TIDMGSK
RNS Number : 6371A
GlaxoSmithKline PLC
03 February 2011
Issued: Thursday, 3rd February 2011, London, UK Unaudited Preliminary Results
Announcement for the year ended 31st December 2010 Strategic progress drives
positive underlying sales growth*, increasing pipeline potential and improved
cash generation Increased dividend and new long-term share buy-back programme
enhance returns to shareholders
Results before major restructuring**
2010 Q4 2010
GBPm CER% GBP% GBPm CER% GBP%
Turnover 28,392 (1) - 7,197 (13) (11)
Earnings/(loss) per
share 53.9p (59) (56) (7.5)p
EPS excluding legal
charges 120.7p (11) (8) 28.2p (34) (33)
--------------------- ------- ----- ----- -------- ----- -----
Total results
2010 Q4 2010
GBPm CER% GBP% GBPm CER% GBP%
Turnover 28,392 (1) - 7,197 (13) (11)
Restructuring charges 1,345 283
Legal charges 4,001 2,165
Earnings/(loss) per
share 32.1p (75) (71) (13.6)p
----------------------- ------- ----- ----- -------- ----- -----
The full results are presented under 'Income Statement'
on pages 10 and 17.
* Underlying sales growth excludes pandemic products, Avandia
and Valtrex, see page 9.
** For explanations of the measures 'results before major
restructuring' and 'CER growth', see page 9.
Summary
-- Continuing focus on ROI and capital allocation:
- Restructuring benefits of GBP1.7 billion delivered;
on track for 2012 GBP2.2 billion target
- Investment drives sales in Emerging Markets, Vaccines
and Consumer Healthcare
- Consumer Healthcare to increase focus around 'priority'
brands and emerging markets; non-core OTC brands with
annual sales of around GBP500 million to be divested
-- Delivering diversified underlying sales growth:
- 2010 sales -1%; underlying sales growth 4.5%*
- Sales generated in 'white pills/western markets' 25%
of 2010 sales (40% in 2007)
- Underlying sales momentum expected to continue in 2011
and translate to reported growth in 2012 at CER
-- Increasing pipeline potential:
- Sustained portfolio of 30 opportunities in late-stage
development
- 10 new molecules and vaccines enter Phase III in last
12 months
- Respiratory LABA/LAMA combination enters Phase III
development for COPD
- Phase III data expected on 15 assets by end of 2012
-- Improved cash generation:
- Adjusted net cash inflow from operating activities
GBP8.8 billion up 9% (excludes GBP2 billion of cash
outflow for legal matters)
- Net debt GBP8.9 billion; GBP0.6 billion lower than
2009
- Working capital improvement programme delivers GBP1.3
billion of net cash (including GBP600 million from
lower pandemic receivables)
-- Enhancing returns to shareholders:
- 2010 dividend up 7% to 65p; priority is to deliver
further growth
- Long-term share buy-back programme initiated (GBP1-2
billion expected in 2011)
GSK's strategic priorities
GSK has focused its business around the delivery of three
strategic priorities, which aim to increase growth, reduce
risk and improve GSK's long-term financial performance:
-- Grow a diversified global business
-- Deliver more products of value
-- Simplify GSK's operating model
Chief Executive Officer's Review
We have substantially re-engineered GSK's business model
over the last two and a half years, through major restructuring
and a rigorous returns-based approach to capital allocation.
We are also having to deal with long-standing legal cases.
There is no doubt that the scale of legal provisioning that
has been required is significant. However, I continue to
believe that it is in the company's best interests to resolve
this inherent unpredictability and reduce our overall litigation
exposure.
The changes we have made are delivering diversified underlying
sales growth, increasing pipeline potential and improved
cash generation.
These elements are at the core of our strategy to address
the market challenges we identified and to deliver sustained
financial performance. They also speak to what we have created
- a balanced, synergistic business with a lower risk profile
and the option for significant potential upside from the
pipeline.
All of this is being done with the direct aim of enhancing
returns to shareholders through continued dividend growth
and other measures such as the new long-term share buy-back
programme we initiated today.
Continuing focus on ROI and capital allocation
Reinvestment of costs saved through our restructuring programme
has enabled us to diversify and strengthen GSK's sales base.
GBP1.7 billion of cost has been extracted from our developed
country sales & marketing, support functions, R&D and manufacturing
infrastructure since 2008. We are on track to deliver GBP2.2
billion of annual savings by 2012.
We have taken cost out from lower returning activities and
reinvested it in areas such as Emerging Markets, Vaccines
and Consumer Healthcare. The benefit of this reinvestment
is evident. 2010 reported sales for these businesses were
up 22%, 15% and 5% respectively. Excluding sales of pandemic
products, Avandia and Valtrex underlying sales in Emerging
Markets were up 20%, and Vaccines sales were up 10%.
Bolt-on acquisitions are also contributing meaningfully
to sales in these areas. In 2010, we spent GBP354 million
on acquisitions. This compares with GBP2.8 billion in 2009
and reflects our disciplined approach to investment in what
is a highly competitive market. We continue to evaluate
returns from these investments. Assessment of earlier acquisitions
such as Stiefel and the emerging market portfolios of UCB
and BMS all indicate that they are on track to meet, or
exceed, the targets we set at acquisition.
All this is fundamentally reducing GSK's dependency on sales
of products in 'white pills/western markets.' Sales generated
from these markets and products have decreased from 40%
in 2007, to 25% in 2010. Over time, this should help to
reduce the adverse impact of patent expirations on the Group.
Reinvestment and cost reduction has also helped to mitigate
the impact of what has been a significant 'patent cliff'
for GSK with more than GBP4 billion of patented sales being
lost to generic competition over the last 4 years. This
is in addition to the GBP1 billion of Avandia sales decline
over the same period.
Our drive for change, and to improve returns on investment
through restructuring and effective capital allocation,
will not stop.
Today, we are announcing our intention to accelerate growth
and focus our Consumer Healthcare business around a portfolio
of 'priority' brands and the emerging markets. These two
dimensions represent around 90% of our current sales base.
We intend to divest the remaining 10% of sales (GBP500 million)
which consist of European and American non-core OTC brands.
Our aim is to divest these products by late 2011, subject
to interest and realising appropriate value for shareholders.
We expect to use the proceeds to fund increased returns
to shareholders.
Divestments of non-core assets to create value for shareholders
will continue. This week, we completed the divestment of
our total shareholding in Quest Diagnostics for net proceeds
after tax of $1.1 billion (GBP0.7 billion) and the sale
of our remaining interests in Zovirax cream and ointment
formulations in North America to Valeant Pharmaceuticals
for $300 million (GBP190 million).
Delivering diversified underlying sales growth
In 2010, reported sales were down 1%; however, underlying
sales growth (sales excluding pandemic products, Avandia
and Valtrex) was 4.5%. This growth was achieved despite
the ongoing impacts of US healthcare reform and EU government
austerity measures which reduced sales by approximately
GBP380 million.
In 2011, we expect underlying sales momentum to continue
and translate into sustainable reported growth in 2012.
This expectation includes our assessment for further pricing
reductions in the USA and Europe which is expected to amount
to an incremental GBP325 million in 2011.
We recognise that tracking GSK's performance in 2011 will
be difficult. The 'washout' of pandemic products, Avandia
and Valtrex, which altogether represented sales of more
than GBP2 billion in 2010, will clearly impact our reported
sales and margin for the year and especially during the
first half.
Given the minimal sales and marketing support for these
products, we expect this to reduce our operating margin
(excluding legal charges and other operating income) during
2011 by around 1 percentage point. This reduction also takes
into account the industry levy associated with US healthcare
reform. We expect the Group margin (on the same basis) to
improve from 2012 onwards reflecting delivery of our underlying
sales momentum and cost savings realised through our restructuring
programme.
Offsetting this impact to SG&A expenditure, would require
us to reduce investment in growth areas of the business,
and we do not believe this is in the long-term interests
of the business.
Increasing pipeline potential
GSK has a peer-leading portfolio of around 30 opportunities
in phase III and registration.
This portfolio is diverse with 5 biopharmaceuticals and
5 vaccines in addition to NCEs, all targeting multiple disease
areas. The portfolio is also innovative with more than 20
assets not currently on the market for any indication.
