|
Issued:
Wednesday, 6 February 2019, London U.K.
|
|
GSK delivers sales, earnings and cash flow growth in
2018
Total EPS 73.7p, +>100% AER, +>100% CER; Adjusted EPS 119.4p
+7% AER, +12% CER
|
|
|
|||
|
2018 financial, product and strategy highlights
|
|||
|
|
|||
|
●
|
Group
sales £30.8 billion, +2% AER, +5% CER
|
||
|
●
|
Pharmaceuticals
sales £17.3 billion, flat AER, +2% CER; Vaccines sales
£5.9 billion, +14% AER, +16% CER; Consumer Healthcare sales
£7.7 billion, -1% AER, +2% CER
|
||
|
●
|
Total
new Respiratory product sales £2.6 billion, +35% AER, +38%
CER
|
||
|
●
|
Total HIV sales £4.7 billion, +9% AER, +11% CER.
Dolutegravir-based regimens £4.4 billion, +14% AER, +16%
CER
|
||
|
●
|
Shingrix sales £784 million, +>100% AER,
+>100% CER
|
||
|
●
|
Total
Group operating margin 17.8%, +4.3 percentage points
AER, +5.0 percentage
points CER
|
||
|
●
|
Adjusted
Group operating margin 28.4%, flat AER, +0.5 percentage points CER.
(Pharmaceuticals: 33.3%; Vaccines 33.0%; Consumer Healthcare
19.8%)
|
||
|
●
|
Total
EPS 73.7p, +>100% AER, +>100% CER, reflecting stronger
operating performance, lower restructuring and impairment charges
as well as a favourable comparison with impact of US tax reform in
2017
|
||
|
●
|
Adjusted
EPS 119.4p, +7% AER, +12% CER, driven by improved operating margin
and continued financial efficiencies
|
||
|
●
|
Net
cash flow from operations £8.4 billion. Free cash flow
£5.7 billion, improvement reflecting greater focus on cash
conversion, particularly working capital
|
||
|
●
|
23p
dividend declared for the quarter; 80p for full year
2018
|
||
|
●
|
4 major
transactions, including new Consumer Healthcare JV, announced in
2018 to support strategy and reshape of the Group's
portfolio
|
||
|
|
|||
|
2019 guidance
|
|||
|
|
|||
|
●
|
Expect
Adjusted EPS to decline -5% to -9% CER reflecting recent approval
of a generic competitor to Advair in the US. Guidance
also reflects expected impact of Tesaro acquisition and assumes
Consumer Healthcare nutrition disposal and Consumer JV with Pfizer
close as previously indicated
|
||
|
●
|
Expect
80p dividend for 2019
|
||
|
|
|
||
|
Pipeline update and newsflow
|
|||
|
|
|
|
|
|
●
|
Rebuild
of Pharmaceuticals pipeline continues with 33* of the 46* new
medicines now in development targeting modulation of the immune
system
|
||
|
●
|
Major
progress made in immuno-oncology pipeline with 16* assets now in
clinical development, reflecting organic progression, the Tesaro
acquisition and the alliance with Merck KGaA, Darmstadt,
Germany*
|
||
|
●
|
Major
data readouts and other significant newsflow expected on multiple
new medicines in HIV, Oncology, Immuno-inflammation and Respiratory
in 2019:
|
||
|
|
-
|
FDA approval decision expected for dolutegravir + lamivudine in
H1
|
|
|
|
-
|
FDA filings planned for long-acting injectable cabotegravir +
rilpivirine in H1 and fostemsavir for highly treatment-experienced
patients in H2
|
|
|
|
-
|
Pivotal
stage data readouts expected for BCMA for 4L multiple
myeloma, Zejula for 1L maintenance ovarian
cancer and PD1 dostarlimab for endometrial cancer
|
|
|
|
-
|
Updated
phase I PFS data from DREAMM-1 study for BCMA to be published in
leading journal in H1
|
|
|
|
-
|
Phase
III start planned for anti-GMCSF for treatment of rheumatoid
arthritis in H2
|
|
|
|
-
|
Results
of pivotal CAPTAIN study to support filing of Trelegy for use in asthma expected
in H1
|
|
|
|
|||
|
|
|
|
|
|
2018 results
|
|||||||||||
|
|
2018
|
|
Growth
|
|
Q4 2018
|
|
Growth
|
||||
|
|
£m
|
|
£%
|
|
CER%
|
|
£m
|
|
£%
|
|
CER%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
30,821
|
|
2
|
|
5
|
|
8,197
|
|
7
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating profit
|
5,483
|
|
34
|
|
43
|
|
1,554
|
|
>100
|
|
>100
|
|
Total
earnings per share
|
73.7p
|
|
>100
|
|
>100
|
|
24.7p
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
8,745
|
|
2
|
|
6
|
|
2,196
|
|
8
|
|
4
|
|
Adjusted
earnings per share
|
119.4p
|
|
7
|
|
12
|
|
31.2p
|
|
14
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash from operating activities
|
8,421
|
|
22
|
|
|
|
4,119
|
|
44
|
|
|
|
Free
cash flow
|
5,692
|
|
63
|
|
|
|
3,317
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Total results are presented under 'Financial performance' on pages
6 and 22 and Adjusted results reconciliations are presented on
pages 14, 15, 30 and 31. Adjusted results are a non-IFRS
measure that may be considered in addition to, but not as a
substitute for, or superior to, information presented in accordance
with IFRS. Adjusted results are defined on page 4 and £%
or AER% growth, CER% growth, free cash flow and other non-IFRS
measures are defined on page 44. GSK provides guidance on an
Adjusted results basis only for the reasons set out on page 5.
All expectations, guidance and targets regarding future
performance and dividend payments should be read together with
"Outlook, assumptions and cautionary statements" on page
45.
|
|
|
*
|
Includes
M7824, the subject of the alliance with Merck KGaA, Darmstadt,
Germany, expected to close in Q1 2019.
|
|
Emma Walmsley, Chief Executive Officer, GSK said:
"GSK
delivered improved operating performance in 2018 with Group sales
growth, strong commercial execution of new product launches,
especially Shingrix,
continued cost discipline and better cash generation.
"It was
also a significant year for the Group strategically, with the
launch of a new R&D strategy focused on immunology, genetics
and new technologies, together with a series of transactions that
support our strategy and reshape of the Group's
portfolio.
"We are
making good progress against our priority to rebuild our
Pharmaceuticals pipeline, particularly in oncology. Since
July, we have doubled the number of oncology assets in clinical
development to 16 through the advancement of our internal
programmes and with targeted business development including the
recently completed acquisition of Tesaro and our new alliance with
Merck KGaA that is expected to close in Q1 2019. During 2019,
we expect to receive pivotal data on three new cancer medicines,
all of which have the potential to be launched in the next two
years.
"We are
also focused on completing the transactions to divest our Consumer
Healthcare nutrition business to Unilever; and the formation of our
new joint venture with Pfizer that will create a new, world leading
Consumer Healthcare company and which provides a unique opportunity
to deliver substantial value for shareholders.
"Finally,
I would like to thank all our customers, suppliers and employees
for their support and hard work in 2018 and look forward to working
with them in 2019, which will be an important year of execution for
GSK."
|
|
2019 guidance
|
|
In
2019, we now expect Adjusted EPS to decline in the range
of -5% to -9% at CER. This guidance reflects
the recent approval of a substitutable generic competitor
to Advair in the
US and the expected impact of the Tesaro acquisition and assumes
that the proposed Consumer Healthcare nutrition disposal closes by
the end of 2019 and the proposed Consumer Healthcare Joint Venture
with Pfizer closes during H2 2019.
GSK
expects to maintain the dividend for 2019 at the current level of
80p per share.
All
expectations, guidance and targets regarding future performance and
dividend payments should be read together with "Outlook,
assumptions and cautionary statements" on page 45.
If
exchange rates were to hold at the closing rates on 31 January 2019
($1.31/£1, €1.14/£1 and Yen 143/£1) for the
rest of 2019, the estimated positive impact on 2019 Sterling
turnover growth would be less than 1% and if exchange gains or
losses were recognised at the same level as in 2018, the estimated
positive impact on 2019 Sterling Adjusted EPS growth would be
around 1%.
|
|
Contents
|
Page
|
|
|
|
|
Total
and Adjusted results
|
4
|
|
Financial
performance - year ended 31 December 2018
|
6
|
|
Financial
performance - three months ended 31 December 2018
|
22
|
|
Cash
generation and conversion
|
37
|
|
Returns
to shareholders
|
39
|
|
Research
and development
|
40
|
|
Reporting
definitions
|
44
|
|
Outlook,
assumptions and cautionary statements
|
45
|
|
Contacts
|
46
|
|
|
|
|
Income
statements
|
47
|
|
Statement
of comprehensive income - year ended 31 December 2018
|
48
|
|
Statement
of comprehensive income - three months ended 31 December
2018
|
49
|
|
Pharmaceuticals
turnover - year ended 31 December 2018
|
50
|
|
Pharmaceuticals
turnover - three months ended 31 December 2018
|
51
|
|
Vaccines
turnover - year ended 31 December 2018
|
52
|
|
Vaccines
turnover - three months ended 31 December 2018
|
52
|
|
Balance
sheet
|
53
|
|
Statement
of changes in equity
|
54
|
|
Cash
flow statement - year ended 31 December 2018
|
55
|
|
Segment
information
|
56
|
|
Legal
matters
|
58
|
|
Taxation
|
58
|
|
Additional
information
|
59
|
|
Reconciliation
of cash flow to movements in net debt
|
63
|
|
Net
debt analysis
|
63
|
|
Free
cash flow reconciliation
|
63
|
|
Non-controlling
interests in ViiV Healthcare
|
64
|
|
Brand names and partner acknowledgements
Brand
names appearing in italics throughout this document are trademarks
of GSK or associated companies or used under licence by the Group.
Cialis is a trademark of Eli Lilly and Company and Gardasil is a
trademark of Merck Sharp & Dohme Corp.
|
|
Total and Adjusted results
|
|
Total
reported results represent the Group's overall
performance.
GSK
also uses a number of adjusted, non-IFRS, measures to report the
performance of its business. Adjusted results and other
non-IFRS measures may be considered in addition to, but not as a
substitute for or superior to, information presented in accordance
with IFRS. Adjusted results are defined below and other
non-IFRS measures are defined on page 44.
GSK
believes that Adjusted results, when considered together with Total
results, provide investors, analysts and other stakeholders with
helpful complementary information to understand better the
financial performance and position of the Group from period to
period, and allow the Group's performance to be more easily
compared against the majority of its peer companies. These
measures are also used by management for planning and reporting
purposes. They may not be directly comparable with similarly
described measures used by other companies.
GSK
encourages investors and analysts not to rely on any single
financial measure but to review GSK's quarterly results
announcements, including the financial statements and notes, in
their entirety.
GSK is
committed to continuously improving its financial reporting, in
line with evolving regulatory requirements and best practice and
has made a number of changes in recent years. In line with
this practice, GSK expects in 2019 to continue to review its
reporting framework (including, where relevant, the use of
alternative performance measures).
Adjusted
results exclude the following items from Total results, together
with the tax effects of all of these items:
|
|
●
|
amortisation
of intangible assets (excluding computer software) and
goodwill
|
|
●
|
impairment
of intangible assets (excluding computer software) and
goodwill
|
|
●
|
major
restructuring costs, which include impairments of tangible assets
and computer software, (under specific Board approved programmes
that are structural, of a significant scale and where the costs of
individual or related projects exceed £25 million), including
integration costs following material acquisitions
|
|
●
|
transaction-related
accounting or other adjustments related to significant
acquisitions
|
|
●
|
proceeds
and costs of disposals of associates, products and businesses;
significant legal charges (net of insurance recoveries) and
expenses on the settlement of litigation and government
investigations; other operating income other than royalty
income, and other items
|
|
●
|
the
impact of the enactment of the US Tax Cuts and Jobs Act in
2017
|
|
Costs
for all other ordinary course smaller scale restructuring and legal
charges and expenses are retained within both Total and Adjusted
results.
As
Adjusted results include the benefits of Major restructuring
programmes but exclude significant costs (such as significant
legal, major restructuring and transaction items) they should not
be regarded as a complete picture of the Group's financial
performance, which is presented in its Total results. The
exclusion of other Adjusting items may result in Adjusted earnings
being materially higher or lower than Total earnings. In
particular, when significant impairments, restructuring charges and
legal costs are excluded, Adjusted earnings will be higher than
Total earnings.
GSK has
undertaken a number of Major restructuring programmes in recent
years in response to significant changes in the Group's trading
environment or overall strategy, or following material
acquisitions, including the Novartis transaction in 2015.
Costs, both cash and non-cash, of these programmes are provided for
as individual elements are approved and meet the accounting
recognition criteria. As a result, charges may be incurred
over a number of years following the initiation of a Major
restructuring programme.
Significant
legal charges and expenses are those arising from the settlement of
litigation or government investigations that are not in the normal
course and materially larger than more regularly occurring
individual matters. They also include certain major legacy
matters.
Reconciliations
between Total and Adjusted results, providing further information
on the key Adjusting items, are set out on pages 14, 15, 30 and
31.
GSK
provides earnings guidance to the investor community on the basis
of Adjusted results. This is in line with peer companies and
expectations of the investor community, supporting easier
comparison of the Group's performance with its peers. GSK is
not able to give guidance for Total results as it cannot reliably
forecast certain material elements of the Total results,
particularly the future fair value movements on contingent
consideration and put options that can and have given rise to
significant adjustments driven by external factors such as currency
and other movements in capital markets.
|
|
ViiV Healthcare
ViiV
Healthcare is a subsidiary of the Group and 100% of its operating
results (turnover, operating profit, profit after tax) are included
within the Group income statement.
