | ||||||||||
| 10% increase in sales forecasts | 545 | 68 | ||||||||||
| 10% decrease in sales forecasts | (544) | (68) | ||||||||||
| 1% (100 basis points) increase in discount rate | (209) | (23) | ||||||||||
| 1% (100 basis points) decrease in discount rate | 224 | 27 | ||||||||||
| 5% increase in probability of milestone success | 8 | |||||||||||
| 5% decrease in probability of milestone success | (8) | |||||||||||
| 10 cent appreciation of US Dollar | 350 | (10) | ||||||||||
| 10 cent depreciation of US Dollar | (297) | 9 | ||||||||||
| 10 cent appreciation of Euro | 125 | 30 | ||||||||||
| 10 cent depreciation of Euro | (103) | (25) | ||||||||||
| The Group transfers financial instruments between different levels<br>in the fair value hierarchy when, as a result of an event or change<br>in circumstances, the valuation methodology applied in determining<br>their fair values alters in such a way that it meets the definition<br>of a different level. There were no transfers between the Level 1<br>and Level 2 fair value measurement categories and no transfers to<br>or from the Level 3 category in the period. Transfers from Level 3<br>in the six months to 30 June 2019 related to equity investments in<br>companies which were listed on stock exchanges during that<br>period. | ||||||||||||
| --- | ||||||||||||
| The following methods and assumptions were used to measure the fair<br>value of the significant financial instruments carried at fair<br>value on the balance sheet: | ||||||||||||
| --- | --- | |||||||||||
| ● | Cash<br>and cash equivalents carried at fair value – based on net<br>asset value of the funds | |||||||||||
| ● | Other<br>investments – equity investments traded in an active market<br>determined by reference to the relevant stock exchange quoted bid<br>price; other equity investments determined by reference to the<br>current market value of similar instruments, recent financing<br>rounds or the discounted cash flows of the underlying net<br>assets | |||||||||||
| ● | Contingent<br>consideration for business acquisitions and divestments –<br>based on present values of expected future cash flows | |||||||||||
| ● | Interest<br>rate swaps, foreign exchange forward contracts, swaps and options<br>– based on the present value of contractual cash flows or<br>option valuation models using market-sourced data (exchange rates<br>or interest rates) at the balance sheet date | |||||||||||
| ● | Company-owned<br>life insurance policies – based on cash surrender<br>value | |||||||||||
| ● | Trade<br>receivables carried at fair value – based on invoiced<br>amount. | |||||||||||
| There are no material differences between the carrying value of the<br>Group's other financial assets and liabilities and their estimated<br>fair values, with the exception of bonds, for which the carrying<br>values and fair values are set out in the table below: | ||||||||||||
| --- | ||||||||||||
| 30 June 2020 | 31 December 2019 | |||||||||||
| --- | --- | --- | --- | --- | ||||||||
| Carrying<br><br><br>value<br><br><br>£m | Fair<br><br><br>value<br><br><br>£m | Carrying<br><br><br>value<br><br><br>£m | Fair<br><br><br>value<br><br><br>£m | |||||||||
| Bonds in a designated hedging relationship | (9,728) | (9,982) | (8,636) | (9,085) | ||||||||
| Other bonds | (17,718) | (22,365) | (15,582) | (19,048) | ||||||||
| (27,446) | (32,347) | (24,218) | (28,133) | |||||||||
| The following methods and assumptions are used to estimate the fair<br>values of financial assets and liabilities which are not measured<br>at fair value on the balance sheet: | ||||||||||||
| --- | --- | |||||||||||
| ● | Liquid<br>investments – approximates to the carrying<br>amount | |||||||||||
| ● | Cash<br>and cash equivalents carried at amortised cost – approximates<br>to the carrying amount | |||||||||||
| ● | Short-term<br>loans, overdrafts and commercial paper – approximates to the<br>carrying amount because of the short maturity of these<br>instruments | |||||||||||
| ● | Long-term<br>loans – based on quoted market prices (a Level 1 fair value<br>measurement) in the case of European and US Medium Term Notes and<br>other fixed rate borrowings; approximates to the carrying amount in<br>the case of other fixed rate borrowings and floating rate<br>bank loans | |||||||||||