Importantly, we are delivering sustained asset progression
with 10 NCEs and new vaccines entering phase III since the
start of 2010. 7 assets are filed with regulators or pending
filing. By the end of 2012, we expect Phase III data on
around 15 additional assets, including treatments for type
1 and 2 diabetes, rare diseases and multiple cancer types.
Looking at asset progression, one particular area I want
to mention here is our respiratory pipeline. Today, we are
announcing that a new LAMA/LABA combination product ('719/'444),
will join Relovair in Phase III development. We have also
announced the initiation of an extensive clinical outcomes
study to assess the potential for Relovair to improve survival
in patients with COPD. With more than 50 years of experience
in this field, respiratory remains a very important part
of GSK's research.
Improving returns on investment is key to how we are running
our R&D operations. Our previously announced target is to
deliver an aspirational rate of return for GSK's R&D of
around 14%. We have made fundamental changes to how we allocate
our R&D expenditure, directing it to our late stage pipeline
and reducing cost and risk through externalising parts of
early-stage discovery; dismantling infrastructure; and terminating
development in areas with low financial and scientific return.
Improved cash generation
Improvements in business efficiency are also helping drive
cash generation. Adjusted 2010 net cash inflow before legal
settlements was GBP8.8 billion, up 9% in sterling terms,
reflecting the benefits of our ongoing restructuring programme
and the success of our working capital initiatives. During
2010, working capital reduced by GBP1.3 billion (including
GBP600 million of cash from lower pandemic receivables).
Cash outflow in respect of the settlement of legal matters
was GBP2 billion in the year, resulting in net cash inflow
from operating activities of GBP6.8 billion.
Net debt was GBP8.9 billion, GBP0.6 billion lower than the
previous year. This positions the Group well to accommodate
the already provided for legal costs as they become payable,
whilst continuing to support our ongoing investment programmes
and delivery of targeted returns to shareholders.
Increasing returns to shareholders
With improvements in our cash position, we are increasing
returns to shareholders.
We increased GSK's dividend by 7% to 65p in 2010 and our
priority is to deliver further growth in the dividend. Since
2005, dividends have increased each year with average growth
of 8% over the five-year period.
Today, we are announcing that we will buy back shares again.
In 2011, as part of a new long-term share buy-back programme
and depending on market conditions, we expect to repurchase
GBP1-2 billion of shares.
Our commitment is to use free cash flow to support increasing
dividends, undertake share repurchases or, where returns
are more attractive, invest in bolt-on acquisitions.
Summary
In conclusion, whilst our operating environment remains
challenging, I believe we have made significant progress
through restructuring and a rigorous returns-based approach
to capital allocation. Our business is more balanced and
is generating underlying sales growth. Our broad and diverse
pipeline is generating increasing potential. Our cash generation
is strong and we are enhancing returns to shareholders.
With the rest of GSK's management team, I remain confident
that we can generate increased value for shareholders and
deliver even better outcomes to patients and consumers.
Andrew Witty
Chief Executive Officer
A short video interview with Andrew Witty discussing today's
results and GSK's strategic progress is available on www.gsk.com
and cantos.com
Full year trading update
Turnover and key product movements impacting growth for
full year 2010
Total Group turnover for the year declined 1% to GBP28.4
billion, with pharmaceutical turnover down 2% to GBP23.4
billion and Consumer Healthcare sales up 5% to GBP5.0 billion.
Excluding pandemic products, Valtrex and Avandia, Group
sales were up 4.5% for the year.
Regional pharmaceutical turnover
US pharmaceuticals sales declined 11% to GBP7.6 billion,
primarily due to generic competition to Valtrex, a significant
reduction in sales of pandemic related products and lower
sales of Avandia. Excluding these products, sales grew 3%,
despite the discontinuation of GSK's promotion of Boniva,
the sale of Wellbutrin XL in May 2009, and the impact of
US healthcare reform across the product range. New products
launched since 2007 grew 29% and contributed 8% of 2010
sales.
Europe pharmaceuticals sales declined 6% to GBP6.5 billion,
primarily due to the impact of a significant reduction in
sales of pandemic related products, generic competition
to Valtrex and lower sales of Avandia. Excluding these products,
sales were flat, reflecting the impact of government austerity
measures.
Emerging Markets pharmaceutical sales grew 22% to GBP3.6
billion, with strong growth across most product categories
and also helped by pandemic related product sales of GBP227
million (2009: GBP89 million). Asia Pacific/Japan pharmaceutical
sales grew 9% to GBP3.1 billion. Excluding pandemic related
products, Valtrex and Avandia, sales grew 20% in Emerging
Markets and 7% in Asia Pacific/Japan.
Pharmaceutical products
Seretide/Advair sales grew 2% to GBP5.1 billion, with strong
growth in Japan (+17% to GBP246 million) and Emerging Markets
(+16% to GBP328 million). Sales in the USA were level at
GBP2.6 billion and grew 2% in Europe to GBP1.6 billion.
Several other respiratory products delivered growth including
Avamys/Veramyst (+33% to GBP193 million), Ventolin (+8%
to GBP522 million) and Flovent (+2% to GBP804 million).
Total vaccine sales grew 15% to GBP4.3 billion, including
GBP1.2 billion of pandemic vaccine sales (2009: GBP883 million).
Several new vaccines contributed to this growth including
Synflorix (more than doubling to GBP221 million), Boostrix
(+29% to GBP181 million) and Cervarix (+26% to GBP242 million).
Sales of Hepatitis vaccines grew 7% to GBP720 million, Infanrix/Pediarix
grew 8% to GBP700 million and seasonal flu sales grew 14%
to GBP241 million. Rotarix sales were down 18% to GBP235
million, as the product continues to recover market share
lost following its temporary suspension from several markets
earlier in the year.
Relenza sales were GBP121 million (2009: GBP720 million),
down 84%, against the previous year where significant government
orders were received.
Dermatology sales were GBP1,087 million, including heritage
GSK products and those acquired through business acquisitions,
principally Stiefel in July 2009. The estimated sales growth
in 2010 for the business on a pro-forma basis (excluding
2010 acquisitions) is approximately 6%. In addition, GSK's
heritage consumer dermatology portfolio, reported within
Consumer Healthcare, contributed sales of GBP256 million
(+8%).
Other strong pharmaceutical performances during the year
included Tykerb (+34% to GBP227 million), Arixtra (+19%
to GBP301 million), Avodart (+18% to GBP629 million), and
Lovaza (+17% to GBP530 million). Newly launched oncology
products Votrient and Arzerra delivered sales of GBP38 million
and GBP31 million, respectively.
Valtrex sales (-60% to GBP532 million) were impacted by
generic competition in the USA and Europe. Boniva's reported
sales of GBP78 million were down 69%, primarily reflecting
the transfer to Genentech of the exclusive promotion rights
in the USA on 1st January 2010. Reported sales of Wellbutrin
declined 39% to GBP81 million, reflecting the sale of Wellbutrin
XL in the USA to Biovail in Q2 2009.
Avandia sales declined by 44% to GBP440 million. On 23rd
September 2010 the European Medicines Agency suspended marketing
authorisation for all Avandia containing products and the
US Food and Drug Administration announced additional measures
to ensure continued safe use of Avandia, including a Risk
Evaluation and Mitigation Strategy (REMS) programme. As
a result, GSK expects global sales of Avandia containing
products to be minimal in the future.
Sales of HIV products by ViiV Healthcare were down 3% to
GBP1.6 billion. Sales of the former Pfizer products Selzentry
and Viracept (combined sales of GBP118 million) and growth
from Epzicom/Kivexa (+1% to GBP555 million) partially offset
reductions in the sales from other HIV products including
Trizivir (-28% to GBP144 million) and Combivir (-16% to
GBP363 million).
Consumer Healthcare
Total Consumer Healthcare sales were up 5% to GBP5.0 billion,
significantly outgrowing market growth estimated to be approximately
2%.
Sales in the Rest of World grew 13% to GBP2.0 billion, driven
by strong growth in India and China, which grew by 19% and
18%, respectively. Europe sales were level with last year
with sales of GBP2.0 billion and the business in the USA
grew 1% to GBP1.0 billion.
On a category basis, global Oral care sales grew 6% to GBP1,602
million led by growth of Sensodyne in all regions and Nutritional
healthcare sales grew 9% to GBP952 million. Sales of OTC
medicines were GBP2,456 million, up 3%, with strong growth
of Panadol and smoking control products partly offset by
lower sales of alli in both the USA and Europe and lower
sales of respiratory tract products due in part to a relatively
weak flu season earlier in 2010.