Earnings
are allocated to the three shareholders of ViiV Healthcare on the
basis of their respective equity shareholdings (GSK 78.3%, Pfizer
11.7% and Shionogi 10%) and their entitlement to preferential
dividends, which are determined by the performance of certain
products that each shareholder contributed. As the relative
performance of these products changes over time, the proportion of
the overall earnings allocated to each shareholder also changes.
In particular, the increasing sales of
dolutegravir-containing products have a favourable impact on the
proportion of the preferential dividends that is allocated to
GSK. Adjusting items are allocated to shareholders based on
their equity interests. GSK was entitled to approximately 85%
of the Total earnings and 82% of the Adjusted earnings of ViiV
Healthcare for 2018.
As
consideration for the acquisition of Shionogi's interest in the
former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi
received the 10% equity stake in ViiV Healthcare and ViiV
Healthcare also agreed to pay additional future cash consideration
to Shionogi, contingent on the future sales performance of the
products being developed by that joint venture, principally
dolutegravir. Under IFRS 3 'Business combinations', GSK was
required to provide for the estimated fair value of this contingent
consideration at the time of acquisition and is required to update
the liability to the latest estimate of fair value at each
subsequent period end. The liability for the contingent
consideration recognised in the balance sheet at the date of
acquisition was £659 million. Subsequent re-measurements
are reflected within other operating income/expense and within
Adjusting items in the income statement in each period. At 31
December 2018, the liability, which is discounted at 8.5%, stood at
£5,937 million, on a post-tax basis.
Cash
payments to settle the contingent consideration are made to
Shionogi by ViiV Healthcare each quarter, based on the actual sales
performance of the relevant products in the previous quarter.
These payments reduce the balance sheet liability and hence
are not recorded in the income statement. The cash payments
made to Shionogi by ViiV Healthcare in 2018 were £793
million.
Because
the liability is required to be recorded at the fair value of
estimated future payments, there is a significant timing difference
between the charges that are recorded in the Total income statement
to reflect movements in the fair value of the liability and the
actual cash payments made to settle the
liability.
Further
explanation of the acquisition-related arrangements with ViiV
Healthcare are set out on page 64.
|
|
Financial performance - 2018
|
|
Total results
|
|
|
2018
£m
|
|
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
30,821
|
|
30,186
|
|
2
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(10,241)
|
|
(10,342)
|
|
(1)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
20,580
|
|
19,844
|
|
4
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(9,915)
|
|
(9,672)
|
|
3
|
|
5
|
|
Research
and development
|
(3,893)
|
|
(4,476)
|
|
(13)
|
|
(12)
|
|
Royalty income
|
299
|
|
356
|
|
(16)
|
|
(17)
|
|
Other
operating income/(expense)
|
(1,588)
|
|
(1,965)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
5,483
|
|
4,087
|
|
34
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
81
|
|
65
|
|
|
|
|
|
Finance
expense
|
(798)
|
|
(734)
|
|
|
|
|
|
Profit
on disposal of associates
|
3
|
|
94
|
|
|
|
|
|
Share
of after tax profits of associates
and
joint ventures
|
31
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
4,800
|
|
3,525
|
|
36
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(754)
|
|
(1,356)
|
|
|
|
|
|
Tax rate %
|
15.7%
|
|
38.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after taxation
|
4,046
|
|
2,169
|
|
87
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Profit
attributable to non-controlling
interests
|
423
|
|
637
|
|
|
|
|
|
Profit
attributable to shareholders
|
3,623
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,046
|
|
2,169
|
|
87
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
73.7p
|
|
31.4p
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Sales performance - 2018
|
|
Group turnover by business
|
2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
17,269
|
|
-
|
|
2
|
|
Vaccines
|
5,894
|
|
14
|
|
16
|
|
Consumer
Healthcare
|
7,658
|
|
(1)
|
|
2
|
|
|
|
|
|
|
|
|
Group
turnover
|
30,821
|
|
2
|
|
5
|
|
|
|
|
|
|
|
|
Group
turnover was up 2% AER, 5% CER to £30,821
million.
Pharmaceuticals
sales were flat at AER but up 2% CER, driven primarily by the
growth in HIV sales and the new Respiratory
products, Nucala and the Ellipta portfolio. This was
partly offset by lower sales of Seretide/Advair and Established
Pharmaceuticals. Overall Respiratory sales declined 1% AER
but grew 1% CER.
Vaccines
sales were up 14% AER, 16% CER, primarily driven by sales
of Shingrix in
the US and growth in influenza and Hepatitis vaccines, which also
benefited from a competitor supply shortage, partly offset by
declines in some Established Vaccines.
Consumer
Healthcare sales declined 1% AER but grew 2% CER with broad-based
growth in Oral health and Wellness partly offset by increased
competitive pressures in Europe, the divestments of some smaller
brands, including Horlicks and MaxiNutrition in the UK, as well
as the impact of the implementation of the Goods & Services Tax
(GST) in India.
|
|
Group turnover by geographic region
|
2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
US
|
11,982
|
|
6
|
|
9
|
|
Europe
|
7,973
|
|
-
|
|
(1)
|
|
International
|
10,866
|
|
(1)
|
|
4
|
|
|
|
|
|
|
|
|
Group
turnover
|
30,821
|
|
2
|
|
5
|
|
|
|
|
|
|
|
|
US
sales grew 6% AER, 9% CER, driven by the growth
of Shingrix and
Hepatitis vaccines as well as strong performances from HIV
and Benlysta, offset
by declines in Established Pharmaceuticals and
Respiratory.
Europe
sales were flat at AER, but declined 1% CER, as declines in
Established Pharmaceuticals, older HIV products, Meningitis
vaccines and Consumer Healthcare more than offset growth
from Tivicay and Triumeqand the new Respiratory
products.
In
International, sales declined 1% AER, but grew 4% CER, reflecting
strong growth in Tivicay, Triumeq and the Respiratory
portfolio. Sales in Emerging Markets declined 2% AER, but
grew 4% CER.
|
|
Pharmaceuticals
|
|
|
2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Respiratory
|
6,928
|
|
(1)
|
|
1
|
|
HIV
|
4,722
|
|
9
|
|
11
|
|
Immuno-inflammation
|
472
|
|
25
|
|
28
|
|
Established
Pharmaceuticals
|
5,147
|
|
(7)
|
|
(4)
|
|
|
|
|
|
|
|
|
|
17,269
|
|
-
|
|
2
|
|
|
|
|
|
|
|
|
US
|
7,453
|
|
(2)
|
|
1
|
|
Europe
|
4,072
|
|
2
|
|
1
|
|
International
|
5,744
|
|
-
|
|
5
|
|
|
|
|
|
|
|
|
|
17,269
|
|
-
|
|
2
|
|
|
|
|
|
|
|
|
Pharmaceuticals
turnover in the year was £17,269 million, flat at AER, but up
2% CER, driven primarily by the growth in HIV sales, which were up
9% AER, 11% CER, to £4,722 million, reflecting share growth
over the year in the dolutegravir portfolio; Triumeq, Tivicay and Juluca. Respiratory sales
declined 1% AER, but grew 1% CER, to £6,928 million, with
growth from the Ellipta portfolio
and Nucala partly
offset by lower sales of Seretide/Advair. Sales of
Established Pharmaceuticals were down 7% AER, 4% CER.
In the
US, sales declined 2% AER but grew 1% at CER, with growth in the
HIV portfolio and Benlysta offsetting declines in
Established Pharmaceuticals and Respiratory. In Europe, sales
grew 2% AER, 1% CER, with growth in the Respiratory portfolio
offsetting the continued impact of generic competition
to Epzicom and Avodart. International was flat at AER but grew 5%
CER, with growth driven by HIV and the new Respiratory
portfolio.
Respiratory
Total
Respiratory sales declined 1% AER, but grew 1% CER, with the US
down 5% AER, 3% CER. In Europe, sales grew 5% AER, 4% CER and
International grew 3% AER, 7% CER. Growth from
the Ellipta portfolio
and Nucala was
partly offset by lower sales of Seretide/Advair.
Sales
of Nucala were
£563 million in the year, up 64% AER, 66% CER, continuing to
benefit from the global rollout of the product. US sales
of Nucala grew
44% AER, 48% CER to £341 million, despite increased
competition, benefiting from continued market
expansion.
Sales
of Ellipta products were up 29% AER,
32% CER, driven by continued growth in all regions. In the
US, sales grew 24% AER, 27% CER, reflecting further market share
gains, partly offset by the impact of continued competitive pricing
pressures, particularly for ICS/LABAs. In Europe, sales grew
42% AER, 41% CER. Sales of Trelegy Ellipta, our new once-daily
closed triple product, contributed £156 million to
total Ellipta sales, benefiting from an
expanded label in the US.
Relvar/Breo Ellipta sales grew 8% AER, 10% CER, to
£1,089 million, primarily driven by growth in Europe, which
was up 25% AER, 24% CER to £253 million, and in International,
which was up 26% AER, 31% CER to £255 million. In the
US, Breo
Ellipta sales declined 3% AER, 1% CER, with volume
growth of 27%, reflecting continued market share growth, offset by
the combined impact of prior period payer rebate adjustments and
increased competitive pricing pressure. Anoro Ellipta sales grew 39% AER,
42% CER to £476 million, driven primarily by share gains in
the US. All Ellipta products, Breo, Anoro, Incruse, Arnuity and Trelegy,
continued to grow market share in the US during the
year.
Sales
of New Respiratory products, comprising Ellipta products
and Nucala, grew 35%
AER, 38% CER to £2,612 million.
Seretide/Advair sales declined 23% AER, 21% CER to
£2,422 million. Sales of Advair in the US declined 32%
AER, 30% CER (9% volume decline and 21% negative impact of
price) primarily reflecting increased competitive pricing
pressures. In Europe, Seretide sales were down 19% AER,
20% CER to £599 million (13% volume decline and a 7% price
decline). This reflected continued competition from generic
products and the transition of the Respiratory portfolio to newer
products. In International, sales of Seretide were down 7% AER, 4% CER,
to £726 million (5% volume decline and 1% positive impact of
price), with declines in markets with generic competition partly
offset by growth from other developing markets.
HIV
HIV
sales increased 9% AER, 11% CER to £4,722 million in the year,
with the US up 8% AER, 10% CER, Europe up 7% AER, 6% CER and
International up 14% AER, 20% CER.
The
growth was driven by the increase in market share over the year in
the dolutegravir products which grew 14% AER, 16% CER. This
was partly offset by the decline in the established portfolio,
particularly the impact of generic competition to Epzicom/Kivexa in
Europe. Triumeq,
Tivicay and Juluca (which was approved in the
US in November 2017), recorded sales of £2,648 million,
£1,639 million and £133 million, respectively, in the
year. Epzicom/Kivexa sales declined 50%
AER, 48% CER to £117 million.
Immuno-inflammation
Sales
in the year were up 25% AER, 28% CER, primarily driven
by Benlysta, which grew 26% AER, 29%
CER to £473 million. In the US, Benlysta grew 24% AER, 27% CER to
£420 million, benefiting from the launch of the sub-cutaneous
formulation in the third quarter.
Established
Pharmaceuticals
Sales
of Established Pharmaceuticals were £5,147 million, down 7%
AER, 4% CER, reflecting efforts to maximise the value from this
portfolio but also the benefit of certain post-divestment contract
manufacturing sales and the first instalment of a
12-month Relenza supply contract in
Europe.
The Avodart franchise
was down 7% AER, 5% CER to £572 million, primarily due to the
loss of exclusivity in Europe, with the US impact now broadly
annualised. Coreg franchise sales declined 63%
AER, 63% CER following a generic Coreg CR entrant to the US market
in Q4 2017. Lamictal sales declined 5% AER, 3%
CER to £617 million.
|
|
Vaccines
|
|
|
2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Meningitis
|
881
|
|
(1)
|
|
2
|
|
Influenza
|
523
|
|
7
|
|
10
|
|
Shingles
|
784
|
|
>100
|
|
>100
|
|
Established
Vaccines
|
3,706
|
|
(1)
|
|
-
|
|
|
|
|
|
|
|
|
|
5,894
|
|
14
|
|
16
|
|
|
|
|
|
|
|
|
US
|
2,701
|
|
45
|
|
48
|
|
Europe
|
1,561
|
|
(2)
|
|
(4)
|
|
International
|
1,632
|
|
(3)
|
|
-
|
|
|
|
|
|
|
|
|
|
5,894
|
|
14
|
|
16
|
|
|
|
|
|
|
|
|
Vaccines turnover grew 14% AER, 16% CER to £5,894 million,
primarily driven by growth in sales of Shingrix, Hepatitis vaccines, which also benefited from a
competitor supply shortage and higher sales of influenza products.
This was partly offset by lower sales of DTPa-containing
vaccines (Infanrix,
Pediarix and Boostrix) due to increased competitive pressures,
particularly in Europe, and unfavourable year-on-year CDC stockpile
movements in the US, together with lower Synflorix sales, reflecting lower pricing and demand
in Emerging Markets.
Meningitis
Meningitis sales were down 1% AER but up 2% CER to £881
million. Bexsero sales grew 5% AER, 9% CER driven by demand
and share gains in the US, together with continued growth in
private market sales in International, partly offset by the
completion of vaccination of catch-up cohorts in certain markets in
Europe. Menveo sales declined 15% AER, 12% CER, primarily
reflecting supply constraints in Europe and International as well
as a strong comparator in 2017 and unfavourable year-on-year CDC
stockpile movements in the US, partly offset by demand and share
gains in the US.