| ● | Receivables<br>and payables, including put options, carried at amortised cost<br>– approximates to the carrying amount | |||||||||||
| ● | Lease<br>obligations – approximates to the carrying<br>amount. | |||||||||||
| Put option<br><br><br>Other<br>payables in Current liabilities includes the present value of the<br>expected redemption amount of the Pfizer put option over its<br>non-controlling interest in ViiV Healthcare of £1,069 million.<br>This reflects a number of assumptions around future sales and<br>profit forecasts, multiples and forecast exchange rates. The<br>forecast exchange rates used are consistent with market rates at 30<br>June 2020.<br><br><br><br><br><br>The table below shows on an indicative basis the income statement<br>and balance sheet sensitivity to reasonably possible changes in the<br>key inputs to the measurement of this liability. | ||||||||||||
| --- | ||||||||||||
| Increase/(decrease) in financial liability | ViiV<br>Healthcare<br><br><br>put<br>option<br><br><br>£m | |||||||||||
| --- | --- | |||||||||||
| 10%<br>increase in sales forecasts | 130 | |||||||||||
| 10%<br>decrease in sales forecasts | (129) | |||||||||||
| 1% (100<br>basis points) increase in discount rate | (46) | |||||||||||
| 1% (100<br>basis points) decrease in discount rate | 50 | |||||||||||
| Reconciliation of cash flow to<br>movements in net debt | ||||||||||||
| --- | ||||||||||||
| H1 2020<br><br><br>£m | H1<br>2019<br><br><br>£m | |||||||||||
| --- | --- | --- | ||||||||||
| Net<br>debt, as previously reported | (25,215) | (21,621) | ||||||||||
| Implementation<br>of IFRS 16 | - | (1,303) | ||||||||||
| Net<br>debt at beginning of the period, as adjusted | (25,215) | (22,924) | ||||||||||
| Increase<br>in cash and bank overdrafts | 2,817 | 305 | ||||||||||
| Net<br>decrease/(increase) in short-term loans | 3,018 | (3,009) | ||||||||||
| Increase<br>in long-term loans | (2,354) | (2,603) | ||||||||||
| Net<br>repayment of obligations under lease liabilities | 111 | 104 | ||||||||||
| Debt of<br>subsidiary undertakings acquired | - | (482) | ||||||||||
| Exchange<br>adjustments | (1,769) | (86) | ||||||||||
| Other<br>non-cash movements | (43) | (26) | ||||||||||
| Decrease/(increase)<br>in net debt | 1,780 | (5,797) | ||||||||||
| Net<br>debt at end of the period | (23,435) | (28,721) | ||||||||||
| Net debt<br>analysis | ||||||||||||
| --- | ||||||||||||
| 30 June 2020<br><br><br>£m | 30 June<br>2019<br><br><br>£m | 31<br>December 2019<br><br><br>£m | ||||||||||
| --- | --- | --- | --- | |||||||||
| Liquid<br>investments | 87 | 84 | 79 | |||||||||
| Cash<br>and cash equivalents | 8,166 | 4,123 | 4,707 | |||||||||
| Cash<br>and cash equivalents reported in assets<br><br><br>held<br>for sale | 2 | 532 | 507 | |||||||||
| Short-term<br>borrowings | (5,964) | (10,147) | (6,918) | |||||||||
| Long-term<br>borrowings | (25,726) | (23,313) | (23,590) | |||||||||
| Net<br>debt at end of the period | (23,435) | (28,721) | (25,215) | |||||||||
| Free cash flow<br>reconciliation | ||||||||||||
| --- | ||||||||||||
| Q2 2020<br><br><br>£m | H1<br>2020<br><br><br>£m | H1<br>2019<br><br><br>£m | ||||||||||
| --- | --- | --- | --- | |||||||||
| Net<br>cash inflow from operating activities | 2,760 | 3,725 | 2,052 | |||||||||
| Purchase<br>of property, plant and equipment | (223) | (420) | (501) | |||||||||
| Proceeds<br>from sale of property, plant and equipment | 6 | 12 | 70 | |||||||||
| Purchase<br>of intangible assets | (179) | (326) | (438) | |||||||||
| Proceeds<br>from disposals of intangible assets | 523 | 636 | 12 | |||||||||
| Net<br>finance costs | (372) | (450) | (413) | |||||||||
| Dividends<br>from joint ventures and associates | - | 14 | - | |||||||||
| Contingent<br>consideration paid (reported in investing activities) | (33) | (62) | (51) | |||||||||
| Distributions<br>to non-controlling interests | (533) | (652) | (196) | |||||||||
| Contributions<br>from non-controlling interests | - | 3 | - | |||||||||
| Free<br>cash flow | 1,949 | 2,480 | 535 | |||||||||
| Principal risks and<br>uncertainties<br><br><br>The<br>principal risks and uncertainties affecting the Group are those<br>described under the headings below. These are detailed in the<br>‘Principal risks and uncertainties’ section of the<br>Annual Report 2019. | ||||||||||||
| --- | ||||||||||||