Operating profit and earnings per share commentary - year
ended 31st December 2010
Results before major restructuring
Operating profit before major restructuring for the year
ended 31st December 2010 was GBP5,128 million, a 48% decline
in CER terms (a decrease of 45% in sterling terms). Excluding
legal costs of GBP4,001 million, operating profit was GBP9,129
million, an 11% decline in CER terms (a decrease of 7% in
sterling terms) principally reflecting a 1% decline in turnover,
higher cost of sales and lower other operating income partly
offset by reduced SG&A costs. Operating profit margin excluding
legal costs and other operating income was 30.4% in 2010.
The company expects the operating profit margin excluding
legal costs and other operating income to be around 1 percentage
point lower in 2011.
Cost of sales increased to 26.1% of turnover (2009: 25.0%)
reflecting the impact of generic competition to higher margin
products in the USA (principally Valtrex), lower Avandia
sales, US healthcare reforms and European austerity price
cuts, and inventory and other asset write-downs, partially
offset by savings from the Operational Excellence programme.
The company expects cost of sales as a percentage of turnover
in 2011 to remain around 26%.
SG&A costs as a percentage of turnover increased by 11.2
percentage points to 43.6%. Excluding legal costs of GBP4,001
million (2009: GBP591 million), SG&A costs were 29.5% of
turnover (2009: 30.3%). This reflected operational excellence
savings in the USA and Europe and lower exchange losses
on inter-company transactions, partially offset by investment
in growth markets and the full year impact of the acquisition
of Stiefel. The company expects SG&A costs excluding legal
charges to be around 30.5% of turnover in 2011.
R&D expenditure was 14.0% of total turnover (2009: 13.9%)
and included savings from the Operational Excellence programme,
partially offset by higher ViiV R&D investment. The comparison
to prior year was unfavourably impacted by the one-off recognition
of a recoverable balance in 2009, partly offset by lower
intangible asset impairments of GBP126 million (2009: GBP167
million). The company expects R&D costs as a percentage
of turnover to remain around 14% in 2011.
Other operating income was GBP493 million (2009: GBP1,135
million) primarily reflecting royalty income of GBP296 million
(2009: GBP296 million), income from the transfer to Genentech
of the exclusive promotion rights to Boniva in the USA,
and asset disposals of GBP134 million (2009: GBP875 million),
partially offset by equity investment impairments of GBP65
million (2009: GBP135 million). The 2009 income included
the disposal of Wellbutrin XL, various asset disposals to
Aspen Pharmacare, a royalty dispute settlement gain of GBP78
million and the accounting gain of GBP296 million on the
creation of ViiV Healthcare. In 2011 the company expects
other operating income to be around GBP600 million, excluding
the profit arising on the proposed Consumer Healthcare divestments
of non-core OTC brands.
Net interest payable for the year was GBP712 million (2009:
GBP710 million) and the company expects a similar charge
in 2011.
Profit on disposal of interests in associates was GBP8 million.
The 2009 profit of GBP115 million arose from the sale of
5.7 million Quest shares. Subsequent to the year-end, the
company sold its entire shareholding in Quest, which will
give rise to a pre-tax profit on disposal of associates
of approximately GBP600 million (GBP250 million after tax).
The charge for taxation on profit before major restructuring
charges amounted to GBP1,544 million and represents an effective
tax rate of 34.3% (2009: 28.0%). The company currently expects
an underlying tax rate in 2011 of around 27%. The tax due
on the profit realised on the disposal of the shareholding
in Quest will increase the overall tax rate for 2011 to
around 29.5%. This excludes the effect of any tax that may
arise on the proposed Consumer Healthcare divestments of
non-core brands.
EPS before major restructuring of 53.9p decreased 59% in
CER terms (a 56% decrease in sterling terms) compared with
2009. Excluding legal costs EPS before major restructuring
decreased 11% in CER terms. The favourable currency impact
of three percentage points reflected the weakness of Sterling
against most major international currencies compared with
last year, partially offset by the strengthening of Sterling
against the Euro.
Total results after restructuring
Operating profit after restructuring for the year ended
31st December 2010 was GBP3,783 million, a decrease of 59%
CER (a decrease of 55% in sterling terms) compared with
2009. This included GBP1,345 million of restructuring charges
(2009: GBP832 million); GBP187 million was charged to cost
of sales (2009: GBP285 million), GBP665 million to SG&A
(2009: GBP392 million) and GBP493 million to R&D (2009:
GBP155 million). EPS after restructuring of 32.1p decreased
75% in CER terms (a decrease of 71% in sterling terms) compared
with 2009.
The current GBP4.5 billion Operational Excellence restructuring
programme delivered GBP1.7 billion of cumulative annual
savings in 2010, and remains on track to deliver full year
savings of GBP2.2 billion by 2012. The cumulative charge
incurred to 31st December 2010 was GBP3.6 billion which
includes GBP0.2 billion of charges for integration of new
businesses.
Cash flow and net debt
The adjusted net cash inflow from operating activities before
legal settlements of GBP2,047 million (2009: GBP254 million)
was GBP8,844 million, a 9% increase in sterling terms over
2009. The 2010 cash flow benefited from a net working capital
reduction of GBP1,297 million. This net inflow was used
to fund net interest of GBP668 million, capital expenditure
on property, plant and equipment and intangible assets of
GBP1,635 million, equity investments of GBP279 million,
acquisitions of GBP354 million, repayment of short-term
loans of GBP1,296 million and the dividends paid to shareholders
of GBP3,205 million.
Net debt decreased by GBP585 million during the year to
GBP8.9 billion, comprising gross debt of GBP15.1 billion
and cash and liquid investments of GBP6.2 billion.
At 31st December 2010, GSK had short-term borrowings (including
overdrafts) repayable within 12 months of GBP291 million
with loans of GBP2,559 million repayable in the subsequent
year.
Dividends
The Board has declared a fourth interim dividend of 19 pence
per share resulting in a dividend for the year of 65 pence,
a 4 pence increase on the 61 pence per share for 2009. The
equivalent interim dividend receivable by ADR holders is
61.5296 cents per ADS based on an exchange rate of GBP1/$1.6192.
The ex-dividend date will be 9th February 2011, with a record
date of 11th February 2011 and a payment date of 7th April
2011.
Currency impact
The 2010 results are based on average exchange rates, principally
GBP1/$1.55, GBP1/EUR1.16 and GBP1/Yen 136. Comparative exchange
rates are given on page 31. The period end exchange rates
were GBP1/$1.56, GBP1/EUR1.17 and GBP1/Yen 127. If exchange
rates were to hold at these period end levels for the rest
of 2011 and there were no exchange gains or losses, the
estimated positive impact on 2011 sterling EPS before major
restructuring would be approximately 0.9p.
Additional income statement information
To improve transparency and understanding of our increasingly
diversified business additional detailed financial information
is provided on pages 32 to 35.
GlaxoSmithKline (GSK) together with its subsidiary undertakings,
the 'Group' - one of the world's leading research-based
pharmaceutical and healthcare companies - is committed to
improving the quality of human life by enabling people to
do more, feel better and live longer. GlaxoSmithKline's
website www.gsk.com gives additional information on the
Group. Information made available on the website does not
constitute part of this document.
Enquiries: UK Media David Mawdsley (020) 8047
Claire Brough 5502
Alexandra Harrison (020) 8047
Stephen Rea 5502
(020) 8047
5502
(020) 8047
5502
USA Media Nancy Pekarek (919) 483
Mary Anne Rhyne 2839
Kevin Colgan (919) 483
Jennifer Armstrong 2839
(919) 483
2839
(919) 483
2839
European Analyst / Investor Sally Ferguson (020) 8047
Gary Davies 5543
Ziba Shamsi (020) 8047
5503
(020) 8047
3289
US Analyst / Investor Tom Curry (215) 751
5419
Results before major restructuring
Results before major restructuring is a measure used by
management to assess the Group's financial performance and
is presented after excluding restructuring charges relating
to the Operational Excellence programme, which commenced
in October 2007 and the acquisitions of Reliant Pharmaceuticals
in December 2007 and Stiefel in July 2009. Management believes
that this presentation assists shareholders in gaining a
clearer understanding of the Group's financial performance
and in making projections of future financial performance,
as results that include such costs, by virtue of their size
and nature, have limited comparative value.