Influenza
Fluarix/FluLaval sales
grew 7% AER, 10% CER to £523 million, driven by strong sales
execution in the US and improved sales in Europe, partly offset by
increased price competition in the US.
Shingles
Shingrix recorded sales of
£784 million, primarily in the US and Canada, driven by demand
and share gains. US sales benefited from market growth in new
patient populations now covered by immunisation recommendations
and Shingrix has now achieved a 98% market share.
Established
Vaccines
Sales of DTPa-containing vaccines (Infanrix,
Pediarix and Boostrix) were down 8% AER, 7%
CER. Infanrix,
Pediarix sales were down
8% AER, 7% CER to £680 million, reflecting increased
competitive pressures in Europe as well as unfavourable
year-on-year CDC stockpile movements in the US, partly offset by
stronger demand in International. Boostrix sales declined 8% AER, 7% CER to £517
million, primarily driven by the return to the market of a
competitor in Europe and lower demand in
International.
Hepatitis vaccines grew 17% AER, 19% CER to £808 million,
benefiting from stronger demand in the US and Europe as well as a
competitor supply shortage in the US.
Rotarix sales were down 1%
AER but up 1% CER to £521 million, reflecting higher demand in
Europe, partly offset by lower demand in
International.
Synflorix sales declined
17% AER, 17% CER to £424 million, primarily impacted by lower
pricing and demand in Emerging Markets.
|
|
Consumer Healthcare
|
|
|
2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Wellness
|
3,940
|
|
(2)
|
|
1
|
|
Oral
health
|
2,496
|
|
1
|
|
4
|
|
Nutrition
|
643
|
|
(5)
|
|
1
|
|
Skin
health
|
579
|
|
(4)
|
|
(1)
|
|
|
|
|
|
|
|
|
|
7,658
|
|
(1)
|
|
2
|
|
|
|
|
|
|
|
|
US
|
1,828
|
|
-
|
|
2
|
|
Europe
|
2,340
|
|
(1)
|
|
(2)
|
|
International
|
3,490
|
|
(2)
|
|
4
|
|
|
|
|
|
|
|
|
|
7,658
|
|
(1)
|
|
2
|
|
|
|
|
|
|
|
|
Consumer
Healthcare sales in the year declined 1% AER but grew 2% CER to
£7,658 million, with broad-based growth in Oral health and
Wellness partly offset by a decline in Panadol and lower sales of smaller
brands. International markets performed strongly,
particularly India and Brazil, whilst Europe was impacted by
intensifying competitive pressure in the second half of
2018.
The
aggregate impact from generic competition on Transderm Scop in the US, the
divestment of Horlicks and MaxiNutrition in the UK and other
small non-strategic brands and implementation of the Goods &
Service Tax (GST) in India was to reduce overall sales growth by
approximately one percentage point.
Wellness
Wellness
sales declined 2% AER but grew 1% CER to £3,940 million.
Respiratory sales grew in low single digits, led
by Theraflu supported by a strong
cold and flu season earlier in the year as well as
the TherafluPowerPods launch in the US
in the second half of the year. Otrivin grew in mid single digits,
benefiting from new variants, and Flonase returned to growth
following a weaker allergy season earlier this year.
Pain
relief sales were flat as low single-digit growth
in Voltaren and
double-digit growth in Fenbid were offset by a decline
in Panadol sales
due to a change in the route-to-market model in South-East Asia and
the discontinuation of slow-release Panadol products in the
Nordic countries.
Oral
health
Oral
health sales grew 1% AER, 4% CER to £2,496 million, as
increased competitive pressures in Europe were offset by double
digit growth from Sensodyne in a number of
International markets, including India and Turkey, and strong
single-digit growth in the US driven by Sensodyne Rapid. Denture care
grew in high single digits through the launch of Corega Max in Russia and Brazil
and Gum health delivered double-digit growth with continued
strong Parodontax performance in the
US. Growth was also partly impacted by de-stocking in
International.
Nutrition
Nutrition
sales declined 5% AER but grew 1% CER to £643 million.
The Nutrition business in India performed strongly across the
product portfolio including new innovations such
as Horlicks
Protein+ which was launched earlier in the year.
The impact of divestments and India GST implementation on growth
was approximately eight percentage points.
Skin
health
Skin
health sales were down 4% AER, 1% CER to £579 million,
largely driven by a decline in Physiogel and the divestment of
several small non-strategic brands in the US, which had a negative
impact on growth of one percentage point.
|
|
Total results -
2018
|
|
Cost of sales
Cost of
sales as a percentage of turnover was 33.2%, down 1.0 percentage
points at AER and 1.4 percentage points in CER terms compared with
2017. This primarily reflected a favourable comparison with
£363 million of non-cash restructuring costs from the
write-downs of assets in 2017 related to the decision to
withdraw Tanzeum progressively. The
year also benefited from a more favourable product mix in Vaccines
and Consumer Healthcare, particularly the launch
of Shingrix, together
with a further contribution from integration and restructuring
savings. This was partly offset by continued adverse pricing
pressure in Pharmaceuticals, particularly in Respiratory, and in
Established Vaccines, together with increased input costs and an
adverse comparison with the benefit of a settlement for lost third
party supply volume in 2017 in Vaccines.
Selling, general and administration
SG&A
costs as a percentage of turnover were 32.2%, 0.1 percentage points
higher than in 2017 at both AER and CER, reflecting growth of 3%
AER, 5% CER. The increase in SG&A costs primarily
reflected higher restructuring costs, and investment in promotional
product support, particularly for new launches in Respiratory, HIV
and Vaccines, partly offset by tight control of ongoing costs,
particularly in non-promotional and back office spending, across
all three businesses.
Research and development
R&D
expenditure was £3,893 million (12.6% of turnover), 13% AER,
12% CER lower than in 2017. This reflected reduced
restructuring costs primarily due to the comparison with the
provision for obligations as a result of the decision to
withdraw Tanzeum in 2017 and lower
intangible impairments, a favourable comparison with the impact of
the Priority Review Voucher purchased and utilised in H1 2017 and
the benefit of the R&D prioritisation initiatives started in
the second half of last year. This was partly offset by
increased investment in the progression of a number of mid and
late-stage programmes, particularly in Oncology, as well as
provisions for the costs payable to a third party relating to the
use of a Priority Review Voucher awarded in 2018.
Royalty income
Royalty
income was £299 million (2017: £356 million), down 16%
AER and 17% CER, the reduction primarily reflecting the patent
expiry of Cialis, partly offset by an increase in the Gardasil
royalty.
Other operating income/(expense)
Other
operating expense of £1,588 million (2017: £1,965
million) primarily reflected £1,846 million (2017: £1,517
million) of accounting charges arising from the re-measurement of
the contingent consideration liabilities related to the
acquisitions of the former Shionogi-ViiV Healthcare joint venture
and the former Novartis Vaccines business, the value attributable
to the Consumer Healthcare Joint Venture put option previously held
by Novartis and the liabilities for the Pfizer put option and
Pfizer and Shionogi preferential dividends in ViiV Healthcare.
The 2017 charges included the impact of US tax reform, which
increased the fair value of these liabilities by £666 million.
This was partly offset by the profit on a number of asset
disposals, including tapinarof, as well as a gain arising from the
increase in value of the shares in Hindustan Unilever Limited to be
received on the disposal of Horlicks and other Consumer
Healthcare brands, net of disposal costs.
The
accounting charges were driven primarily by a £758 million
re-measurement of the contingent consideration liability due to
Shionogi, largely related to the regular updates of exchange rate
assumptions to period end rates and sales forecasts following a
number of studies including the GEMINI study completed in Q2 2018,
together with a £430 million unwind of the discount. In
addition, a net charge of £658 million reflected the
re-measurement of the valuation of the Consumer Healthcare put
option to reflect the price agreed with Novartis to acquire its
shareholding, together with movements in exchange rates largely
offset by gains on hedging contracts.
Operating profit
Total operating profit was £5,483 million in 2018 compared
with £4,087 million in 2017. The increase in operating
profit primarily reflected a favourable comparison with charges of
£666 million in 2017 arising from the impact of US tax reform
on the valuation of the Consumer Healthcare and HIV businesses
and reduced restructuring costs and asset impairments.
In addition, there was a contribution from sales growth, a more
favourable mix, primarily in Vaccines and Consumer Healthcare,
benefits from the prioritisation of R&D expenditure and
comparison with the impact of the Priority Review Voucher utilised
and expensed in 2017, alongside continued tight control of ongoing
costs. This was partly offset by the increased impact of
accounting charges related to the re-measurement of the liabilities
for contingent consideration, put options and preferential
dividends, continuing pricing pressure, particularly in
Respiratory, increased input costs, the comparison with the benefit
in Q2 2017 of a settlement for lost third party supply volume in
Vaccines, investments in new product support, particularly for
launches in Respiratory, HIV and Vaccines and a reduction in
royalty income.
Contingent
consideration cash payments which are made to Shionogi and other
companies reduce the balance sheet liability and hence are not
recorded in the income statement. Total contingent
consideration cash payments in 2018 amounted to £1,137 million
(2017: £685 million). This included a cash milestone
paid to Novartis of $450 million (£317 million) as well as
cash payments made to Shionogi of £793 million (2017:
£671 million).
Net finance costs
Net finance costs were £717 million compared with £669
million in 2017. This reflected higher debt levels following
the acquisition from Novartis of its stake in the Consumer
Healthcare Joint Venture in June 2018 as well as additional
interest on tax arising from a historic tax settlement, recorded in
Q3 2018, and an adverse comparison with a provision
release of £24 million in Q4 2017, partly offset by the benefit of a one-off
accounting adjustment to the amortisation of long term bond
interest charges of £20 million in Q1 2018, the benefit from
older bonds being refinanced at lower interest rates and the
translation impact of exchange rate movements on the reported
Sterling costs of foreign currency denominated interest-bearing
instruments.
Taxation
The charge of £754 million represented an effective tax rate
on Total results of 15.7% (2017: 38.5%) and reflected the different
tax effects of the various Adjusting items. This includes the
effect of a reduced estimate of the 2017 impact of US tax reform of
£125 million, following additional guidance being released by
the IRS and a re-assessment of estimates of uncertain tax positions
following the settlement of a number of open issues with tax
authorities. The reduction from the prior year effective tax
rate on Total profits was driven primarily by a favourable
comparison with the impact of US tax reform, which resulted in a
number of charges in Q4 2017.
Non-controlling interests
The allocation of earnings to non-controlling interests amounted to
£423 million (2017: £637 million). The
reduction was primarily due to the lower allocation of Consumer
Healthcare profits of £117 million (2017: £415 million)
following the buyout of Novartis' interest. This was partly
offset by an increased allocation of ViiV Healthcare profits and
higher net profits in some of the Group's other entities with
non-controlling interests.
Earnings per share
Total earnings per share was 73.7p, compared with 31.4p in
2017. The increase in earnings per share primarily reflected
a favourable comparison with charges in 2017 arising
from the impact of US tax reform, reduced restructuring costs and asset impairments,
increased operating profits, a lower tax rate and
a reduced non-controlling interest allocation of
Consumer Healthcare profits, partly offset by higher
transaction-related charges arising from increases in the valuation
of the liabilities for contingent consideration, put options and
preferential dividends.
|
|
Currency impact on 2018 results
The
results for 2018 are based on average exchange rates, principally
£1/$1.33, £1/€1.13 and £1/Yen 147.
Comparative exchange rates are given on page 59. The
period-end exchange rates were £1/$1.27, £1/€1.11
and £1/Yen 140.