| Patient<br>safety | Failure<br>to appropriately collect, review, follow up, or report human safety<br>information, including adverse events from all potential sources,<br>and to act on any relevant findings in a timely<br>manner. | |||||||||||
| --- | --- | |||||||||||
| Product<br>quality | Failure<br>by GSK, its contractors or suppliers to ensure appropriate controls<br>and governance of quality in product development; compliance with<br>good manufacturing practice or good distribution practice<br>regulations in commercial, clinical trials, manufacturing and<br>distribution activities; compliance with the terms of GSK product<br>licences and supporting regulatory activities. | |||||||||||
| Financial<br>controls and reporting | Failure<br>to comply with current tax laws or incurring significant losses due<br>to treasury activities; failure to report accurate financial<br>information in compliance with accounting standards and applicable<br>legislation. | |||||||||||
| Anti-bribery<br>and corruption | The<br>risk comprises five sub-risk areas: bribery of public officials by<br>GSK; bribery of commercial and other non-public entities by GSK;<br>bribery by third parties acting on behalf of GSK; GSK employees<br>receiving and/or requesting bribes and/or other undue personal<br>benefit; other corruption-non-compliance with laws and regulations<br>related to money laundering or facilitation of tax evasion by third<br>parties/clients/partners. | |||||||||||
| Commercial<br>practices | Failure<br>to engage in commercial activities that are consistent with the<br>letter and spirit of the law, industry or the Group’s<br>requirements relating to marketing and communications about our<br>medicines and associated therapeutic areas; appropriate<br>interactions with healthcare professionals and patients, and<br>legitimate and transparent transfer of value. | |||||||||||
| Privacy | Failure<br>to collect, secure, use and destroy personal information in<br>accordance with applicable data privacy laws. | |||||||||||
| Research<br>practices | Failure<br>to adequately conduct ethical and sound pre-clinical and clinical<br>research. In addition, failure to engage in scientific activities<br>that are consistent with the letter and spirit of the law,<br>industry, or the Group’s requirements. It comprises the<br>following sub-risks: non-clinical and laboratory research; human<br>subject research; data integrity; care, welfare and treatment of<br>animals; human biological samples management; data disclosure;<br>regulatory filings and engagement; scientific engagement and<br>intellectual property. | |||||||||||
| Third<br>party oversight risk | The<br>risk that our third parties fail to meet their contractual,<br>regulatory or ethical obligations resulting in significant<br>operational, reputational, legal and financial risk for GSK, and in<br>some cases our employees directly. | |||||||||||
| Environment,<br>health & safety and sustainability (EHSS) | Failure<br>in management of: execution of hazardous activities; GSK’s<br>physical assets and infrastructure; handling and processing of<br>hazardous chemicals and biological agents; control of releases of<br>substances harmful to the environment in both the short and long<br>term, leading to incidents which could disrupt our R&D and<br>supply activities’ harm employees, harm the communities we<br>operate in and harm the environment and its longer-term<br>sustainability. | |||||||||||
| Information<br>security | The<br>risk that unauthorised disclosure, theft, unavailability or<br>corruption of GSK’s information or key information systems<br>may lead to harm to our patients, workforce and customers,<br>disruption to our business and/or loss of commercial or strategic<br>advantage, damage to our reputation or regulatory<br>sanction. | |||||||||||
| Supply<br>continuity | Failure<br>to deliver a continuous supply of compliant finished product;<br>inability to respond effectively to a crisis incident in a timely<br>manner to recover and sustain critical operations. | |||||||||||