CER growth
In order to illustrate underlying performance, it is the
Group's practice to discuss its results in terms of constant
exchange rate (CER) growth. This represents growth calculated
as if the exchange rates used to determine the results of
overseas companies in Sterling had remained unchanged from
those used in the comparative period. All commentaries are
presented in terms of CER growth, unless otherwise stated.
Underlying sales growth
Underlying sales growth excludes the sales of pandemic products,
Avandia and Valtrex. Management believes this measure assists
shareholders in gaining a clearer understanding of the Group's
sales performance and prospects because of the size and
nature of the loss of sales from these products in 2010
and 2011. Sales of these products were:
2010 2009
GBPm GBPm
Pandemic products 1,313 1,603
Avandia 440 771
Valtrex 532 1,294
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.
White pills/western markets
White pills/western markets refers to sales of tablets and
simple injectables (excluding biopharmaceuticals and vaccines)
in North America and Europe.
Cautionary statement regarding forward-looking statements
Under the safe harbor provisions of the US Private Securities
Litigation Reform Act of 1995, the company cautions investors
that any forward-looking statements or projections made
by the company, including those made in this Announcement,
are subject to risks and uncertainties that may cause actual
results to differ materially from those projected. Factors
that may affect the Group's operations are described under
'Risk Factors' in the 'Business Review' in the company's
Annual Report on Form 20-F for 2009.
GlaxoSmithKline plc, 980 Great West Road, Brentford, Middlesex
TW8 9GS, United Kingdom
Registered in England and Wales. Registered number: 3888792
Income statement
Year ended 31st December 2010
Results Results
before major Major before major Major
restructuring restructuring Total restructuring restructuring Total
2010 Growth 2010 2010 2009 2009 2009
GBPm CER% GBPm GBPm GBPm GBPm GBPm
______ ______ ______ ______ ______ ______ ______
TURNOVER 28,392 (1) 28,392 28,368 28,368
Cost of sales (7,405) 4 (187) (7,592) (7,095) (285) (7,380)
______ ______ ______ ______ ______ ______
Gross profit 20,987 (3) (187) 20,800 21,273 (285) 20,988
Selling, general
and
administration (12,388) 35 (665) (13,053) (9,200) (392) (9,592)
Research and
development (3,964) - (493) (4,457) (3,951) (155) (4,106)
Other operating
income 493 493 1,135 1,135
______ ______ ______ ______ ______ ______
OPERATING PROFIT 5,128 (48) (1,345) 3,783 9,257 (832) 8,425
Finance income 116 116 70 70
Finance expense (828) (3) (831) (780) (3) (783)
Profit on
disposal of
interest in
associates 8 8 115 115
Share of after
tax profits of
associates and
joint
ventures 81 81 64 64
______ ______ ______ ______ ______ ______
PROFIT BEFORE
TAXATION 4,505 (52) (1,348) 3,157 8,726 (835) 7,891
Taxation (1,544) 240 (1,304) (2,443) 221 (2,222)
Tax rate % 34.3% 41.3% 28.0% 28.2%
______ ______ ______ ______ ______ ______
PROFIT AFTER
TAXATION FOR
THE YEAR 2,961 (56) (1,108) 1,853 6,283 (614) 5,669
______ ______ ______ ______ ______ ______
Profit
attributable to
non-controlling
interests 219 219 138 138
Profit
attributable to
shareholders 2,742 (1,108) 1,634 6,145 (614) 5,531
______ ______ ______ ______ ______ ______
2,961 (1,108) 1,853 6,283 (614) 5,669
______ ______ ______ ______ ______ ______
EARNINGS PER 53.9p (59) 32.1p 121.2p 109.1p
SHARE
______ ______ ______ ______
Diluted earnings 53.5p 31.9p 120.3p 108.2p
per share
______ ______ ______ ______
Pharmaceuticals turnover
Year ended 31st December 2010
Emerging
Total USA Europe Markets Rest of World
------------------------------ ------------------------------ ------------------------------ ----------------------------- ---------------------------
GBPm CER% GBPm CER% GBPm CER% GBPm CER% GBPm CER%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Respiratory 7,238 3 3,394 1 2,149 - 616 19 1,079 4
Avamys/Veramyst 193 33 69 - 56 27 31 >100 37 94
Flixonase/Flonase 164 (5) 37 37 40 (7) 39 11 48 (30)
Flixotide/Flovent 804 2 431 8 159 (9) 48 38 166 (10)
Seretide/Advair 5,139 2 2,604 - 1,601 2 328 16 606 10
Serevent 201 (16) 64 (12) 98 (16) 2 (33) 37 (23)
Ventolin 522 8 179 16 142 (3) 112 19 89 (2)
Zyrtec 82 4 - - - - 14 - 68 5
Anti-virals 1,086 (56) 370 (68) 109 (73) 223 (3) 384 (44)
Hepsera 128 6 - - 1 - 58 10 69 2
Relenza 121 (84) 43 (69) 6 (97) 1 (97) 71 (80)
Valtrex 532 (60) 252 (73) 68 (56) 28 8 184 2
Zeffix 233 4 13 (24) 26 (10) 136 17 58 (5)
Central nervous
system 1,753 (8) 505 (23) 540 (4) 223 17 485 (2)
Imigran/Imitrex 212 (21) 75 (39) 85 (10) 5 - 47 2
Lamictal 504 1 257 (4) 143 (6) 57 23 47 42
Requip 233 11 44 69 137 2 3 50 49 2
Seroxat/Paxil 482 (12) 27 (36) 82 (15) 73 (3) 300 (9)
Treximet 56 2 55 2 - - - - 1 -
Wellbutrin 81 (39) 24 (73) 39 33 13 30 5 (25)
Cardiovascular and
urogenital 2,570 11 1,571 10 610 7 134 25 255 23
Arixtra 301 19 177 25 99 8 10 43 15 18
Avodart 629 18 337 5 175 22 33 50 84 90
Coreg 171 (1) 170 (1) - - - - 1 -
Fraxiparine 222 (2) - - 154 (9) 55 29 13 (7)
Lovaza 530 17 528 17 - - - - 2 -
Vesicare 114 9 113 8 - - - - 1 -
Volibris 46 >100 - - 40 >100 1 - 5 >100
Metabolic 678 (44) 238 (59) 166 (38) 91 (24) 183 (17)
Avandia products 440 (44) 237 (45) 88 (48) 42 (43) 73 (32)
Bonviva/Boniva 78 (69) - (100) 64 (26) 2 - 12 22
Anti-bacterials 1,396 (4) 75 (28) 536 (14) 609 10 176 1
Augmentin 625 (6) 11 (76) 240 (17) 291 15 83 10
Oncology and
emesis 688 9 350 13 201 1 62 7 75 17
Arzerra 31 >100 26 >100 4 - - - 1 -
Hycamtin 144 (16) 83 (17) 48 (17) 7 17 6 (14)
Promacta 31 >100 25 92 5 - - - 1 -
Tyverb/Tykerb 227 34 70 28 94 28 30 36 33 72
Votrient 38 >100 33 >100 4 - - - 1 -
Vaccines 4,326 15 763 (7) 1,681 (2) 927 38 955 85
Boostrix 181 29 110 51 43 10 9 29 19 (16)
Cervarix 242 26 13 >100 116 (14) 25 4 88 >100
Fluarix, FluLaval 241 14 110 51 63 (8) 40 (5) 28 -
Flu Pandemic 1,192 31 1 (99) 488 (6) 226 >100 477 >100
Hepatitis 720 7 307 19 242 (6) 88 8 83 15
Infanrix, Pediarix 700 8 146 8 429 8 50 13 75 3
Rotarix 235 (18) 74 (4) 38 (28) 102 (22) 21 (17)
Synflorix 221 >100 - - 43 38 149 >100 29 >100
Dermatologicals 1,087 51 358 70 246 48 286 52 197 26
Bactroban 119 (3) 51 (14) 27 8 28 7 13 -
Dermovate 74 - - - 19 - 30 - 25 -
Duac 116 >100 67 >100 23 >100 11 >100 15 >100
Soriatane 71 >100 71 >100 - - - - - -
Zovirax 152 15 53 >100 27 (10) 26 9 46 (14)
Other 994 16 24 53 310 9 385 37 275 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
21,816 (2) 7,648 (11) 6,548 (6) 3,556 22 4,064 6
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ViiV Healthcare
(HIV) 1,566 (3) 660 (8) 585 (5) 146 35 175 7
Combivir 363 (16) 143 (24) 117 (21) 63 22 40 (3)
Epivir 115 (12) 40 (17) 37 (22) 18 31 20 -
Epzicom/Kivexa 555 1 210 (7) 245 3 29 38 71 14
Lexiva 155 (12) 80 (19) 51 (15) 13 86 11 -
Selzentry 80 >100 34 - 41 >100 2 - 3 -
Trizivir 144 (28) 73 (30) 60 (26) 4 (43) 7 (13)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
23,382 (2)
---------- ----------
Pharmaceutical turnover includes co-promotion income.