In
2018, turnover increased 2% in AER terms and 5% CER. Total
EPS was 73.7p compared with 31.4p in 2017. The negative
currency impact primarily reflected the strength of Sterling,
particularly against the US Dollar, Yen and Emerging Market
currencies, relative to 2017.
|
|
Adjusting items
The
reconciliations between Total results and Adjusted results for 2018
and 2017 are set out below.
|
|
Year ended 31 December 2018
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal and
other items
£m
|
Adjusted
results
£m
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Turnover
|
30,821
|
|
|
|
|
|
30,821
|
|
Cost of sales
|
(10,241)
|
536
|
69
|
443
|
15
|
-
|
(9,178)
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Gross profit
|
20,580
|
536
|
69
|
443
|
15
|
-
|
21,643
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administration
|
(9,915)
|
|
2
|
315
|
98
|
38
|
(9,462)
|
|
Research and development
|
(3,893)
|
44
|
45
|
49
|
|
20
|
(3,735)
|
|
Royalty income
|
299
|
|
|
|
|
|
299
|
|
Other operating income/(expense)
|
(1,588)
|
|
|
2
|
1,864
|
(278)
|
-
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Operating profit
|
5,483
|
580
|
116
|
809
|
1,977
|
(220)
|
8,745
|
|
|
|
|
|
|
|
|
|
|
Net finance costs
|
(717)
|
|
|
4
|
(3)
|
18
|
(698)
|
|
Profit on disposal of associates
|
3
|
|
|
|
|
(3)
|
-
|
|
Share of after tax profits of
associates and joint ventures
|
31
|
|
|
|
|
|
31
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit before taxation
|
4,800
|
580
|
116
|
813
|
1,974
|
(205)
|
8,078
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(754)
|
(109)
|
(19)
|
(170)
|
(239)
|
(244)
|
(1,535)
|
|
Tax rate %
|
15.7%
|
|
|
|
|
|
19.0%
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit after taxation
|
4,046
|
471
|
97
|
643
|
1,735
|
(449)
|
6,543
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit
attributable to
non-controlling interests
|
423
|
|
|
|
251
|
|
674
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to
shareholders
|
3,623
|
471
|
97
|
643
|
1,484
|
(449)
|
5,869
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
73.7p
|
9.6p
|
2.0p
|
13.1p
|
30.2p
|
(9.2)p
|
119.4p
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares (millions)
|
4,914
|
|
|
|
|
|
4,914
|
|
|
------------
|
|
|
|
|
|
------------
|
|
Year ended 31 December 2017
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal and
other items
£m
|
US tax
reform
£m
|
Adjusted
results
£m
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Turnover
|
30,186
|
|
|
|
|
|
|
30,186
|
|
Cost of sales
|
(10,342)
|
546
|
400
|
545
|
80
|
-
|
|
(8,771)
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Gross profit
|
19,844
|
546
|
400
|
545
|
80
|
-
|
|
21,415
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administration
|
(9,672)
|
|
|
248
|
|
83
|
|
(9,341)
|
|
Research and
development
|
(4,476)
|
45
|
288
|
263
|
|
18
|
|
(3,862)
|
|
Royalty income
|
356
|
|
|
|
|
|
|
356
|
|
Other operating income/
(expense)
|
(1,965)
|
|
|
|
1,519
|
(220)
|
666
|
-
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Operating profit
|
4,087
|
591
|
688
|
1,056
|
1,599
|
(119)
|
666
|
8,568
|
|
|
|
|
|
|
|
|
|
|
|
Net finance costs
|
(669)
|
|
|
4
|
|
8
|
|
(657)
|
|
Profit on disposal of
associates
|
94
|
|
|
|
|
(94)
|
|
-
|
|
Share of after tax profits
of associates and joint
ventures
|
13
|
|
|
|
|
|
|
13
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit before taxation
|
3,525
|
591
|
688
|
1,060
|
1,599
|
(205)
|
666
|
7,924
|
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(1,356)
|
(134)
|
(176)
|
(209)
|
(619)
|
(251)
|
1,078
|
(1,667)
|
|
Tax rate %
|
38.5%
|
|
|
|
|
|
|
21.0%
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit after taxation
|
2,169
|
457
|
512
|
851
|
980
|
(456)
|
1,744
|
6,257
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit
attributable to
non-controlling interests
|
637
|
|
|
|
42
|
|
114
|
793
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to
shareholders
|
1,532
|
457
|
512
|
851
|
938
|
(456)
|
1,630
|
5,464
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
31.4p
|
9.4p
|
10.5p
|
17.4p
|
19.2p
|
(9.4)p
|
33.3p
|
111.8p
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares
(millions)
|
4,886
|
|
|
|
|
|
|
4,886
|
|
|
------------
|
|
|
|
|
|
|
------------
|
|
Intangible asset amortisation and impairment
Intangible
asset amortisation was £580 million compared with £591
million in 2017. Intangible asset impairments related to
commercial and Pharmaceuticals R&D development assets were
£116 million (2017: £688 million). The 2017 charge
included impairments related to the withdrawal of Tanzeum and a number of other
commercial and Pharmaceuticals R&D development assets.
These charges were non-cash items.
|
|
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated
manufacturing operations and supply chains and long lifecycle of
the business mean that restructuring programmes, particularly those
that involve the rationalisation or closure of manufacturing or
R&D sites, are likely to take several years to
complete.
Major restructuring costs are those related to specific Board approved Major
restructuring programmes. Major restructuring programmes,
including integration costs following material acquisitions, are
those that are structural and are of a significant scale where the
costs of individual or related projects exceed £25
million. Other ordinary course smaller scale restructuring
costs are retained within Total and Adjusted results.
The
Board approved a new Major restructuring programme in July 2018,
which is designed to significantly improve the competitiveness and
efficiency of the Group's cost base with savings delivered
primarily through supply chain optimisation and reductions in administrative
costs.
|
|
Total
Major restructuring charges incurred in 2018 were £809 million
(2017: £1,056 million), analysed as follows:
|
|
|
2018
|
|
2017
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
£m
|
|
Non-cash
£m
|
|
Total
£m
|
|
Cash
£m
|
|
Non-cash
£m
|
|
Total
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
restructuring and
integration programme
|
330
|
|
110
|
|
440
|
|
531
|
|
525
|
|
1,056
|
|
2018
major restructuring
programme
|
279
|
|
90
|
|
369
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
609
|
|
200
|
|
809
|
|
531
|
|
525
|
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges arising under the existing Combined restructuring and
integration programme primarily related to the write-down of assets
as part of the announced plans to reduce the manufacturing
network. Cash charges arose from restructuring in the Europe
and International Pharmaceuticals commercial operations and some
manufacturing sites. Non-cash charges under the 2018 major
restructuring programme primarily related to announced plans to
restructure the manufacturing network and cash charges to date
under the 2018 major restructuring programme primarily related to
restructuring in the US Pharmaceuticals commercial operation, as
well as some manufacturing sites and central
functions.
Total
cash payments for the two programmes made in the year were
£537 million (2017: £555 million).
The
analysis of major restructuring charges by business was as
follows:
|
|
|
2018
£m
|
|
2017
£m
|
|
|
|
|
|
|
Pharmaceuticals
|
563
|
|
682
|
|
Vaccines
|
104
|
|
177
|
|
Consumer
Healthcare
|
72
|
|
137
|
|
|
|
|
|
|
|
739
|
|
996
|
|
Corporate
& central functions
|
70
|
|
60
|
|
|
|
|
|
|
Total
Major restructuring costs
|
809
|
|
1,056
|
|
|
|
|
|
|
The
analysis of Major restructuring charges by Income statement line
was as follows:
|
|
|
2018
£m
|
|
2017
£m
|
|
|
|
|
|
|
Cost of
sales
|
443
|
|
545
|
|
Selling,
general and administration
|
315
|
|
248
|
|
Research
and development
|
49
|
|
263
|
|
Other
operating income/(expense)
|
2
|
|
-
|
|
|
|
|
|
|
Total
Major restructuring costs
|
809
|
|
1,056
|
|
|
|
|
|
|
The
Combined restructuring and integration programme delivered
incremental annual cost savings in the year of £0.3
billion. Given its relatively recent launch, the benefit
delivery this year from the 2018 major restructuring programme was
not material.
|
|
The
analysis of incremental annual cost savings in the year by Income
statement line was as follows:
|
|
|
2018
£bn
|
|
2017
£bn
|
|
|
|
|
|
|
Cost of
sales
|
0.2
|
|
0.2
|
|
Selling,
general and administration
|
0.1
|
|
0.4
|
|
Research
and development
|
-
|
|
0.1
|
|
|
|
|
|
|
Total
Major restructuring savings
|
0.3
|
|
0.7
|
|
|
|
|
|
|
Total cash charges for the Combined restructuring and integration
programme are now expected to be approximately £4.1 billion
with non-cash charges up to £1.6 billion. The programme
has now delivered approximately £3.9 billion of annual
savings, including an estimated currency benefit of £0.3
billion. The programme is now expected to deliver by 2020
total annual savings of £4.4 billion on a constant currency
basis, including an estimated benefit of £0.4 billion from
currency on the basis of 2018 average exchange rates.
The 2018 major restructuring programme is expected to cost
£1.7 billion over the period to 2021, with cash costs of
£0.8 billion and non-cash costs of £0.9 billion, and is
expected to deliver annual savings of around £400 million by
2021 (at 2018 rates). These savings will be fully re-invested
to help fund targeted increases in R&D and commercial support
of new products.
|
|
Transaction-related adjustments
Transaction-related
adjustments resulted in a net charge of £1,977 million (2017:
£1,599 million). This primarily reflected £1,846
million of accounting charges for the re-measurement of the
contingent consideration liabilities related to the acquisitions of
the former Shionogi-ViiV Healthcare joint venture and the former
Novartis Vaccines business, the value attributable to the Consumer
Healthcare Joint Venture put option held by Novartis and the
liabilities for the Pfizer put option and Pfizer and Shionogi
preferential dividends in ViiV Healthcare.
|
|
Charge/(credit)
|
2018
£m
|
|
2017
£m
|
|
|
|
|
|
|
Consumer
Healthcare Joint Venture put option
|
658
|
|
986
|
|
Contingent
consideration on former Shionogi-ViiV Healthcare
Joint Venture (including Shionogi preferential
dividends)
|
1,188
|
|
556
|
|
ViiV
Healthcare put options and Pfizer preferential
dividends
|
(58)
|
|
(126)
|
|
Contingent
consideration on former Novartis Vaccines business
|
58
|
|
101
|
|
Other
adjustments
|
131
|
|
82
|
|
|
|
|
|
|
Total
transaction-related charges
|
1,977
|
|
1,599
|
|
|
|
|
|
|
A net
charge of £658 million relating to the Consumer Healthcare
Joint Venture represented the re-measurement of the valuation of
the Consumer Healthcare put option to the agreed valuation of $13
billion (£9.2 billion on signing), together with an increase
due to movements in exchange rates, which was largely offset by
gains on hedging contracts.
The
£1,188 million charge relating to the contingent consideration
for the former Shionogi-ViiV Healthcare Joint Venture represented a
£758 million increase in the valuation of the contingent
consideration due to Shionogi, primarily as a result of updated
exchange rate assumptions and sales forecasts following the GEMINI
study completed in Q2 2018, together with a £430 million
unwind of the discount.
Other
adjustments included a £51 million charge reflecting the
release of an indemnity asset relating to the tax treatment of
inventory acquired as part of the Novartis Vaccines acquisition,
with a corresponding offset in tax, as well as acquisition costs
relating to the acquisition of Tesaro completed in January 2019 and
the announced agreement with Pfizer to combine our consumer
healthcare businesses.
Contingent
consideration cash payments which are made to Shionogi and other
companies reduce the balance sheet liability and hence are not
recorded in the income statement. Total contingent
consideration cash payments in the year amounted to £1,137
million (2017: £685 million). This included a cash
milestone paid to Novartis of $450 million (£317 million) as
well as cash payments made by ViiV Healthcare to Shionogi in
relation to its contingent consideration liability (including
preferential dividends) which amounted to £793 million (2017:
£671 million).
An
explanation of the accounting for the non-controlling interests in
ViiV Healthcare is set out on page 64.
Divestments, significant legal charges and other items
Divestments
and other items included the profit on a number of asset disposals,
including tapinarof, a gain arising from the increase in value of
the shares in Hindustan Unilever Limited to be received on the
disposal of Horlicks and other Consumer
Healthcare brands, which is expected to complete by the end of
2019, net of disposal costs, as well as equity investment
impairments and certain other adjusting items. A charge of
£33 million (2017: £68 million) for significant legal
matters included the benefit of the settlement of existing matters
as well as provisions for ongoing litigation. Significant
legal cash payments were £39 million (2017: £192
million).
|
|
Adjusted results
The
reconciliations between Total results and Adjusted results for 2018
and 2017 are set out on pages 14 and 15.
|
|
|
2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
30,821
|
|
100
|
|
2
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(9,178)
|
|
(29.8)
|
|
5
|
|
6
|
|
Selling,
general and administration
|
(9,462)
|
|
(30.7)
|
|
1
|
|
4
|
|
Research
and development
|
(3,735)
|
|
(12.1)
|
|
(3)
|
|
(2)
|
|
Royalty
income
|
299
|
|
1.0
|
|
(16)
|
|
(17)
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
8,745
|
|
28.4
|
|
2
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Adjusted
profit before tax
|
8,078
|
|
|
|
2
|
|
6
|
|
Adjusted
profit after tax
|
6,543
|
|
|
|
5
|
|
9
|
|
Adjusted
profit attributable to shareholders
|
5,869
|
|
|
|
7
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Adjusted
earnings per share
|
119.4p
|
|
|
|
7
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Operating profit by business
|
2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
8,420
|
|
48.8
|
|
(3)
|
|
-
|
|
Pharmaceuticals
R&D*
|
(2,676)
|
|
|
|
(2)
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Total
Pharmaceuticals
|
5,744
|
|
33.3
|
|
(3)
|
|
-
|
|
Vaccines
|
1,943
|
|
33.0
|
|
18
|
|
25
|
|
Consumer
Healthcare
|
1,517
|
|
19.8
|
|
10
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
9,204
|
|
29.9
|
|
3
|
|
7
|
|
Corporate
& other unallocated costs
|
(459)
|
|
|
|
22
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
8,745
|
|
28.4
|
|
2
|
|
6
|
|
|
|
|
|
|
|
|
|
|
*
|
Operating
profit of Pharmaceuticals R&D segment, which is the
responsibility of the President, Pharmaceuticals R&D. It
excludes ViiV Healthcare R&D expenditure, which is reported
within the Pharmaceuticals segment. A more detailed breakdown
of R&D expenses is set out on page 40.
|
|
Operating profit
Adjusted
operating profit was £8,745 million, 2% higher at AER compared
with 2017 and 6% higher at CER on a turnover increase of 5%.
The Adjusted operating margin of 28.4% was flat at AER compared
with 2017 but 0.5 percentage points higher on a CER basis.
This reflected the benefit from sales growth at CER in all three
businesses, a more favourable mix, primarily in Vaccines and
Consumer Healthcare, the benefits of prioritisation of R&D
expenditure and the comparison with the impact of the Priority
Review Voucher utilised and expensed in 2017 as well as continued
tight control of ongoing costs across all three businesses.