| COVID-19 pandemic<br><br><br>The<br>potential impact of the COVID-19 pandemic on GSK’s trading<br>performance and all our Principal risks has been assessed with<br>mitigation plans put in place. Up to the date of this report, the<br>pandemic, has as anticipated, impacted the Group performance during<br>the first half of 2020 primarily in demand for Vaccines as a result<br>of containment measures impacting customers’ ability and<br>willingness to access vaccination services across all regions. We<br>continue to monitor the situation closely, as this is clearly a<br>very dynamic and uncertain situation, with the ultimate severity,<br>duration and impact unknown at this point including the potential<br>impacts on trading results, our clinical trials, our supply<br>continuity and our employees. The situation could change at any<br>time and there can be no assurance that COVID-19 will not have a<br>material adverse impact on the future results of the<br>Group. | ||||||||||||
| --- | ||||||||||||
| Reporting definitions | ||||||||||||
| --- | ||||||||||||
| Total and Adjusted results<br><br><br>Total<br>reported results represent the Group’s overall<br>performance.<br><br><br><br><br><br>GSK<br>also uses a number of adjusted, non-IFRS, measures to report the<br>performance of its business. Adjusted results and other non-IFRS<br>measures may be considered in addition to, but not as a substitute<br>for or superior to, information presented in accordance with IFRS.<br>Adjusted results are defined on page 10 and other non-IFRS measures<br>are defined below.<br><br><br><br><br><br>Free cash flow<br><br><br>Free<br>cash flow is defined as the net cash inflow from operating<br>activities less capital expenditure on property, plant and<br>equipment and intangible assets, contingent consideration payments,<br>net finance costs, and dividends paid to non-controlling interests<br>plus proceeds from the sale of property, plant and equipment and<br>intangible assets, and dividends received from joint ventures and<br>associates. It is used by management for planning and reporting<br>purposes and in discussions with and presentations to investment<br>analysts and rating agencies. Free cash flow growth is calculated<br>on a reported basis. A reconciliation of net cash inflow from<br>operations to free cash flow is set out on page 66.<br><br><br><br><br><br>Free cash flow conversion<br><br><br>Free<br>cash flow conversion is free cash flow as a percentage of<br>earnings.<br><br><br><br><br><br>Working capital<br><br><br>Working<br>capital represents inventory and trade receivables less trade<br>payables.<br><br><br><br><br><br>CER and AER growth<br><br><br>In<br>order to illustrate underlying performance, it is the Group’s<br>practice to discuss its results in terms of constant exchange rate<br>(CER) growth. This represents growth calculated as if the exchange<br>rates used to determine the results of overseas companies in<br>Sterling had remained unchanged from those used in the comparative<br>period. CER% represents growth at constant exchange rates. £%<br>or AER% represents growth at actual exchange rates.<br><br><br><br><br><br>Pro-forma growth<br><br><br>The<br>acquisition of the Pfizer consumer healthcare business completed on<br>31 July 2019 and so GSK’s reported results for Q2 2020<br>include three months of results of the former Pfizer consumer<br>healthcare business from 1 April 2020.<br><br><br><br><br><br>The<br>Group has presented pro-forma growth rates at CER for turnover,<br>Adjusted operating profit and operating profit by business taking<br>account of this transaction. Pro-forma growth rates at CER for the<br>quarter are calculated comparing reported results for Q2 2020,<br>calculated applying the exchange rates used in the comparative<br>period, with the results for Q2 2019 adjusted to include the<br>equivalent three months of results of the former Pfizer consumer<br>healthcare business during Q2 2019, as consolidated (in US$) and<br>included in Pfizer’s US GAAP results. Similarly, pro-forma<br>growth rates at CER for the six months to 30 June 2020 are<br>calculated comparing reported results for the six months to 30 June<br>2020, calculated applying the exchange rates used in the<br>comparative period, with the results for the six months to 30 June<br>2019, adjusted to include the equivalent six months of results of<br>the former Pfizer consumer healthcare business, as consolidated (in<br>US$) and included in Pfizer’s US GAAP results. | ||||||||||||
| --- | ||||||||||||