Consumer Healthcare turnover
Year ended 31st December 2010
Total
--------------------
GBPm CER%
------ ------
Over-the-counter medicines 2,456 3
Oral healthcare 1,602 6
Nutritional healthcare 952 9
------ ------
5,010 5
------ ------
Total
--------------------
GBPm CER%
------ ------
USA 1,037 1
Europe 1,958 -
Rest of World 2,015 13
------ ------
5,010 5
------ ------
Statement of comprehensive income
2010 2009
GBPm GBPm
---- ----
Profit for the year 1,853 5,669
Exchange movements on overseas net assets and net
investment hedges 166 (194)
Reclassification of exchange on liquidation or disposal
of overseas subsidiaries (2) (44)
Tax on exchange movements - 19
Fair value movements on available-for-sale investments 94 42
Deferred tax on fair value movements on available-for-sale
investments (25) (24)
Reclassification of fair value movements on
available-for-sale investments 1 -
Deferred tax reversed on reclassification of
available-for-sale investments (3) 13
Actuarial losses on defined benefit plans (1) (659)
Deferred tax on actuarial movements in defined benefit
plans 1 183
Fair value movements on cash flow hedges (8) (6)
Deferred tax on fair value movements on cash flow
hedges 1 2
Reclassification of cash flow hedges to income statement 3 1
Fair value movement in subsidiary acquisition - (6)
Cash flow hedge re-allocated on subsidiary acquisition 6 -
---- ----
Other comprehensive income/(expense) for the year 233 (673)
---- ----
Total comprehensive income for the year 2,086 4,996
---- ----
Total comprehensive income for the year attributable
to:
Shareholders 1,847 4,895
Non-controlling interests 239 101
---- ----
2,086 4,996
---- ----
GSK's late-stage pharmaceuticals and vaccines pipeline
The table below is provided as part of GSK's quarterly update
to show events and changes to the late stage pipeline during
the quarter and up to the date of announcement.
The following assets were listed as terminated in the last
quarterly update and are no longer included in the table:
Avandamet XR, Avandia+statin and Simplirix. Additionally,
development of almorexant was discontinued in January 2011.
The table includes 5 new late stage assets that entered Phase
III since the last update:
IPX066 (from Impax) for Parkinson's disease
'444+'719 (LABA/LAMA combination) for COPD
1605786 (CCX282) for Crohn's disease
migalastat HCl (from Amicus) for Fabry disease
'572+Kivexa FDC (from ViiV/Shionogi) for HIV
By the end of 2012, Phase III data is expected on the following
15 assets:
migalastat HCl, 2118436, 1349572, IPX066, '444+'719, Mosquirix,
1120212, otelixizumab, pazopanib, Promacta, 2402968, Relovair,
albiglutide, Tykerb, MAGE-A3 - event driven
Biopharmaceuticals USA EU News update in
the quarter
--------------------------------------- ------- --------- -----------------
Arzerra CLL (first line Ph III Ph III
(ofatumumab) & relapsed)
------------------ ------------------- ------- --------- -----------------
NHL (FL) Ph III Ph III
------------------ ------------------- ------- --------- -----------------
NHL (DLBCL) Ph III Ph III
------------------ ------------------- ------- --------- -----------------
Benlysta Systemic lupus Filed Filed Positive AdCom
(belimumab) Jun Jun on 16th November
2010 2010 2010. PDUFA date
extended to 10th
March 2011.
------------------ ------------------- ------- --------- -----------------
otelixizumab Type 1 diabetes Ph III Ph III
------------------ ------------------- ------- --------- -----------------
albiglutide Type 2 diabetes Ph III Ph III Recruitment
(formerly known complete in all
as Syncria) 8 Phase III
studies.
------------------ ------------------- ------- --------- -----------------
Prolia Post menopausal n/a Launched Filings taking
(denosumab) osteoporosis place in
expansion
territory
emerging
markets.
------------------ ------------------- ------- --------- -----------------
Cardiovascular & Metabolic USA EU News update in
the quarter
--------------------------------------- ------- --------- -----------------
darapladib Atherosclerosis Ph III Ph III
------------------ ------------------- ------- --------- -----------------
Neurosciences USA EU News update in
the quarter
------------------ ------------------- ------- --------- -----------------
Horizant RLS Filed n/a Response to CR
letter accepted
by FDA 5th
November 2010.
PDUFA date 6th
April 2011.
Ex-US rights
returned to
Xenoport.
------------------ ------------------- ------- --------- -----------------
almorexant Primary insomnia n/a n/a Discontinued in
January 2011
following review
of tolerability
data from
additional
studies.
------------------ ------------------- ------- --------- -----------------
Potiga Epilepsy Filed Filed Received CR
(ezogabine)/ letter from FDA
Trobalt on 20th November
(retigabine) 2010. CHMP
positive opinion
received on 21st
January 2011.
------------------ ------------------- ------- --------- -----------------
IPX066 Parkinson's Ph III Ph III Co-development
disease agreement with
Impax announced
16th December
2010.
------------------ ------------------- ------- --------- -----------------
Oncology USA EU News update in
the quarter
------------------ ------------------- ------- --------- -----------------
Promacta/Revolade Hepatitis C Ph III Ph III
------------------ ------------------- ------- --------- -----------------
CLD Ph III Ph III Next steps under
review.
------------------ ------------------- ------- --------- -----------------
Avodart Prostate cancer Filed Filed Negative AdCom
prevention on 1st December
2010. Received
CR letter from
FDA on 26th
January 2011.
------------------ ------------------- ------- --------- -----------------
Votrient Sarcoma Ph III Ph III
------------------- ------- --------- -----------------
(pazopanib) Ovarian Ph III Ph III
------------------ ------------------- ------- --------- -----------------
First-line Ph III Ph III
metastatic breast
cancer
------------------- ------- --------- -----------------
Tykerb Adjuvant breast Ph III Ph III Positive data
cancer from '535 study
and
Tykerb+Herceptin
combination in
neo-ALTTO study
presented at San
Antonio Breast
Cancer
Symposium,
December 2010.
------------------- ------- --------- -----------------
Head & neck cancer Ph III Ph III
------------------- ------- --------- -----------------
Gastric cancer Ph III Ph III
------------------ ------------------- ------- --------- -----------------
1120212 Metastatic Ph III Ph III Phase III study
(MEK inhibitor) melanoma commenced in
January 2011.
------------------ ------------------- ------- --------- -----------------
2118436 Metastatic Ph III Ph III Phase III study
(BRaf inhibitor) melanoma commenced in
January 2011.
------------------ ------------------- ------- --------- -----------------
Respiratory & Immuno-inflammation USA EU News update in
the quarter
--------------------------------------- ------- --------- -----------------
Relovair COPD Ph III Ph III Phase III
('444+'698) outcomes study
commenced
January 2011.
------------------ ------------------- ------- --------- -----------------
Asthma Ph III Ph III
------------------ ------------------- ------- --------- -----------------
1605786 (CCX282) Crohn's disease Ph III Ph III Phase III study
commenced in
January 2011.
------------------ ------------------- ------- --------- -----------------
'444+'719 COPD Ph III Ph III Phase III study
commenced in
February 2011.
------------------ ------------------- ------- --------- -----------------
Rare Diseases USA EU News update in
the quarter
------------------ ------------------- ------- --------- -----------------
migalastat Fabry disease Ph III Ph III Co-development
HCl agreement with
Amicus announced
29th October
2010.
------------------ ------------------- ------- --------- -----------------
2402968 (PRO051) Duchenne muscular Ph III Phase III study
dystrophy commenced in
January 2011.