This was partly offset by continuing pricing pressure, particularly
in Respiratory, increased input costs, the comparison with the
benefit in Q2 2017 of a settlement for lost third party supply
volume in Vaccines, investments in promotional product support,
particularly for new launches in Respiratory, HIV and Vaccines and
a reduction in royalty income.
Cost of sales
Cost of
sales as a percentage of turnover was 29.8%, up 0.7 percentage
points at AER, and 0.4 percentage points in CER terms compared with
2017. This primarily reflected continued adverse pricing
pressure in Pharmaceuticals, particularly in Respiratory, and
Established Vaccines, as well as increased input costs and an
adverse comparison with the benefit of a settlement for lost third
party supply volume in 2017 in Vaccines. This was partly
offset by a more favourable product mix in Vaccines and Consumer
Healthcare, particularly with the launch of Shingrix, as well as a further
contribution from integration and restructuring savings in all
three businesses.
Selling, general and administration
SG&A
costs as a percentage of turnover were 30.7%, 0.2 percentage points
lower at AER than in 2017 and 0.3 percentage points lower on a CER
basis. This reflected an increase of 1% AER, 4% CER,
primarily resulting from increased investment in promotional
product support, particularly for new launches in Respiratory, HIV
and Vaccines, partly offset by tight control of ongoing costs,
particularly in non-promotional and back office spending, across
all three businesses.
Research and development
R&D
expenditure was £3,735 million (12.1% of turnover), 3% AER, 2%
CER lower than 2017, primarily reflecting the favourable comparison
with the impact of the Priority Review Voucher purchased and
utilised in 2017 and the benefit of the prioritisation initiatives
started in the second half of 2017. This was partly offset by
increased investment in the progression of a number of mid and
late-stage programmes, particularly in Oncology, as well as the
provision for the costs payable to a third party relating to the
use of a Priority Review Voucher awarded and utilised in
2018.
Royalty income
Royalty
income was £299 million (2017: £356 million), the
reduction primarily reflecting the patent expiry of Cialis, partly
offset by an increase in the Gardasil royalty.
Operating profit by business
Pharmaceuticals
operating profit was £5,744 million, down 3% AER but flat at
CER on a turnover increase of 2% CER. The operating margin of
33.3% was 1.0 percentage points lower at AER than in 2017 and 0.9
percentage points lower on a CER basis. This primarily
reflected the continued impact of lower prices, particularly in
Respiratory, and the broader transition of the Respiratory
portfolio, increased investment in new product support and a
reduction in royalty income. This was partly offset by the
benefits of prioritisation within R&D and a favourable
comparison with the impact of the Priority Review Voucher purchased
in 2017.
Vaccines
operating profit was £1,943million, 18% AER, 25% CER higher
than in 2017 on a turnover increase of 16% CER. The operating
margin of 33.0% was 1.1 percentage points higher at AER than in
2017 and 2.5 percentage points higher on a CER basis. This
was primarily driven by enhanced operating leverage from strong
sales growth, an improved product mix, including the impact of the
launch of Shingrix,
together with further restructuring and integration benefits.
This was partly offset by the comparison with the benefit of a
settlement for lost third party supply volume recorded in 2017,
increased supply chain costs and increased SG&A investments to
support new launches and business growth.
Consumer
Healthcare operating profit was £1,517 million, up 10% AER,
15% CER on a turnover increase of 2% CER. The operating
margin of 19.8% was 2.1 percentage points higher than in 2017 and
2.2 percentage points higher on a CER basis. This primarily
reflected improved product mix and manufacturing restructuring and
integration benefits, as well as continued tight control of
promotional and other operating expenses.
Net finance costs
Net finance costs were £698 million compared with £657
million in 2017. The increase reflected higher debt levels
following the acquisition from Novartis of its stake in the
Consumer Healthcare Joint Venture in June 2018 as well as a
£23 million increase in interest on tax arising from
settlement of a historic tax matter in Q3 2018 and an adverse
comparison with a provision release of £23 million in Q4
2017. This was partly offset by the benefit of a one-off
accounting adjustment to the amortisation of long term bond
interest charges of £20 million in Q1 2018,
the benefit from older bonds and the
facilities utilised to fund the acquisition of Novartis' stake in
the Consumer Healthcare JV being refinanced at lower interest
rates and fair value
gains on hedging instruments.
Taxation
Tax on
Adjusted profit amounted to £1,535 million and represented an
effective Adjusted tax rate of 19.0% (2017: 21.0%). The
reduction in the effective Adjusted tax rate in 2018 is primarily
driven by the reduction in the US federal tax rate. See
'Taxation' on page 58 for further details.
Non-controlling interests
The
allocation of Adjusted earnings to non-controlling interests
amounted to £674 million (2017: £793 million). The
reduction was primarily due to the lower allocation of Consumer
Healthcare profits of £118 million (2017: £344 million)
following the buyout of Novartis' interest. This was partly
offset by an increased allocation of ViiV Healthcare profits of
£501 million (2017: £414 million), and the changes in the
proportions of preferential dividends due to each shareholder based
on the relative performance of different products, as well as
increases in the allocation due to higher net profits in some of
the Group's other entities with non-controlling
interests.
Earnings per share
Adjusted
EPS of 119.4p was up 7% AER, 12% CER, compared with a 6% CER
increase in Adjusted operating profit, primarily as a result of a
reduced non-controlling interest allocation of Consumer Healthcare
profits and a lower Adjusted tax rate.
|
|
Currency impact on 2018 results
The
results for 2018 are based on average exchange rates, principally
£1/$1.33, £1/€1.13 and £1/Yen147.
Comparative exchange rates are given on page 59. The
period-end exchange rates were £1/$1.27, £1/€1.11
and £1/Yen140.
In
2018, turnover increased 2% in AER terms and 5% CER. Adjusted
EPS was 119.4p compared with 111.8p in 2017, up 7% AER, 12%
CER. The negative currency impact primarily reflected the
strength of Sterling, particularly against the US Dollar, Yen and
Emerging Market currencies, relative to 2017. Exchange gains
or losses on the settlement of intercompany transactions had a
negligible impact on the negative currency impact of five
percentage points on Adjusted EPS.
|
|
Financial performance - Q4 2018
|
|
Total results
|
|
The
Total results for the Group are set out below.
|
|
|
Q4 2018
£m
|
|
Q4
2017
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
8,197
|
|
7,639
|
|
7
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(2,904)
|
|
(2,558)
|
|
14
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
5,293
|
|
5,081
|
|
4
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
(2,620)
|
|
(2,533)
|
|
3
|
|
1
|
|
Research
and development
|
(1,076)
|
|
(1,209)
|
|
(11)
|
|
(14)
|
|
Royalty income
|
79
|
|
69
|
|
14
|
|
6
|
|
Other
operating income/(expense)
|
(122)
|
|
(896)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
1,554
|
|
512
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
24
|
|
16
|
|
|
|
|
|
Finance
expense
|
(209)
|
|
(154)
|
|
|
|
|
|
Profit
on disposal of associates
|
-
|
|
66
|
|
|
|
|
|
Share
of after tax profits of associates
and
joint ventures
|
5
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
1,374
|
|
442
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(74)
|
|
(805)
|
|
|
|
|
|
Tax rate %
|
5.4%
|
|
>100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) after taxation
|
1,300
|
|
(363)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Profit
attributable to non-controlling
interests
|
85
|
|
183
|
|
|
|
|
|
Profit/(loss)
attributable to shareholders
|
1,215
|
|
(546)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
(363)
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share
|
24.7p
|
|
(11.2)p
|
|
>100
|
|
>100
|
|
|
|
|
|
|
|
|
|
|
Sales performance - Q4 2018
|
|
Group turnover by business
|
Q4 2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
4,810
|
|
6
|
|
4
|
|
Vaccines
|
1,479
|
|
22
|
|
18
|
|
Consumer
Healthcare
|
1,908
|
|
1
|
|
1
|
|
|
|
|
|
|
|
|
Group
turnover
|
8,197
|
|
7
|
|
5
|
|
|
|
|
|
|
|
|
Group
turnover was up 7% AER, 5% CER to £8,197 million, with growth
delivered by all three businesses.
Pharmaceuticals
sales grew 6% AER, 4% CER, with growth in all therapy areas.
HIV sales were up 10% AER, 6% CER to £1,276 million,
reflecting strong performances by Tivicay and Juluca. Respiratory sales were up
5% AER, 2% CER to £1,991 million, with growth from
the Ellipta portfolio
and Nucala.
Vaccines
sales were up 22% AER, 18% CER, driven primarily by growth in sales
of Shingrix in
the US and influenza products, partly offset by declines in
Meningitis and Established Vaccines.
Consumer
Healthcare sales grew 1% AER, 1% CER reflecting growth in Oral
health and Wellness, partly offset by increased competitive
pressures in Europe and by a decline in Nutrition and Skin health,
primarily following the divestments of some smaller brands,
including Horlicks and MaxiNutrition in the
UK.
|
|
Group turnover by geographic region
|
Q4 2018
|
||||
|
|
|
|
|
||
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
US
|
3,274
|
|
15
|
|
8
|
|
Europe
|
2,030
|
|
2
|
|
1
|
|
International
|
2,893
|
|
3
|
|
6
|
|
|
|
|
|
|
|
|
Group
turnover
|
8,197
|
|
7
|
|
5
|
|
|
|
|
|
|
|
|
US
sales grew 15% AER, 8% CER driven by strong performances
from Shingrix, HIV
products, Benlysta and new Respiratory
products.
Europe
sales grew 2% AER, 1% CER as growth from HIV and the new
Respiratory products was partly offset by a decline in Consumer
Healthcare sales and a decrease in Bexsero sales, largely due to the
completion of the vaccination of catch-up cohorts in certain
markets that benefited Q4 2017.
In
International, sales grew 3% AER, 6% CER reflecting strong growth
in the new Respiratory products as well as HIV and Established
Pharmaceutical sales. Sales in Emerging Markets grew 1% AER,
5% CER, driven by strong growth of Horlicks in
India, Panadol in
Latin America and respiratory products.
|
|
Pharmaceuticals
|
|
|
Q4 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Respiratory
|
1,991
|
|
5
|
|
2
|
|
HIV
|
1,276
|
|
10
|
|
6
|
|
Immuno-inflammation
|
136
|
|
40
|
|
34
|
|
Established
Pharmaceuticals
|
1,407
|
|
1
|
|
1
|
|
|
|
|
|
|
|
|
|
4,810
|
|
6
|
|
4
|
|
|
|
|
|
|
|
|
US
|
2,119
|
|
4
|
|
(1)
|
|
Europe
|
1,110
|
|
7
|
|
6
|
|
International
|
1,581
|
|
7
|
|
9
|
|
|
|
|
|
|
|
|
|
4,810
|
|
6
|
|
4
|
|
|
|
|
|
|
|
|
Pharmaceuticals
turnover in the quarter was £4,810 million, up 6% AER, 4% CER,
with growth in all therapy areas. HIV sales were up 10% AER,
6% CER, to £1,276 million, reflecting continued growth of the
dolutegravir portfolio, particularly Tivicay and Juluca. Respiratory sales were up
5% AER, 2% CER, to £1,991 million, with growth from
the Ellipta portfolio
and Nucala more
than offsetting lower sales of Seretide/Advair. Sales of
Established Pharmaceuticals grew 1% AER, 1% CER to £1,407
million.
In the
US, sales grew 4% AER, but declined 1% CER, with growth in
HIV, Benlysta and
new Respiratory products more than offset by declines
in Advair and
Established Products. In Europe, sales grew 7% AER, 6% CER,
with strong growth in the Respiratory and HIV portfolios, as well
as the benefit of the first instalment of a
12-month Relenza supply
contract. International grew 7%
AER, 9% CER, with growth in HIV, Respiratory and
Established Pharmaceuticals.
Respiratory
Total
Respiratory sales were up 5% AER, 2% CER. Growth from
the Ellipta portfolio
and Nucala more
than offset lower sales of Seretide/Advair which declined 18%
AER, 20% CER globally. The US was up 2% AER but down 3% CER
as the decline in Advair sales exceeded the growth
in the new Respiratory products in the quarter. In Europe,
sales grew 9% AER, 7% CER and International grew 9% AER, 10% CER,
including Japan, up 7% AER, 5% CER.
Sales
of Nucala were
£173 million in the quarter and grew 43% AER, 38% CER,
continuing to benefit from the global rollout of the product.
US sales of Nucala grew 29% AER, 23% CER to
£107 million.
Sales
of Ellipta products were up 36% AER,
33% CER to £654 million driven by continued growth in all
regions. In the US, sales grew 33% AER, 28% CER, reflecting
further market share gains, partly offset by the impact of
continued competitive pricing pressures, particularly for
ICS/LABAs. In Europe, sales grew 52% AER, 51% CER.
Sales of Trelegy
Ellipta, our new once-daily closed triple product, were
£77 million in the quarter, continuing to benefit from an
expanded label in the US.
Relvar/Breo Ellipta sales grew 13% AER, 9% CER, to
£333 million, with growth in Europe, which was up 31% AER, 28%
CER to £71 million and in International, which was up 25% AER,
26% CER to £76 million. In the US, Relvar/Breo was up 3% AER, but
down 2% CER to £186 million, with volume growth of 16%
reflecting continued market share growth, offset by the impact of
competitive pricing pressures in the ICS/LABA
market. Anoro
Ellipta sales grew 32% AER, 28% CER to £144
million, driven by gains in the US. All Ellipta products, Breo, Anoro, Incruse, Arnuity and Trelegy,
continued to grow market share in the US during the
quarter.
Sales
of New Respiratory products, comprising Ellipta products
and Nucala, grew 38%
AER, 34% CER to £827 million.