| Brand names and partner acknowledgements<br><br><br>Brand<br>names appearing in italics throughout this document are trademarks<br>of GSK or associated companies or used under licence by the<br>Group. | ||||||||||||
| --- | ||||||||||||
| Outlook, assumptions and cautionary statements | ||||||||||||
| --- | ||||||||||||
| 2020 guidance<br><br><br>While we are maintaining our 2020 Adjusted EPS guidance, there<br>remain notable risks to business performance over the balance of<br>the year. In particular, the outcome is dependent on the timing of<br>a recovery in vaccination rates, particularly in the US, which we<br>anticipate in the third quarter. If we were to experience a delay<br>in this recovery we could see a significant impact in 2020. In the<br>case of, for example, a three month delay, the impact on adjusted<br>EPS would be up to 5 percentage points.<br><br><br><br><br><br>2016-2020 outlook<br><br><br>In May<br>2015, GSK announced that it expected Group sales to grow at CER at<br>a low-to-mid single digits percentage CAGR and Adjusted EPS to grow<br>at CER at a mid-to-high single digit percentage CAGR for the period<br>2016-2020. On 3 December 2018, GSK announced that it continued to<br>expect to deliver on its previously published Group outlooks to<br>2020, but, following the acquisition of Tesaro, expected Adjusted<br>EPS growth at CER for the period 2016-2020 to be at the bottom end<br>of the mid-to-high single digit percentage CAGR range. These<br>outlooks are based on 2015 exchange rates.<br><br><br><br><br><br>Assumptions related to 2020 guidance and 2016-2020<br>outlook<br><br><br>In<br>outlining the expectations for 2020 and the five-year period<br>2016-2020, the Group has made certain assumptions about the<br>healthcare sector, the different markets in which the Group<br>operates and the delivery of revenues and financial benefits from<br>its current portfolio, pipeline and restructuring<br>programmes.<br><br><br><br><br><br>For the<br>Group specifically, over the period to the end of 2020, GSK expects<br>further declines in sales of Seretide/Advair. The introduction of a<br>generic alternative to Advair in the US has been factored into<br>the Group’s assessment of its future performance. The Group<br>assumes no premature loss of exclusivity for other key products<br>over the period.<br><br><br><br><br><br>The<br>assumptions for the Group’s revenue, earnings and dividend<br>expectations assume no material interruptions to supply of the<br>Group’s products, no material mergers, acquisitions or<br>disposals, except for the acquisition of Tesaro, the divestment of<br>Horlicks and other Consumer<br>Healthcare products to Unilever and the formation of a new Consumer<br>Healthcare Joint Venture with Pfizer, all announced in December<br>2018, no material litigation or investigation costs for the Company<br>(save for those that are already recognised or for which provisions<br>have been made), no share repurchases by the Company, and no change<br>in the Group’s shareholdings in ViiV Healthcare. The<br>assumptions also assumed no material changes in the macro-economic<br>and healthcare environment over the period. The 2020 guidance and<br>2016-2020 outlook have factored in all divestments and product<br>exits since 2015, including the divestment and exit of more than<br>130 non-core tail brands (£0.5 billion in annual sales) as<br>announced on 26 July 2017 and the product divestments planned in<br>connection with the formation of the Consumer Healthcare Joint<br>Venture with Pfizer.<br><br><br><br><br><br>The<br>Group’s expectations assume successful delivery of the<br>Group’s integration and restructuring plans over the period<br>2016-2020, including the extension and enhancement to the combined<br>programme announced on 26 July 2017, the new Major restructuring<br>plan announced on 25 July 2018, the Consumer Healthcare Joint<br>Venture integration programme and the new Separation Preparation<br>programme. They also assume that the integration and investment<br>programmes following the Tesaro acquisition and the Consumer<br>Healthcare Joint Venture with Pfizer over this period are delivered<br>successfully. Material costs for investment in new product launches<br>and R&D have been factored into the expectations given. Given<br>the potential development options in the Group’s pipeline,<br>the outlook may be affected by additional data-driven R&D<br>investment decisions. The expectations are given on a constant<br>currency basis (2016-2020 outlook at 2015 CER).