------------------ ------------------- ------- --------- -----------------
2696273 adenosine Ph
(Ex-vivo stem deaminase severe II/III
cell gene combined immune
therapy) deficiency
(ADA-SCID)
------------------ ------------------- ------- --------- -----------------
Vaccines USA EU News update in
the quarter
------------------ ------------------- ------- --------- -----------------
Menhibrix MenCY and Hib Filed n/a Expect to
(HibMenCY-TT) prophylaxis respond to FDA
Complete
Response letter
in H1 2011.
------------------ ------------------- ------- --------- -----------------
MAGE-A3 Melanoma Ph III Ph III
------------------- ------- --------- -----------------
NSCLC Ph III Ph III
------------------ ------------------- ------- --------- -----------------
Nimenrix MenACWY Ph III Ph III
(MenACWY) prophylaxis
------------------ ------------------- ------- --------- -----------------
Herpes zoster Shingles Ph III Ph III
prophylaxis
------------------ ------------------- ------- --------- -----------------
Mosquirix Malaria n/a n/a Phase III study
prophylaxis ongoing in
Africa.
------------------ ------------------- ------- --------- -----------------
HIV (ViiV Healthcare) USA EU News update in
the quarter
--------------------------------------- ------- --------- -----------------
1349572 HIV integrase Ph III Ph III
inhibitor
------------------ ------------------- ------- --------- -----------------
'572+Kivexa HIV integrase Ph III Ph III Phase III study
FDC inhibitor + commenced in
abacavir + February 2011.
lamivudine FDC
------------------ ------------------- ------- --------- -----------------
Turnover and key product movements impacting growth - Q4 2010
Total Group turnover for the quarter declined 13% to GBP7,197 million,
with pharmaceutical turnover down 16% to GBP5,930 million and Consumer
Healthcare sales up 4% to GBP1,267 million. Excluding pandemic products,
Valtrex and Avandia, Group sales were up 2% in the quarter.
Regional pharmaceutical turnover
US pharmaceuticals sales declined 22% to GBP1,854 million, primarily
due to a significant reduction in sales of pandemic related products,
generic competition to Valtrex and lower sales of Avandia. Excluding
these products, sales fell 6% reflecting the discontinuation of GSK's
promotion of Boniva, and the impact of US Healthcare Reform on other
products.
Europe pharmaceutical sales declined 24% to GBP1,647 million, primarily
due to the impact of a significant reduction in sales of pandemic
related products, generic competition to Valtrex and lower sales
of Avandia. Excluding these products, sales were down 1%, reflecting
the impact of government austerity measures.
Emerging Markets pharmaceutical sales grew 16% to GBP969 million,
with strong growth across most product categories partly offset by
a reduction in pandemic sales. Excluding sales of pandemic products,
Valtrex and Avandia, sales grew 28%.
Asia Pacific/Japan pharmaceutical sales declined 11% to GBP797 million.
Excluding sales of pandemic related products, Valtrex and Avandia,
sales were GBP724 million (+8%).
Pharmaceutical products
Sales of Seretide/Advair declined 4% to GBP1,346 million in the quarter,
with growth in Emerging Markets (+14% to GBP85 million) and Japan
(+6% to GBP81 million) offset by reductions in the USA (-7% to GBP670
million) and Europe (-3% to GBP416 million). Higher levels of discounts
required as a result of US Healthcare Reform and austerity measures
by European governments negatively impacted growth for the product
in both the USA and in Europe.
Other respiratory products sales during the quarter were: Avamys/Veramyst
(+45% to GBP50 million), Ventolin (-1% to GBP142 million) and Flovent
(-5% to GBP220 million). The reported growth rates for both Ventolin
and Flovent were negatively impacted by variations in US shipping
patterns.
Total vaccine sales (excluding pandemic sales) were GBP833 million
(+20%), with strong growth in Asia Pacific/Japan (+48% to GBP88 million),
Emerging Markets (+34% to GBP235 million), the USA (+26% to GBP171
million) and Europe (+10% to GBP303 million). Contributions from
new vaccines included Cervarix (+68% to GBP67 million, including
GBP23 million in Japan) and Boostrix (+37% to GBP49 million). Synflorix
sales were down 2% to GBP48 million, following large shipments in
Q3 2010. Sales of the Hepatitis vaccines grew 5% to GBP164 million
and seasonal flu sales grew 64% to GBP69 million. Rotarix sales were
up 11% to GBP79 million, as the product continues to recover market
share lost following its temporary suspension from several markets
earlier in the year.
Pandemic vaccines sales were GBP161 million compared with Q4 2009
sales of GBP836 million. Relenza sales were GBP11 million compared
with Q4 2009 sales of GBP256 million, which benefited from significant
government orders.
Dermatology sales grew 10% to GBP288 million in the quarter. In addition,
GSK's heritage consumer dermatology portfolio, reported within Consumer
Healthcare, contributed sales of GBP63 million (+11%).
Other strong pharmaceutical performances in the quarter included
Tykerb (+23% to GBP60 million), Avodart (+22% to GBP177 million),
Lovaza (+11% to GBP147 million) and Arixtra (+8% to GBP80 million).
Newly launched oncology products Votrient and Arzerra delivered sales
in the quarter of GBP14 million and GBP9 million, respectively.
Valtrex sales (-60% to GBP96 million) continued to be impacted by
generic competition in the USA and Europe. Boniva's reported sales
of GBP18 million were down 73%, primarily reflecting the transfer
to Genentech of the exclusive promotion rights in the USA on 1st
January 2010.
Avandia sales declined by 76% to GBP49 million. On 23rd September
2010 the European Medicines Agency suspended marketing authorisation
for all Avandia containing products and the US Food and Drug Administration
announced additional measures to ensure continued safe use of Avandia,
including a Risk and Evaluation and Mitigation Strategy (REMS) programme.
As a result, GSK expects global sales of products containing Avandia
to be minimal in the future.
Sales of HIV products by ViiV Healthcare were down 4% to GBP403 million.
Sales of the former Pfizer products Selzentry and Viracept (combined
sales of GBP30 million in the quarter) partly offset reductions in
the sales from other HIV products including Trizivir (-35% to GBP32
million), Combivir (-11% to GBP99 million) and Epzicom/Kivexa (-3%
to GBP146 million).
Consumer Healthcare
Total Consumer Healthcare sales were up 4% to GBP1,267 million, ahead
of market growth for the quarter estimated to be approximately 3%.
On a regional basis, sales in the Rest of World markets continued
to perform strongly (+13% to GBP485 million) with growth across all
major categories. Sales in Brazil and Japan were particularly strong,
helped by growth of smoking control product sales. In Europe, sales
were down 3% to GBP503 million, mainly due to lower sales of alli
and a challenging comparison to Q4 2009 which saw strong growth of
Cold and flu products. US sales were up 5% to GBP279 million, with
strong performances from Tums, Abreva, Breathe Right and smoking
control products, which were driven by innovation and enhanced consumer
marketing.
On a category basis, global Oral healthcare sales grew 7% to GBP411
million led by Sensodyne, which grew strongly in all regions. Nutritional
healthcare sales grew 7% to GBP211 million, as a result of geographic
expansion and enhanced marketing behind the Horlicks brand. Sales
of OTC medicines were GBP645 million, up 1%. Strong growth in Rest
of World markets was partially offset by lower sales of alli in both
the USA and Europe.
Operating profit and earnings per share commentary - Q4 2010
Results before major restructuring
The operating loss before major restructuring for Q4 2010 was GBP37
million, compared with an operating profit of GBP2,677 million in
Q4 2009. Excluding legal costs of GBP2,165 million, the operating
profit for Q4 2010 was GBP2,128 million, a 33% decrease, principally
reflecting reduced sales of pandemic vaccines, Valtrex and Avandia,
a higher cost of sales as a percentage of turnover and lower other
operating income, partially offset by lower SG&A costs.
Cost of sales was 27.5% of turnover, higher than the prior year (Q4
2009: 25.9%), reflecting the impact of generic competition to higher
margin products in the USA (principally Valtrex), lower pandemic
and Avandia sales, the impact of US healthcare reforms and European
austerity price cuts on net sales, partially offset by savings from
the Operational Excellence programme.
SG&A costs as a percentage of turnover increased to 59.6% in the
quarter (Q4 2009: 34.3%). Excluding legal costs of GBP2,165 million,
SG&A costs were 29.5% of turnover which was unchanged from 2009.