Seretide/Advair sales declined 18% AER, 20% CER to
£647 million. Sales of Advair in the US declined 27%
AER, 31% CER (15% volume decline and 16% negative impact of
price) primarily reflecting increased competitive pricing
pressures. In Europe, Seretide sales were down 18% AER,
20% CER to £150 million (17% volume decline and a
3% price decline).
This reflected continued competition from generic products and
the transition of the Respiratory portfolio to newer
products. In International, sales of Seretide were up 1% AER, 2% CER,
to £198 million (2% volume decline and 4% positive impact of
price), with decline in markets with generic competition offset by
growth from other developing markets.
HIV
HIV
sales increased 10% AER, 6% CER to £1,276 million in the
quarter, with the US up 10% AER, 3% CER, Europe up 9% AER, 7% CER
and International up 15% AER, 18% CER. US growth in the quarter was
adversely impacted by year end stocking patterns compared to
2017.
The
growth was driven by the dolutegravir portfolio which grew 14% AER,
9% CER. Triumeq
,Tivicay and Juluca sales were £691
million, £452 million and £62 million, respectively, in
the quarter. The growth was partly offset by the decline in
the established portfolio and, in particular, Epzicom/Kivexa, which declined 29% AER,
31% CER to £30 million, reflecting ongoing generic
competition.
Immuno-inflammation
Sales
in the quarter were up 40% AER, 34% CER, primarily driven
by Benlysta which
grew 42% AER, 34% CER to £138 million. In the
US, Benlysta grew
39% AER, 31% CER to £121 million, benefiting from the launch
of the sub-cutaneous formulation in the third quarter of
2017.
Established
Pharmaceuticals
Sales
of Established Pharmaceuticals in the quarter were £1,407
million, up 1% AER, 1% CER, reflecting efforts to maximise the
value from this portfolio but also the benefit of certain
post-divestment contract manufacturing sales and the first
instalment of a 12-month Relenza supply contract in
Europe.
The Avodart franchise
was flat at AER but declined 1% CER to £149 million, primarily
due to the loss of exclusivity in Europe, with the US impact now
broadly annualised. Coreg franchise sales declined 39%
AER, 43% CER following a generic Coreg CR entrant to the US market
in Q4 2017. Lamictal sales declined 5% AER, 8%
CER to £159 million.
|
|
Vaccines
|
|
|
Q4 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Meningitis
|
188
|
|
(6)
|
|
(9)
|
|
Influenza
|
193
|
|
74
|
|
69
|
|
Shingles
|
221
|
|
>100
|
|
>100
|
|
Established
Vaccines
|
877
|
|
-
|
|
(3)
|
|
|
|
|
|
|
|
|
|
1,479
|
|
22
|
|
18
|
|
|
|
|
|
|
|
|
US
|
666
|
|
78
|
|
65
|
|
Europe
|
377
|
|
(2)
|
|
(4)
|
|
International
|
436
|
|
(3)
|
|
(2)
|
|
|
|
|
|
|
|
|
|
1,479
|
|
22
|
|
18
|
|
|
|
|
|
|
|
|
Vaccines turnover grew 22% AER, 18% CER to £1,479 million,
primarily driven by growth in Shingrix, and strong performances by influenza
products. Meningitis vaccines declined 6% AER, 9% CER driven
primarily by an adverse comparison with prior year CDC stockpile
movements on Menveo in the US. Established Vaccines were
flat at AER but declined 3% CER, reflecting increased competition
to Cervarix and supply phasing in China, competitive
pressures particularly in the EU on DTPa-containing vaccines
(Infanrix, Pediarixand Boostrix), partly offset by higher sales of Hepatitis
vaccines.
Meningitis
Meningitis sales declined 6% AER, 9% CER to £188 million.
Bexsero sales declined 1% AER, 3% CER largely due to
the completion of vaccination of catch-up cohorts in certain
markets in Europe which benefited 2017, partly offset by demand and
share gains in the US. Menveo sales were down 32% AER, 37% CER, primarily
reflecting the comparison with strong growth in Q4 2017, which
included favourable CDC stockpile movements in the
US.
Influenza
Fluarix/FluLaval sales
were up 74% AER, 69% CER to £193 million, primarily reflecting
strong sales execution in the US and improved sales in
Europe.
Shingles
Shingrix recorded sales of
£221 million in the quarter, primarily in the US and Canada.
US sales of Shingrixbenefited from market growth in new patient
populations now covered by immunisation
recommendations.
Established
Vaccines
Sales of DTPa-containing vaccines (Infanrix,
Pediarix and Boostrix) were up 4% AER but flat at
CER. Infanrix,
Pediarix sales were up 5%
AER, 1% CER to £165 million, reflecting the benefit of US
channel stocking movements, partly offset by increased competitive
pressures, particularly in Europe. Boostrix sales were up 4% AER but down 1% CER to
£139 million, primarily driven by the return to the market of
a competitor in Europe, partly offset by stronger demand in the
US.
Hepatitis vaccines grew 18% AER, 14% CER to £190 million,
driven by stronger demand and competitor supply shortage in the US
and Europe, favourable year-on-year CDC stockpile movements in the
US, partly offset by supply constraints in
International.
Rotarix sales increased 6%
AER, 4% CER to £134 million, mainly driven by favourable
phasing of tenders in Emerging Markets, partly offset by lower CDC
purchases in the US.
Synflorix sales were down
5% AER, 6% CER to £106 million, mainly due to lower tender
volumes in Europe, and unfavourable year-on-year phasing in
International.
Cervarix sales declined
76% AER, 81% CER to £15 million, primarily reflecting
increased competition and year-on-year supply phasing in
China.
|
|
Consumer Healthcare
|
|
|
Q4 2018
|
||||
|
|
|
|
|
|
|
|
|
£m
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
Wellness
|
1,005
|
|
1
|
|
1
|
|
Oral
health
|
623
|
|
3
|
|
3
|
|
Nutrition
|
154
|
|
(6)
|
|
(2)
|
|
Skin
health
|
126
|
|
(6)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
1,908
|
|
1
|
|
1
|
|
|
|
|
|
|
|
|
US
|
489
|
|
11
|
|
4
|
|
Europe
|
543
|
|
(5)
|
|
(6)
|
|
International
|
876
|
|
-
|
|
3
|
|
|
|
|
|
|
|
|
|
1,908
|
|
1
|
|
1
|
|
|
|
|
|
|
|
|
Consumer
Healthcare sales grew 1% AER, 1% CER in the quarter to £1,908
million as growth in Oral health and Wellness was partly offset by
declines in Nutrition and Skin health, primarily following the
disposal of a number of products. Growth in the US and
International markets was partly offset by a decline in
Europe. The decline in Europe was mainly driven by a slowdown
in consumption and increased competitive pressures.
The
negative impact of the divestments of Horlicks and MaxiNutrition in the UK and other
smaller brands earlier in the year was offset by growth
in Transderm
Scop in the US, which benefited from supply shortages
faced by the generic competition.
Wellness
Wellness
sales grew 1% AER, 1% CER to £1,005 million. Respiratory
sales grew in mid-single digits, mainly driven by Flonase consumption
and Theraflu, which
was supported by the US launch of Theraflu PowerPods. Growth was partly
offset by a decline in Pain relief, mainly the result of lower
volumes shipped for Voltaren to rebalance the
distribution channel, while Excedrin was impacted by a strong
comparative performance in Q4 2017. Panadol grew in double digits in
Latin America but this was offset by the change in the
route-to-market model in South-East Asia and the discontinuation
of slow-release Panadol products in the
Nordic countries.
Oral health
Oral
health sales grew 3% AER, 3% CER to £623 million, mainly
driven by Denture care and Sensodyne. Denture care grew high
single-digit, mainly in International markets,
while Parodontax delivered broad-based
double digit growth. Strong momentum on Sensodyne in the quarter in the US
and India was largely offset as we made executional adjustments to
our marketing campaigns in Europe in response to intensified
competitor promotional activity in the category and completed the
last of the de-stocking in International markets. Oral Health
growth was also tempered by a decline in non-strategic
brands.
Nutrition
Nutrition
sales declined 6% AER, 2% CER to £154 million.
The Horlicks and MaxiNutrition divestments in the
UK impacted growth by three percentage points. The Nutrition
business in India continued to grow in mid single digits, partly
offset by a weaker performance in the Middle East.
Skin
health
Skin
health declined 6% AER, 5% CER to £126 million due to a
weak quarter for Physiogel and divestments of small
non-strategic brands in the US, which had a negative impact on
growth of three percentage points.
|
|
Total results - Q4 2018
|
|
Cost of sales
Cost of
sales as a percentage of turnover was 35.4%, 1.9 percentage points
higher at AER and 2.6 percentage points higher in CER terms
compared with Q4 2017. This primarily reflected an increase
in the costs of manufacturing restructuring programmes and a higher
proportion of tenders and post-divestment contract manufacturing
business in the quarter, together with continued adverse pricing
pressure in Pharmaceuticals, particularly in Respiratory, and
Established Vaccines and an unfavourable product mix in
Pharmaceuticals, primarily as a result of the growth in some lower
margin Established products and increased input costs. This
was partly offset by a more favourable product mix in Vaccines and
Consumer Healthcare, particularly the impact of higher Vaccines
sales, and a further contribution from integration and
restructuring savings in all three businesses.
Selling, general and administration
SG&A
costs as a percentage of turnover were 32.0%, 1.2 percentage points
lower compared with Q4 2017 at AER and 1.2 percentage points lower
on a CER basis. The growth in SG&A costs of 3% AER, 1%
CER reflected increased investment in promotional product support,
particularly for new launches in Vaccines, Respiratory and HIV and
targeted priority markets, and a charge arising from the
equalisation of UK Guaranteed Minimum Pensions, as well as
acquisition costs for Tesaro and the announced agreement with
Pfizer to combine our consumer healthcare businesses. This
was partly offset by the tight control of ongoing costs,
particularly in non-promotional spending across all three
businesses, and reduced restructuring costs.
Research and development
R&D
expenditure was £1,076 million (13.1% of turnover), down 11%
AER, 14% CER, primarily reflecting lower intangible asset
impairments and the benefits of the re-prioritisation of the
R&D portfolio as well as the phasing of investment in
late-stage programmes, particularly in HIV. This was partly
offset by increased investment in the progression of a number of
mid and late-stage programmes, particularly in
Oncology.
Royalty income
Royalty
income was £79 million (Q4 2017: £69 million), up 14%
AER, 6% CER, primarily reflecting increased royalties on sales of
Gardasil.
Other operating income/(expense)
Net
other operating expense of £122 million (Q4 2017: £896
million) reflected £229 million (Q4 2017: £884 million)
of accounting charges arising from the re-measurement of the
contingent consideration liabilities related to the acquisitions of
the former Shionogi-ViiV Healthcare joint venture and the former
Novartis Vaccines business and the liabilities for the Pfizer put
option and Pfizer and Shionogi preferential dividends in ViiV
Healthcare.
The
largest element was a re-measurement of £261 million for the
contingent consideration liability due to Shionogi, primarily
arising from changes in exchange rate assumptions and the unwind of
the discount. The 2017 charges included the impact of US tax
reform, which increased the fair value of these liabilities by
£666 million. This was partly offset by the profit on a
number of asset disposals and a gain arising from the increase in
value of the shares in Hindustan Unilever Limited to be received on
the disposal of Horlicks and other Consumer
Healthcare brands, net of disposal costs.
Operating profit
Total
operating profit was £1,554 million in Q4 2018 compared with
an operating profit of £512 million in Q4 2017. The
increase in operating profit reflected lower net other operating
expenses compared with the charges of £666 million in Q4 2017
arising from the impact of US tax reform on the valuation of the
Consumer Healthcare and HIV businesses, as well as the benefit from
sales growth in all three businesses, a more favourable mix in
Vaccines and Consumer Healthcare, continued tight control of
ongoing costs across all three businesses, reduced intangible asset
impairments, profit on a number of asset disposals and a gain
arising from the increase in value of the shares in Hindustan
Unilever Limited to be received on the disposal
of Horlicks and
other Consumer Healthcare brands, net of disposal costs. This
was partly offset by increased restructuring costs compared with Q4
2017, continuing price pressure, particularly in Respiratory,
increased input costs, an unfavourable product mix in
Pharmaceuticals, primarily as a result of a higher proportion of
lower margin tenders and post-divestment contract manufacturing and
investments in promotional product support, particularly for new
launches in Vaccines, Respiratory and HIV.
Contingent
consideration cash payments which are made to Shionogi and other
companies reduce the balance sheet liability and hence are not
recorded in the income statement. Total contingent
consideration cash payments in the quarter amounted to £222
million (Q4 2017: £193 million). This included cash
payments made to Shionogi of £209 million (Q4 2017: £186
million).
Net finance costs
Net
finance costs were £185 million compared with £138
million in Q4 2017. The increase primarily reflected higher
debt levels following the acquisition from Novartis of its stake in
the Consumer Healthcare Joint Venture in June 2018 as well as an
adverse comparison to a provision release for interest on tax of
£24 million in Q4 2017.
Taxation
The
charge of £74 million represented an effective tax rate on
Total results of 5.4% (Q4 2017: >100%) and reflected the
different tax effects of the various Adjusting items. This
includes the effect of a reduced estimate of the 2017 impact of US
tax reform of £101 million, following additional guidance
being released by the IRS and a re-assessment in the quarter of
estimates of uncertain tax positions following the settlement of a
number of open issues with tax authorities. The reduction
from the Q4 2017 effective tax rate (>100%) was driven primarily
by a favourable comparison with the impact of US tax reform, which
resulted in a number of charges in Q4 2017.