<br><br><br><br><br><br>Assumptions and cautionary statement regarding forward-looking<br>statements<br><br><br>The<br>Group’s management believes that the assumptions outlined<br>above are reasonable, and that the aspirational targets described<br>in this report are achievable based on those assumptions. However,<br>given the longer term nature of these expectations and targets,<br>they are subject to greater uncertainty, including potential<br>material impacts if the above assumptions are not realised, and<br>other material impacts related to foreign exchange fluctuations,<br>macro-economic activity, the impact of outbreaks, epidemics or<br>pandemics, such as the COVID-19 pandemic and ongoing challenges and<br>uncertainties posed by the COVID-19 pandemic for businesses and<br>governments around the world, changes in regulation, government<br>actions or intellectual property protection, actions by our<br>competitors, and other risks inherent to the industries in which we<br>operate.<br><br><br><br><br><br>This<br>document contains statements that are, or may be deemed to be,<br>“forward-looking statements”. Forward-looking<br>statements give the Group’s current expectations or forecasts<br>of future events. An investor can identify these statements by the<br>fact that they do not relate strictly to historical or current<br>facts. They use words such as ‘anticipate’,<br>‘estimate’, ‘expect’, ‘intend’,<br>‘will’, ‘project’, ‘plan’,<br>‘believe’, ‘target’ and other words and<br>terms of similar meaning in connection with any discussion of<br>future operating or financial performance. In particular, these<br>include statements relating to future actions, prospective products<br>or product approvals, future performance or results of current and<br>anticipated products, sales efforts, expenses, the outcome of<br>contingencies such as legal proceedings, dividend payments and<br>financial results. Other than in accordance with its legal or<br>regulatory obligations (including under the Market Abuse<br>Regulation, the UK Listing Rules and the Disclosure and<br>Transparency Rules of the Financial Conduct Authority), the Group<br>undertakes no obligation to update any forward-looking statements,<br>whether as a result of new information, future events or otherwise.<br>The reader should, however, consult any additional disclosures that<br>the Group may make in any documents which it publishes and/or files<br>with the SEC. All readers, wherever located, should take note of<br>these disclosures. Accordingly, no assurance can be given that any<br>particular expectation will be met and investors are cautioned not<br>to place undue reliance on the forward-looking<br>statements.<br><br><br><br><br><br>Forward-looking<br>statements are subject to assumptions, inherent risks and<br>uncertainties, many of which relate to factors that are beyond the<br>Group’s control or precise estimate. The Group cautions<br>investors that a number of important factors, including those in<br>this document, could cause actual results to differ materially from<br>those expressed or implied in any forward-looking statement. Such<br>factors include, but are not limited to, those discussed under Item<br>3.D ‘Risk Factors’ in the Group’s Annual Report<br>on Form 20-F for 2019 and any impacts of the COVID-19 pandemic. Any<br>forward looking statements made by or on behalf of the Group speak<br>only as of the date they are made and are based upon the knowledge<br>and information available to the Directors on the date of this<br>report.