This reflected investment in growth markets, offset by Operational
Excellence savings in the USA and Europe.
R&D expenditure was 15.0% of turnover in the quarter (Q4 2009: 13.5%)
reflecting higher intangible asset impairments offset by savings
from the restructuring programme on lower turnover.
Other operating income in the quarter was GBP118 million (2009: GBP553
million) primarily comprising royalty income of GBP74 million (Q4
2009: GBP67 million), asset disposals of GBP60 million (Q4 2009:
GBP511 million) and offset by GBP31 million of equity impairments
(Q4 2009: GBP36 million). Various asset disposals to Aspen Pharmacare
and the accounting gain from the creation of ViiV Healthcare contributed
to the profit from asset disposals in 2009.
The loss per share before major restructuring was 7.5p compared with
earnings per share of 35.4p in Q4 2009.
Total results after restructuring
The operating loss after restructuring for Q4 2010 was GBP320 million,
compared with an operating profit of GBP2,447 million in Q4 2009.
This included GBP283 million of restructuring charges related to
the restructuring programme (Q4 2009: GBP230 million); GBP97 million
was charged to cost of sales (Q4 2009: GBP21 million), GBP172 million
to SG&A (Q4 2009: GBP174 million) and GBP14 million to R&D (Q4 2009:
GBP35 million). The loss per share after restructuring was 13.6p
compared with earnings per share of 32.1p in Q4 2009.
Income statement
Three months ended 31st December 2010
Results Results
before major Major Total before major Major Total
restructuring restructuring Q4 restructuring restructuring Q4
Q4 2010 Growth Q4 2010 2010 Q4 2009 Q4 2009 2009
GBPm CER% GBPm GBPm GBPm GBPm GBPm
------ ------ ------ ------ ------ ------ ------
TURNOVER 7,197 (13) 7,197 8,094 8,094
Cost of sales (1,980) (6) (97) (2,077) (2,098) (21) (2,119)
------ ------ ------ ------ ------ ------
Gross profit 5,217 (16) (97) 5,120 5,996 (21) 5,975
Selling, general
and
administration (4,289) 51 (172) (4,461) (2,780) (174) (2,954)
Research and
development (1,083) (3) (14) (1,097) (1,092) (35) (1,127)
Other operating
income 118 118 553 553
------ ------ ------ ------ ------ ------
OPERATING
(LOSS)/PROFIT (37) (>100) (283) (320) 2,677 (230) 2,447
Finance income 58 58 5 5
Finance expense (240) (240) (213) (213)
Profit on
disposal of
interest in
associate 8 8
Share of after
tax profits of
associates and
joint
ventures 18 18 11 11
------ ------ ------ ------ ------ ------
(LOSS)/PROFIT
BEFORE
TAXATION (193) (>100) (283) (476) 2,480 (230) 2,250
Taxation (134) (23) (157) (646) 64 (582)
Tax rate % (69.4)% (33.0)% 26.0% 25.9%
------ ------ ------ ------ ------ ------
(LOSS)/PROFIT
AFTER TAXATION
FOR THE PERIOD (327) (>100) (306) (633) 1,834 (166) 1,668
------ ------ ------ ------ ------ ------
Profit
attributable to
non-controlling
interests 57 57 38 38
(Loss)/profit
attributable to
shareholders (384) (306) (690) 1,796 (166) 1,630
------ ------ ------ ------ ------ ------
(327) (>100) (306) (633) 1,834 (166) 1,668
------ ------ ------ ------ ------ ------
(LOSS)/EARNINGS
PER SHARE (7.5)p (>100) (13.6)p 35.4p 32.1p
------ ------ ------ ------
Diluted
(loss)/earnings
per share (7.5)p (13.4)p 35.1p 31.8p
------ ------ ------ ------
Pharmaceuticals turnover
Three months ended 31st December 2010
Emerging
Total USA Europe Markets Rest of World
------------------------------ ------------------------------ ------------------------------ ----------------------------- ---------------------------
GBPm CER% GBPm CER% GBPm CER% GBPm CER% GBPm CER%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Respiratory 1,917 (2) 875 (6) 557 (4) 162 17 323 5
Avamys/Veramyst 50 45 17 7 12 9 9 100 12 >100
Flixonase/Flonase 37 3 5 (17) 10 (10) 11 38 11 -
Flixotide/Flovent 220 (5) 118 - 42 (10) 12 33 48 (16)
Seretide/Advair 1,346 (4) 670 (7) 416 (3) 85 14 175 2
Serevent 50 (21) 15 (25) 24 (17) - (100) 11 (18)
Ventolin 142 (1) 49 - 38 (7) 30 20 25 (13)
Zyrtec 23 (5) - - - - 4 - 19 (6)
Anti-virals 224 (64) 41 (82) 24 (73) 61 (13) 98 (59)
Hepsera 33 - - - 1 - 15 8 17 (12)
Relenza 11 (96) (5) - - - (1) - 17 (89)
Valtrex 96 (60) 24 (83) 15 (61) 8 - 49 (2)
Zeffix 64 9 3 (25) 6 (14) 39 28 16 (7)
Central nervous
system 450 (14) 114 (37) 132 (8) 62 22 142 (4)
Imigran/Imitrex 50 (40) 15 (65) 20 (20) 1 (50) 14 18
Lamictal 130 (3) 66 (11) 34 (10) 16 42 14 33
Requip 60 (9) 10 (38) 33 (8) 1 - 16 27
Seroxat/Paxil 128 (15) - (100) 19 (9) 19 5 90 (11)
Treximet 14 - 14 - - - - - - -
Wellbutrin 22 (5) 7 (30) 11 22 4 33 - -
Cardiovascular and
urogenital 696 11 422 10 159 6 36 28 79 23
Arixtra 80 8 49 12 24 - 3 50 4 -
Avodart 177 22 86 1 50 31 9 50 32 100
Coreg 41 29 41 29 - - - - - -
Fraxiparine 55 (8) - - 38 (13) 15 25 2 (67)
Lovaza 147 11 146 11 - - - - 1 -
Vesicare 31 3 31 3 - - - - - -
Volibris 16 >100 - - 13 86 - - 3 -
Metabolic 110 (65) 40 (75) 13 (80) 17 (43) 40 (32)
Avandia products 49 (76) 40 (65) (4) - 3 (76) 10 (64)
Bonviva/Boniva 18 (73) - (100) 14 (35) - - 4 -
Anti-bacterials 370 (2) 16 (38) 153 (11) 159 14 42 (2)
Augmentin 168 (2) - (100) 69 (13) 78 29 21 (10)
Oncology and
emesis 172 - 75 (16) 55 10 17 13 25 41
Arzerra 9 >100 6 >100 3 - - - - -
Hycamtin 29 (36) 14 (46) 12 (20) 1 - 2 (33)
Promacta 10 80 6 20 3 - - - 1 -
Tyverb/Tykerb 60 23 17 14 25 24 9 50 9 14
Votrient 14 >100 11 >100 3 - - - - -
Vaccines 994 (36) 171 (44) 393 (49) 260 11 170 (28)
Boostrix 49 37 28 65 11 - 4 >100 6 (17)
Cervarix 67 68 1 (75) 25 37 7 - 34 >100
Fluarix, FluLaval 69 64 28 >100 13 18 20 43 8 (33)
Flu Pandemic 161 (82) - (100) 90 (82) 25 (60) 46 (67)
Hepatitis 164 5 56 6 63 - 23 17 22 11
Infanrix, Pediarix 190 24 36 30 120 22 13 56 21 13
Rotarix 79 11 21 18 9 (36) 45 36 4 (33)
Synflorix 48 (2) - - 8 (27) 35 13 5 (33)
Dermatologicals 288 10 94 1 62 14 82 39 50 (12)
Bactroban 29 4 12 (14) 7 33 7 17 3 -
Dermovate 22 - - - 5 - 11 - 6 -
Duac 27 13 15 (7) 6 - 3 >100 3 >100
Soriatane 17 - 17 - - - - - - -
Zovirax 39 (3) 14 8 7 (14) 6 20 12 (15)
Other 306 19 6 >100 99 - 113 62 88 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
5,527 (17) 1,854 (22) 1,647 (24) 969 16 1,057 (16)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ViiV Healthcare
(HIV) 403 (4) 163 (16) 145 (5) 50 57 45 5
Combivir 99 (11) 34 (30) 28 (22) 26 67 11 -
Epivir 29 (3) 10 (17) 8 (27) 6 25 5 100
Epzicom/Kivexa 146 (3) 55 (16) 63 2 9 14 19 19
Lexiva 36 (18) 20 (20) 10 (21) 2 - 4 -
Selzentry 22 >100 9 - 11 >100 1 - 1 -
Trizivir 32 (35) 16 (38) 14 (32) - (50) 2 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
5,930 (16)
---------- ----------
Pharmaceutical turnover includes co-promotion income.