Non-controlling interests
The
allocation of earnings to non-controlling interests amounted to
£85 million (Q4 2017: £183 million). The reduction
was primarily due to the ending of the allocation of Consumer
Healthcare profits (Q4 2017: £218 million) following the
buyout of Novartis' interest. This was partly offset by an
increased allocation of ViiV Healthcare profits as well as higher
net profits in some of the Group's other entities with
non-controlling interests.
Earnings per share
Total
earnings per share was 24.7p, compared with a loss per share of
11.2p in Q4 2017. The increase in earnings per share
primarily reflected a favourable comparison with charges in 2017
arising from the impact of US tax reform as well as an improved
trading performance, the reduced non-controlling interest
allocation of Consumer Healthcare profits and a lower tax
rate.
Currency impact on Q4 2018 results
The Q4
2018 results are based on average exchange rates, principally
£1/$1.27, £1/€1.13 and £1/Yen144.
Comparative exchange rates are given on page 59. The
period-end exchange rates were £1/$1.27, £1/€1.11
and £1/Yen140.
In the
quarter, turnover increased 7% AER, 5% CER. Total EPS was
24.7p compared with a loss per share of 11.2p in Q4 2017. The
positive currency impact primarily reflected the weakness of
Sterling, particularly against the US Dollar, partly offset by
weakness in emerging market currencies, relative to Q4 2017.
|
|
Adjusting items
The
reconciliations between Total results and Adjusted results for 2018
and 2017 are set out below.
|
|
Three months ended 31 December 2018
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal and
other items
£m
|
Adjusted
results
£m
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Turnover
|
8,197
|
|
|
|
|
|
8,197
|
|
Cost of sales
|
(2,904)
|
136
|
|
232
|
4
|
|
(2,532)
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Gross profit
|
5,293
|
136
|
|
232
|
4
|
|
5,665
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administration
|
(2,620)
|
|
|
48
|
37
|
6
|
(2,529)
|
|
Research and development
|
(1,076)
|
14
|
12
|
22
|
|
9
|
(1,019)
|
|
Royalty income
|
79
|
|
|
|
|
|
79
|
|
Other operating income/(expense)
|
(122)
|
|
|
1
|
230
|
(109)
|
-
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Operating profit
|
1,554
|
150
|
12
|
303
|
271
|
(94)
|
2,196
|
|
|
|
|
|
|
|
|
|
|
Net finance costs
|
(185)
|
|
|
2
|
(3)
|
13
|
(173)
|
|
Profit on disposal of associates
|
-
|
|
|
|
|
|
-
|
|
Share of after tax losses of
associates and joint ventures
|
5
|
|
|
|
|
|
5
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit before taxation
|
1,374
|
150
|
12
|
305
|
268
|
(81)
|
2,028
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(74)
|
(24)
|
(4)
|
(48)
|
(38)
|
(167)
|
(355)
|
|
Tax rate %
|
5.4%
|
|
|
|
|
|
17.5%
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit after taxation
|
1,300
|
126
|
8
|
257
|
230
|
(248)
|
1,673
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit
attributable to
non-controlling interests
|
85
|
|
|
|
54
|
|
139
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to
shareholders
|
1,215
|
126
|
8
|
257
|
176
|
(248)
|
1,534
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
24.7p
|
2.6p
|
0.2p
|
5.2p
|
3.6p
|
(5.1)p
|
31.2p
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares (millions)
|
4,920
|
|
|
|
|
|
4,920
|
|
|
------------
|
|
|
|
|
|
------------
|
|
Three months ended 31 December 2017
|
|
|
Total
results
£m
|
Intangible
amort-
isation
£m
|
Intangible
impair-
ment
£m
|
Major
restruct-
uring
£m
|
Transaction-
related
£m
|
Divestments,
significant
legal and
other items
£m
|
US tax
reform
£m
|
Adjusted
results
£m
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Turnover
|
7,639
|
|
|
|
|
|
|
7,639
|
|
Cost of sales
|
(2,558)
|
136
|
66
|
79
|
19
|
-
|
|
(2,258)
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Gross profit
|
5,081
|
136
|
66
|
79
|
19
|
-
|
|
5,381
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administration
|
(2,533)
|
|
|
96
|
|
17
|
|
(2,420)
|
|
Research and
development
|
(1,209)
|
11
|
201
|
10
|
|
(5)
|
|
(992)
|
|
Royalty income
|
69
|
|
|
|
|
|
|
69
|
|
Other operating income/
(expense)
|
(896)
|
|
|
(1)
|
222
|
9
|
666
|
-
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Operating profit
|
512
|
147
|
267
|
184
|
241
|
21
|
666
|
2,038
|
|
|
|
|
|
|
|
|
|
|
|
Net finance costs
|
(138)
|
|
|
1
|
|
2
|
|
(135)
|
|
Profit on disposal of
associates
|
66
|
|
|
|
|
(66)
|
|
-
|
|
Share of after tax profits
of associates and joint
ventures
|
2
|
|
|
|
|
|
|
2
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit before taxation
|
442
|
147
|
267
|
185
|
241
|
(43)
|
666
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(805)
|
(34)
|
(51)
|
40
|
(467)
|
(142)
|
1,078
|
(381)
|
|
Tax rate %
|
>100%
|
|
|
|
|
|
|
20.0%
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
(Loss)/profit after
taxation
|
(363)
|
113
|
216
|
225
|
(226)
|
(185)
|
1,744
|
1,524
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
Profit
attributable to
non-controlling interests
|
183
|
|
|
|
(105)
|
|
114
|
192
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit attributable
to shareholders
|
(546)
|
113
|
216
|
225
|
(121)
|
(185)
|
1,630
|
1,332
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/earnings per
share
|
(11.2)p
|
2.3p
|
4.4p
|
4.6p
|
(2.5)p
|
(3.7)p
|
33.3p
|
27.2p
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares
(millions)
|
4,891
|
|
|
|
|
|
|
4,891
|
|
|
------------
|
|
|
|
|
|
|
------------
|
|
Intangible asset amortisation and impairment
Intangible
asset amortisation was £150 million compared with £147
million in Q4 2017. There were also intangible asset
impairments of £12 million (Q4 2017: £267 million)
relating to R&D assets. Both of these charges were
non-cash items.
|
|
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated
manufacturing operations and supply chains and long lifecycle of
the business mean that restructuring programmes, particularly those
that involve the rationalisation or closure of manufacturing or
R&D sites are likely to take several years to
complete.
Major restructuring costs are those related to specific Board approved Major
restructuring programmes and are excluded from Adjusted
Results. Major restructuring programmes, including
integration costs following material acquisitions, are those that
are structural and are of a significant scale where the costs of
individual or related projects exceed £25 million. Other
ordinary course smaller scale restructuring costs are retained
within Total and Adjusted results.
The
Board approved a new Major restructuring programme in July 2018,
which is designed to significantly improve the competitiveness and
efficiency of the Group's cost base with savings delivered
primarily through supply chain optimisation and reductions in administrative
costs.
|
|
Total
Major restructuring charges incurred in the quarter were £303
million (Q4 2017: £184 million), analysed as
follows:
|
|
|
Q4 2018
|
|
Q4
2017
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
£m
|
|
Non-cash
£m
|
|
Total
p
|
|
Cash
£m
|
|
Non-cash
£m
|
|
Total
p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
restructuring and
integration programme
|
52
|
|
10
|
|
62
|
|
34
|
|
150
|
|
184
|
|
2018
major restructuring
programme
|
151
|
|
90
|
|
241
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
100
|
|
303
|
|
34
|
|
150
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges arising under the existing Combined restructuring and
integration programme primarily related to the write-down of assets
as part of the announced plans to reduce the manufacturing
network. Cash charges arose from restructuring of the
manufacturing organisation and some administrative functions.
Non-cash charges under the 2018 major restructuring programme
primarily related to announced plans to restructure the
manufacturing network, and cash charges arose from restructuring in
some manufacturing sites and some administrative
functions.
Total
cash payments for the two programmes made in the quarter were
£184 million, £175 million for the existing Combined
restructuring and integration programme (Q4 2017: £106
million) and £9 million under the 2018 major restructuring
programme including the settlement of certain charges accrued in
previous quarters.
The
analysis of Major restructuring charges by business was as
follows:
|
|
|
Q4 2018
£m
|
|
Q4
2017
£m
|
|
|
|
|
|
|
Pharmaceuticals
|
269
|
|
55
|
|
Vaccines
|
28
|
|
62
|
|
Consumer
Healthcare
|
(28)
|
|
42
|
|
|
|
|
|
|
|
269
|
|
159
|
|
Corporate
& central functions
|
34
|
|
25
|
|
|
|
|
|
|
Total
Major restructuring costs
|
303
|
|
184
|
|
|
|
|
|
|
The
credit of £28 million in Consumer Healthcare includes a profit
on disposal of several manufacturing sites in the
quarter.
|
|
The
analysis of Major restructuring charges by Income statement line
was as follows:
|
|
|
Q4 2018
£m
|
|
Q4
2017
£m
|
|
|
|
|
|
|
Cost of
sales
|
232
|
|
79
|
|
Selling,
general and administration
|
48
|
|
96
|
|
Research
and development
|
22
|
|
10
|
|
Other
operating income/(expense)
|
1
|
|
(1)
|
|
|
|
|
|
|
Total
Major restructuring costs
|
303
|
|
184
|
|
|
|
|
|
|
The
Combined restructuring and integration programme delivered
incremental annual cost savings in the quarter of less than
£0.1 billion. Given its relatively recent launch, the
benefit delivery in the quarter from the 2018 major restructuring
programme was not material.
|
|
Transaction-related adjustments
Transaction-related
adjustments resulted in a net charge of £271 million (Q4 2017:
£241 million). This primarily reflected £229
million of accounting charges for the re-measurement of the
contingent consideration liabilities related to the acquisitions of
the former Shionogi-ViiV Healthcare joint venture and the former
Novartis Vaccines business and the liabilities for the Pfizer put
option and Pfizer and Shionogi preferential dividends in ViiV
Healthcare.
|
|
Charge/(credit)
|
Q4 2018
£m
|
|
Q4
2017
£m
|
|
|
|
|
|
|
Consumer
Healthcare Joint Venture put option
|
-
|
|
163
|
|
Contingent
consideration on former Shionogi-ViiV Healthcare Joint
Venture
(including Shionogi preferential dividends)
|
261
|
|
151
|
|
ViiV
Healthcare put options and Pfizer preferential
dividends
|
(40)
|
|
(40)
|
|
Contingent
consideration on former Novartis Vaccines business
|
8
|
|
(56)
|
|
Other
adjustments
|
42
|
|
23
|
|
|
|
|
|
|
Total
transaction-related charges
|
271
|
|
241
|
|
|
|
|
|
|
The
£261 million charge relating to the contingent consideration
for the former Shionogi-ViiV Healthcare Joint Venture represented
£145 million arising primarily from updated exchange rate
assumptions, together with a £116 million unwind of the
discount. A credit of £40 million relating to a decrease
in the put option liability to Pfizer primarily reflected
adjustments to the current multiples of market comparables, partly
offset by revised exchange rate assumptions.
Other
adjustments included acquisition costs relating to the acquisition
of Tesaro completed in January 2019 and the announced agreement
with Pfizer to combine our consumer healthcare
businesses.
Contingent
consideration cash payments which are made to Shionogi and other
companies reduce the balance sheet liability and hence are not
recorded in the income statement. Total contingent
consideration cash payments in the quarter amounted to £222
million (Q4 2017: £193 million). This included cash
payments made by ViiV Healthcare to Shionogi in relation to its
contingent consideration liability (including preferential
dividends) which amounted to £209 million (Q4 2017: £186
million).
An
explanation of the accounting for the non-controlling interests in
ViiV Healthcare is set out on page 64.
Divestments, significant legal charges and other items
Divestments
and other items included the profit on a number of asset disposals,
and a gain arising from the increase in value of the shares in
Hindustan Unilever Limited to be received on the disposal
of Horlicks and
other Consumer Healthcare brands, which is expected to complete by
the end of 2019, net of disposal costs, as well as equity
investment impairments and certain other Adjusting items. A
charge of £4 million (Q4 2017: £8 million ) for
significant legal matters included the benefit of the settlement of
existing matters as well as provisions for ongoing
litigation. Significant legal cash payments were £15
million (Q4 2017: £8 million).
|
|
Adjusted results
The
reconciliations between Total results and Adjusted results for 2018
and 2017 are set out on pages 30 and 31.
|
|
|
Q4 2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
8,197
|
|
100
|
|
7
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(2,532)
|
|
(30.9)
|
|
12
|
|
12
|
|
Selling,
general and administration
|
(2,529)
|
|
(30.9)
|
|
5
|
|
3
|
|
Research
and development
|
(1,019)
|
|
(12.4)
|
|
3
|
|
(1)
|
|
Royalty
income
|
79
|
|
1.0
|
|
14
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,196
|
|
26.8
|
|
8
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Adjusted
profit before tax
|
2,028
|
|
|
|
6
|
|
2
|
|
Adjusted
profit after tax
|
1,673
|
|
|
|
10
|
|
6
|
|
Adjusted
profit attributable to shareholders
|
1,534
|
|
|
|
15
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Adjusted
earnings per share
|
31.2p
|
|
|
|
14
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Operating profit by business
|
Q4 2018
|
||||||
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
%
of
turnover
|
|
Growth
£%
|
|
Growth
CER%
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
2,340
|
|
48.6
|
|
1
|
|
(3)
|
|
Pharmaceuticals
R&D*
|
(778)
|
|
|
|
9
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total
Pharmaceuticals
|
1,562
|
|
32.5
|
|
(2)
|
|
(6)
|
|
Vaccines
|
420
|
|
28.4
|
|
82
|
|
71
|
|
Consumer
Healthcare
|
352
|
|
18.4
|
|
17
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
2,334
|
|
28.5
|
|
10
|
|
5
|
|
Corporate
& other unallocated costs
|
(138)
|
|
|
|
50
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
2,196
|
|
26.8
|
|
8
|
|
4
|
|
|
|
|
|
|
|
|
|
|
*
|
Operating
profit of Pharmaceuticals R&D segment, which is the
responsibility of the President, Pharmaceuticals R&D. It
excludes ViiV Healthcare R&D expenditure, which is reported
within the Pharmaceuticals segment. A more detailed breakdown
of R&D expenses is set out on page 40.
|
|
Operating profit
Adjusted
operating profit was £2,196 million, 8% higher than Q4 2017 at
AER and 4% higher at CER on a turnover increase of 5% CER.