<br><br><br><br><br><br>Cautionary statement regarding pro-forma growth rates<br><br><br>The<br>pro-forma growth rates at CER in this Results Announcement have<br>been provided to illustrate the position in Q2 2020 relative to the<br>position in Q2 2019 as if, for the purposes of the Q2 2019 results,<br>the acquisition of the Pfizer consumer healthcare business had<br>taken place as at 31 July 2018 and that, accordingly, three months<br>of results of the former Pfizer consumer healthcare business were<br>included in Q2 2019. Similarly, pro-forma growth rates have been<br>provided to illustrate the position for the six months to 30 June<br>2020 relative to the position for the six months to 30 June 2019 as<br>if, for the purposes of the six months to 30 June 2019 results, the<br>acquisition of the Pfizer consumer healthcare business had taken<br>place as at 31 July 2018 and that, accordingly, six months of<br>results of the former Pfizer consumer healthcare business were<br>included in the six months to 30 June 2019. The results of the<br>former Pfizer consumer healthcare business included for Q2 2019 and<br>the six months to 30 June 2019 are as consolidated (in US$) and<br>included in Pfizer’s US GAAP results. The results for Q2 2020<br>and the six months to 30 June 2020 used to calculate the pro-forma<br>growth rates are as reported at CER.<br><br><br><br><br><br>The<br>pro-forma growth rates have been provided for illustrative purposes<br>only and, by their nature, address a hypothetical situation and<br>therefore do not represent the Group’s actual growth rates.<br>The pro-forma growth rates do not purport to represent what the<br>Group’s results of operations actually would have been if the<br>Pfizer acquisition had been completed on the date indicated, nor do<br>they purport to represent the results of operations at any future<br>date. In addition, the pro-forma growth rates do not reflect the<br>effect of anticipated synergies and efficiencies or accounting and<br>reporting differences associated with the acquisition of the Pfizer<br>consumer healthcare business. | ||||||||||||
| --- | ||||||||||||
| Directors’ responsibility<br>statement<br><br><br><br><br><br>The Board of Directors approved this Half-yearly Financial Report<br>on 29 July 2020.<br><br><br><br><br><br>The Directors confirm that to the best of their knowledge the<br>unaudited condensed financial information has been prepared in<br>accordance with IAS 34 as adopted by the European Union and that<br>the interim management report includes a fair review of the<br>information required by DTR 4.2.7 and DTR 4.2.8.<br><br><br><br><br><br>After making enquiries, the Directors considered it appropriate to<br>adopt the going concern basis in preparing this Half-yearly<br>Financial Report.<br><br><br><br><br><br>The Directors of GlaxoSmithKline plc are as follows: | ||||||||||||
| --- | --- | |||||||||||
| Sir Jonathan Symonds | Non-Executive Chairman, Nominations & Corporate Governance<br>Committee Chair | |||||||||||
| Emma Walmsley | Chief Executive Officer (Executive Director) | |||||||||||
| Iain Mackay | Chief Financial Officer (Executive Director) | |||||||||||
| Hal Barron | Chief Scientific Officer and President, R&D (Executive<br>Director) | |||||||||||
| Vindi Banga | Senior Independent Non-Executive Director | |||||||||||
| Charles Bancroft | Independent Non-Executive Director | |||||||||||
| Vivienne Cox | Independent Non-Executive Director | |||||||||||
| Lynn Elsenhans | Independent Non-Executive Director, Corporate Responsibility<br>Committee Chair | |||||||||||
| Laurie Glimcher | Independent Non-Executive Director | |||||||||||
| Jesse Goodman | Independent Non-Executive Director, Science Committee<br>Chair | |||||||||||
| Judy Lewent | Independent Non-Executive Director, Audit & Risk Committee<br>Chair | |||||||||||
| Urs Rohner | Independent Non-Executive Director, Remuneration Committee<br>Chair | |||||||||||
| By order of the Board | ||||||||||||
| --- | --- | |||||||||||
| Emma Walmsley<br><br><br>Chief Executive Officer<br><br><br><br><br><br>29 July 2020 | Iain Mackay<br><br><br>Chief Financial Officer | |||||||||||
| Independent review report to<br>GlaxoSmithKline plc | ||||||||||||
| --- | ||||||||||||
| We have<br>been engaged by GlaxoSmithKline plc (“the company”) to<br>review the condensed financial information (the “interim<br>financial statements”) in the Results Announcement of the<br>company for the three and six months ended 30 June<br>2020. | ||||||||||||
| --- | ||||||||||||
| What we have reviewed | ||||||||||||
| --- | --- | |||||||||||
| The<br>interim financial statements comprises: | ||||||||||||
| ● | the<br>income statement and statement of comprehensive income for the<br>three and six month periods ended 30 June 2020 on pages 46 to<br>48; | |||||||||||
| ● | the<br>balance sheet as at 30 June 2020 on page 53; | |||||||||||
| ● | the<br>statement of changes in equity for the six month period then ended<br>on page 54; | |||||||||||
| ● | the<br>cash flow statement for the six month period then ended on page 55;<br>and | |||||||||||
| ● | the<br>accounting policies and basis of preparation and the explanatory<br>notes to the interim financial statements on pages 49 to 52 and 56<br>to 64. | |||||||||||
| We have<br>read the other information contained in the Results Announcement,<br>including the non-IFRS measures contained on pages 49 to 52 and 56<br>to 65, and considered whether it contains any apparent<br>misstatements or material inconsistencies with the information in<br>the condensed set of financial statements.<br><br><br><br><br><br>This<br>report is made solely to the company in accordance with<br>International Standard on Review Engagements (UK and Ireland) 2410<br>“Review of Interim Financial Information Performed by the<br>Independent Auditor of the Entity” issued by the Financial<br>Reporting Council. Our work has been undertaken so that we might<br>state to the company those matters we are required to state to it<br>in an independent review report and for no other purpose. To the<br>fullest extent permitted by law, we do not accept or assume<br>responsibility to anyone other than the company, for our review<br>work, for this report, or for the conclusions we have<br>formed.<br><br><br><br><br><br>Directors’ responsibilities<br><br><br>The<br>Results Announcement of the company, including the interim<br>financial statements, is the responsibility of, and has been<br>approved by, the directors. The directors are responsible for<br>preparing the Results Announcement of the company in accordance<br>with the Disclosure Guidance and Transparency Rules of the United<br>Kingdom’s Financial Conduct Authority.<br><br><br><br><br><br>As<br>disclosed in Note 1, the annual financial statements of the company<br>are prepared in accordance with IFRSs as adopted by the European<br>Union. The interim financial statements included in this Results<br>Announcement have been prepared in accordance with International<br>Accounting Standard 34 “Interim Financial Reporting” as<br>adopted by the European Union.<br><br><br><br><br><br>Our responsibility<br><br><br>Our<br>responsibility is to express to the company a conclusion on the<br>interim financial statements in the Results Announcement based on<br>our review.<br><br><br><br><br><br>Scope of review<br><br><br>We<br>conducted our review in accordance with International Standard on<br>Review Engagements (UK and Ireland) 2410 “Review of Interim<br>Financial Information Performed by the Independent Auditor of the<br>Entity” issued by the Financial Reporting Council for use in<br>the United Kingdom. A review of interim financial information<br>consists of making inquiries, primarily of persons responsible for<br>financial and accounting matters, and applying analytical and other<br>review procedures. A review is substantially less in scope than an<br>audit conducted in accordance with International Standards on<br>Auditing (UK) and consequently does not enable us to obtain<br>assurance that we would become aware of all significant matters<br>that might be identified in an audit. Accordingly, we do not<br>express an audit opinion.<br><br><br><br><br><br>Conclusion<br><br><br>Based<br>on our review, nothing has come to our attention that causes us to<br>believe that the interim financial statements in the Results<br>Announcement for the three and six months ended 30 June 2020 are<br>not prepared, in all material respects, in accordance with<br>International Accounting Standard 34 as adopted by the European<br>Union and the Disclosure Guidance and Transparency Rules of the<br>United Kingdom’s Financial Conduct Authority.<br><br><br><br><br><br><br><br><br>Deloitte LLP<br><br><br>Statutory<br>Auditor<br><br><br>London,<br>United Kingdom<br><br><br>29 July<br>2020 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.
| GlaxoSmithKline plc | |
|---|---|
| (Registrant) | |
| Date: July<br>29, 2020 | |
| By:/s/ VICTORIA<br>WHYTE<br><br><br>-------------------------- | |
| Victoria Whyte | |
| Authorised<br>Signatory for and on | |
| behalf<br>of GlaxoSmithKline plc |