The Adjusted operating margin of 26.8% was 0.1 percentage points
higher at AER but 0.4 percentage points lower on a CER basis than
in Q4 2017. This primarily reflected an increase in cost of
sales due to continuing pricing pressure, particularly in
Respiratory, increased input costs, an unfavourable product mix in
Pharmaceuticals, primarily as a result of a higher proportion of
tenders and post-divestment contract manufacturing business in the
quarter, together with investments in promotional product support,
particularly for new launches in Vaccines, Respiratory and
HIV. This was partly offset by the benefit from sales growth
in all three businesses, a more favourable mix in Vaccines and
Consumer Healthcare and continued tight control of ongoing costs
across all three businesses.
Cost of sales
Cost of
sales as a percentage of turnover was 30.9%, up 1.3 percentage
points at AER, and 1.9 percentage points higher at CER compared
with Q4 2017. This primarily reflected continued adverse
pricing pressure in Pharmaceuticals, particularly in Respiratory,
and Established Vaccines, an unfavourable product mix in
Pharmaceuticals, primarily as a result of the growth in some lower
margin Established products, and increased input costs. This
was partly offset by a more favourable product mix in Vaccines and
Consumer Healthcare, particularly the impact of higher Vaccines
sales, and a further contribution from integration and
restructuring savings in all three businesses.
Selling, general and administration
SG&A
costs as a percentage of turnover were 30.9%, 0.8 percentage points
lower at AER than in Q4 2017 and 0.8 percentage points lower on a
CER basis. The 5% AER, 3% CER increase in SG&A costs
primarily reflected increased investment in promotional product
support, particularly for new launches in Vaccines, Respiratory and
HIV and targeted priority markets and a charge arising from the
equalisation of UK Guaranteed Minimum Pensions, partly offset by
tight control of ongoing costs, particularly in non-promotional
spending, across all three businesses.
Research and development
R&D
expenditure was £1,019 million (12.4% of turnover), 3% higher
at AER, but 1% lower at CER than Q4 2017, primarily
reflecting the benefits of the re-prioritisation of the R&D
portfolio as well as the phasing of investment in late-stage
programmes, particularly HIV, partly offset by increased investment
in the progression of a number of early and mid stage programmes,
particularly in Oncology.
Royalty income
Royalty
income was £79 million (Q4 2017: £69 million), an
increase of 14% AER, 6% CER, primarily reflecting increased
royalties on sales of Gardasil.
Operating profit by business
Pharmaceuticals
operating profit was £1,562 million, down 2% AER, 6% CER on a
turnover increase of 4% CER. The operating margin of 32.5%
was 2.7 percentage points lower at AER than in Q4 2017 and 3.3
percentage points lower on a CER basis. This primarily
reflected the growth in cost of sales due to the continued impact
of lower prices, particularly in Respiratory, an unfavourable
product mix primarily as a result of the growth in some lower
margin established products and increased input costs, together
with investment in new product support and targeted priority
markets and lower royalty income, partly offset by continued tight
control of ongoing costs and the benefits of re-prioritisation of
the R&D portfolio.
Vaccines
operating profit was £420 million, 82% higher than Q4 2017 at
AER and 71% higher at CER on a turnover increase of 18% CER.
The operating margin of 28.4% was 9.3 percentage points higher than
in Q4 2017 at AER and 8.5 percentage points higher on a CER
basis. This was primarily driven by enhanced operating
leverage from strong sales growth, improved product mix and higher
royalty income, with higher SG&A investment increased broadly
in line with sales to support new launches and business
growth.
Consumer
Healthcare operating profit was £352 million, up 17% AER, 14%
CER, on a turnover increase of 1% CER. The operating margin
of 18.4% was 2.5 percentage points higher than in Q4 2017 at AER,
and 2.0 percentage points higher on a CER basis. This
primarily reflected continued manufacturing restructuring and
integration benefits and improved product mix as well as tight
control of promotional and other operating expenses compared with
Q4 2017.
Net finance costs
Net finance costs were £173 million compared with £135
million in Q4 2017. The increase primarily reflected higher
debt levels following the acquisition from Novartis of its stake in
the Consumer Healthcare Joint Venture in June 2018, as well as an
adverse comparison to a provision release for interest on tax of
£23 million in Q4 2017.
Taxation
Tax on Adjusted profit amounted to £355 million and
represented an effective Adjusted tax rate of 17.5% (Q4 2017:
20.0%). The reduction in the effective Adjusted
tax rate in Q4 2018 is primarily driven by the reduction in the US
federal tax rate. See 'Taxation'
on page 58 for further details.
Non-controlling interests
The allocation of Adjusted earnings to non-controlling interests
amounted to £139 million (Q4 2017: £192 million).
The reduction was primarily due to the ending of the allocation of
Consumer Healthcare profits (Q4 2017: £85 million) following
the buyout of Novartis' interest. This was partly offset by
an increased allocation of ViiV Healthcare profits of £130
million (Q4 2017: £103 million), including the impact of
changes in the proportions of preferential dividends due to each
shareholder based on the relative performance of different products
in the quarter.
Earnings per share
Adjusted
EPS of 31.2p was up 14% AER, 10% CER, compared with a 4% CER
increase in Adjusted operating profit, primarily as a result of the
reduced non-controlling interest allocation of Consumer Healthcare
profits and a lower Adjusted tax rate.
|
|
Currency impact on Q4 2018 results
The Q4
2018 results are based on average exchange rates, principally
£1/$1.27, £1/€1.13 and £1/Yen144.
Comparative exchange rates are given on page 59. The
period-end exchange rates were £1/$1.27, £1/€1.11
and £1/Yen140.
In the
quarter, turnover increased 7% AER, 5% CER. Adjusted EPS was
31.2p compared with 27.2p in Q4 2017, up 14% AER, 10% CER.
The positive currency impact primarily reflected the weakness of
Sterling, particularly against the US Dollar, partly offset by
weakness in emerging market currencies, relative to Q4 2017.
Exchange gains or losses on the settlement of intercompany
transactions had a negligible impact on the positive currency
impact of four percentage points on Adjusted EPS.
|
|
Cash generation and conversion
|
|
Cash flow and net debt
|
|
|
2018
|
|
2017
(revised)
|
|
Q4
2018
|
|
|
|
|
|
|
|
|
Net
cash inflow from operating activities (£m)
|
8,421
|
|
6,918
|
|
4,119
|
|
Free
cash flow* (£m)
|
5,692
|
|
3,485
|
|
3,317
|
|
Free
cash flow growth (%)
|
63%
|
|
6%
|
|
83%
|
|
Free
cash flow conversion* (%)
|
>100%
|
|
>100%
|
|
>100%
|
|
Net
debt** (£m)
|
21,621
|
|
13,178
|
|
21,621
|
|
*
|
Free
cash flow and free cash flow conversion are defined on page
44.
As
announced at Q2 2018, with the introduction of the new R&D
strategy, GSK has revised its definition of free cash flow to
include proceeds from disposals of intangible assets, as set out on
page 63. Comparative figures have been revised
accordingly.
|
|
|
|
|
**
|
Net
debt is analysed on page 63.
|
|
2018
The net
cash inflow from operating activities for the year was £8,421
million (2017: £6,918 million). The increase primarily
reflected improved operating profits, a smaller increase in working
capital as a result of a reduction of inventory balances and a
strong focus on collections, the favourable timing of payments for
returns and rebates, and reduced legal settlement and restructuring
payments, partly offset by a negative currency impact on operating
profit.
Total
cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the year were £793
million (2017: £671 million), of which £703 million was
recognised in cash flows from operating activities and £90
million was recognised in contingent consideration paid within
investing cash flows. These payments are deductible for tax
purposes.
Free
cash flow was £5,692 million for the year (2017: £3,485
million). The increase primarily reflected improved operating
profits, a smaller increase in working capital following a
reduction of inventory balances and a strong focus on collections,
the favourable timing of payments for returns and rebates, reduced
legal settlement costs and restructuring payments, lower capital
expenditure, including a favourable comparison with the impact of
the Priority Review Voucher in 2017, increased disposals of
intangible assets of £256 million (2017: £48 million),
primarily relating to the disposal of tapinarof, and reduced
dividend payments to non-controlling interests. This was
partly offset by a negative currency impact on operating profit and
increased contingent consideration payments including the $450
million (£317 million) milestone to Novartis paid in Q1
2018.
|
|
Q4 2018
The net
cash inflow from operating activities for the quarter was
£4,119 million (Q4 2017: £2,869 million). The
increase primarily reflected improved operating profits, including
a positive currency impact, a larger seasonal reduction in working
capital following a strong focus on collections and a reduction of
inventory balances, the favourable timing of payments for returns
and rebates and the phasing of tax payments, partly offset by
increased restructuring payments.
Total
cash payments to Shionogi in relation to the ViiV Healthcare
contingent consideration liability in the quarter were £209
million, of which £186 million was recognised in cash flows
from operating activities and £23 million was recognised in
contingent consideration paid within investing cash flows.
These payments are deductible for tax purposes.
Free
cash flow was £3,317 million for the quarter (Q4 2017:
£1,817 million). The increase primarily reflected
improved operating profits, including a positive currency impact, a
larger seasonal reduction in working capital following a strong
focus on collections and a reduction of inventory balances, the
favourable timing of payments for returns and rebates, the phasing
of tax payments and reduced dividend payments to non-controlling
interests. This was partly offset by increased restructuring
payments.
|
|
Net debt
At 31
December 2018, net debt was £21.6 billion, compared with
£13.2 billion at 31 December 2017, comprising gross debt of
£26.1 billion and cash and liquid investments of £4.5
billion, including £0.5 billion reported within Assets held
for sale. Net debt increased due to the £9.3 billion
acquisition from Novartis of the remaining stake in the Consumer
Healthcare Joint Venture in June 2018, the £0.2 billion
acquisition of the investment in 23andMe, £0.8 billion of
unfavourable exchange impacts from the translation of non-Sterling
denominated debt, and dividends paid to shareholders of £3.9
billion, partly offset by increased free cash flow of £5.7
billion after the milestone payment to Novartis.
At 31
December 2018, GSK had short-term borrowings (including overdrafts)
repayable within 12 months of £5.8 billion with loans of
£1.8 billion repayable in the subsequent year.
|
|
Working capital
|
|
|
31
December
2018
|
|
30
September
2018
|
|
30
June
2018
|
|
31
March
2018
|
|
31 December
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital conversion cycle* (days)
|
201
|
|
230
|
|
223
|
|
204
|
|
191
|
|
Working
capital percentage of turnover (%)
|
23
|
|
29
|
|
26
|
|
24
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Working
capital and working capital conversion cycle are defined on
page 44.
|
|
The
increase of 10 days in 2018 compared with 2017 was predominately
due to an adverse impact from exchange of approximately five days
as well as a reduced denominator due to lower restructuring and
impairment costs in 2018. Excluding these factors,
significant improvements were made in working capital relative to
the growth in the business, with reduced inventory as a result of
tight control of inventory levels and stronger collections of
receivables.
|
|
Returns to shareholders
|
|
Quarterly dividends
The
Board has declared a fourth interim dividend for 2018 of 23 pence
per share (Q4 2017: 23 pence per share).
GSK
recognises the importance of dividends to shareholders and aims to
distribute regular dividend payments that will be determined
primarily with reference to the free cash flow generated by the
business after funding the investment necessary to support the
Group's future growth.
The
Board intends to maintain the dividend for 2019 at the current
level of 80p per share, subject to any material change in the
external environment or performance expectations. Over time,
as free cash flow strengthens, it intends to build free cash flow
cover of the annual dividend to a target range of 1.25-1.50x,
before returning the dividend to growth.
Payment of dividends
The
equivalent interim dividend receivable by ADR holders will be
calculated based on the exchange rate on 9 April 2019. An
annual fee of $0.03 per ADS (or $0.0075 per ADS per quarter) (2018:
$0.02 per ADS; $0.005 per ADS per quarter) is charged by the
Depositary.
The
ex-dividend date will be 21 February 2019, with a record date of 22
February 2019 and a payment date of 11 April 2019.
|
|
|
Paid/
payable
|
|
Pence
per
share
|
|
£m
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
First
interim
|
12 July
2018
|
|
19
|
|
934
|
|
Second
interim
|
11
October 2018
|
|
19
|
|
934
|
|
Third
interim
|
10
January 2019
|
|
19
|
|
935
|
|
Fourth
interim
|
11
April 2019
|
|
23
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
80
|