Consumer Healthcare turnover
Three months ended 31st December 2010
Total
--------------------
GBPm CER%
------ ------
Over-the-counter medicines 645 1
Oral healthcare 411 7
Nutritional healthcare 211 7
------ ------
1,267 4
------ ------
Total
--------------------
GBPm CER%
------ ------
USA 279 5
Europe 503 (3)
Rest of World 485 13
------ ------
1,267 4
------ ------
Statement of comprehensive income
Q4 2010 Q4 2009
GBPm GBPm
---- ----
(Loss)/profit for the period (633) 1,668
Exchange movements on overseas net assets and net
investment hedges 113 (52)
Reclassification of exchange on liquidation or
disposal of overseas subsidiaries - (44)
Tax on exchange movements - 19
Fair value movements on available-for-sale investments 54 (23)
Deferred tax on fair value movements on
available-for-sale investments (21) (8)
Reclassification of fair value movements on
available-for-sale-investments 19 (28)
Deferred tax reversed on reclassification of
available-for-sale investments (6) 6
Actuarial gains/(losses) on defined benefit plans 371 (173)
Deferred tax on actuarial movements in defined
benefit plans (138) 36
Fair value movements on cash flow hedges (3) -
Deferred tax on fair value movements on cash flow
hedges (1) -
Reclassification of cash flow hedges to income
statement 3 1
Cash flow hedge re-allocated on subsidiary acquisition 6 -
Fair value movement on subsidiary acquisition - (6)
---- ----
Other comprehensive income/(expense) for the period 397 (272)
---- ----
Total comprehensive (expense)/income for the period (236) 1,396
---- ----
Total comprehensive (expense)/income for the period
attributable to:
Shareholders (295) 1,357
Non-controlling interests 59 39
---- ----
(236) 1,396
---- ----
Balance sheet
31st December 31st December
2010 2009
GBPm GBPm
ASSETS ---- ----
Non-current assets
Property, plant and equipment 9,108 9,374
Goodwill 3,606 3,361
Other intangible assets 8,469 8,183
Investments in associates and joint ventures 1,081 895
Other investments 711 454
Deferred tax assets 2,388 2,374
Derivative financial instruments 97 68
Other non-current assets 556 583
---- ----
Total non-current assets 26,016 25,292
---- ----
Current assets
Inventories 3,837 4,064
Current tax recoverable 56 58
Trade and other receivables 5,793 6,492
Derivative financial instruments 93 129
Liquid investments 184 268
Cash and cash equivalents 6,057 6,545
Assets held for sale 16 14
---- ----
Total current assets 16,036 17,570
---- ----
TOTAL ASSETS 42,052 42,862
---- ----
LIABILITIES
Current liabilities
Short-term borrowings (291) (1,471)
Trade and other payables (6,888) (6,772)
Derivative financial instruments (188) (168)
Current tax payable (869) (1,451)
Short-term provisions (4,380) (2,256)
---- ----
Total current liabilities (12,616) (12,118)
---- ----
Non-current liabilities
Long-term borrowings (14,809) (14,786)
Deferred tax liabilities (707) (645)
Pensions and other post-employment benefits (2,672) (2,981)
Other provisions (904) (985)
Derivative financial instruments (5) -
Other non-current liabilities (594) (605)
---- ----
Total non-current liabilities (19,691) (20,002)
---- ----
TOTAL LIABILITIES (32,307) (32,120)
---- ----
NET ASSETS 9,745 10,742
---- ----
EQUITY
Share capital 1,418 1,416
Share premium account 1,428 1,368
Retained earnings 4,779 6,321
Other reserves 1,262 900
---- ----
Shareholders' equity 8,887 10,005
Non-controlling interests 858 737
---- ----
TOTAL EQUITY 9,745 10,742
---- ----
Cash flow statement
Year ended 31st December 2010
2010 2009
GBPm GBPm
---- ----
Profit after tax 1,853 5,669
Tax on profits 1,304 2,222
Share of after tax profits of associates
and joint ventures (81) (64)
Profit on disposal of interest in associates (8) (115)
Net finance expense 715 713
Depreciation and other non-cash items 2,071 1,271
Decrease/(increase) in working capital 1,297 (106)
Increase/(decrease) in other net liabilities 1,480 (45)
---- ----
Cash generated from operations 8,631 9,545
Taxation paid (1,834) (1,704)
---- ----
Net cash inflow from operating activities 6,797 7,841
---- ----
Cash flow from investing activities
Purchase of property, plant and equipment (1,077) (1,418)
Proceeds from sale of property, plant and
equipment 92 48
Purchase of intangible assets (558) (455)
Proceeds from sale of intangible assets 126 356
Purchase of equity investments (279) (154)
Proceeds from sale of equity investments 27 59
Purchase of businesses, net of cash acquired (354) (2,792)
Investment in associates and joint ventures (61) (29)
Proceeds from disposal of interest in associates - 178
Decrease in liquid investments 91 87
Interest received 107 90
Dividends from associates and joint ventures 18 17
---- ----
Net cash outflow from investing activities (1,868) (4,013)
---- ----
Cash flow from financing activities
Proceeds from own shares for employee share
options 17 13
Issue of share capital 62 43
Shares acquired by ESOP Trusts (16) (57)
Increase in long-term loans - 1,358
Repayment of short-term loans (1,296) (748)
Increase in short-term loans 6 646
Net repayment of obligations under finance
leases (45) (48)
Interest paid (775) (780)
Dividends paid to shareholders (3,205) (3,003)
Distributions to non-controlling interests (118) (89)
Other financing items (201) (109)
---- ----
Net cash outflow from financing activities (5,571) (2,774)
---- ----
(Decrease)/increase in cash and bank overdrafts
in the year (642) 1,054
Exchange adjustments 81 (158)
Cash and bank overdrafts at beginning of
year 6,368 5,472
---- ----
Cash and bank overdrafts at end of year 5,807 6,368
---- ----
Cash and bank overdrafts at end of year
comprise:
Cash and cash equivalents 6,057 6,545
Overdrafts (250) (177)
---- ----
5,807 6,368
---- ----
Statement of changes in equity
Share- Non-
Share Share Retained Other holder's controlling Total
capital premium earnings reserves equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--- --- --- --- --- --- ---
At 1st January
2010 1,416 1,368 6,321 900 10,005 737 10,742
Profit for the
year - - 1,634 - 1,634 219 1,853
Other
comprehensive
income for the
year - - 144 69 213 20 233
Distributions to
non-controlling
interests - - - - - (118) (118)
Dividends to
shareholders - - (3,205) - (3,205) - (3,205)
Shares issued 2 60 - - 62 - 62
Consideration
received for
shares
transferred by
ESOP Trusts - - - 17 17 - 17
Shares acquired
by ESOP Trusts - - - (16) (16) - (16)
Write-down on
shares held by
ESOP Trusts - - (292) 292 - - -
Share-based
incentive
plans - - 175 - 175 - 175
Tax on
share-based
incentive
plans - - 2 - 2 - 2
--- --- --- --- --- --- ---
At 31st December
2010 1,418 1,428 4,779 1,262 8,887 858 9,745
--- --- --- --- --- --- ---
At 1st January
2009 1,415 1,326 4,622 568 7,931 387 8,318
Profit for the
year - - 5,531 - 5,531 138 5,669
Other
comprehensive
(expense)/income
for the year - - (663) 27 (636) (37) (673)
Distributions to
non-controlling
interests - - - - - (89) (89)
Changes in
non-controlling
interests - - - - - 338 338
Put option over
minority
interest - - - (2) (2) - (2)
Dividends to
shareholders - - (3,003) - (3,003) - (3,003)
Shares issued 1 42 - - 43 - 43
Consideration
received for
shares
transferred by
ESOP Trusts - - - 13 13 - 13
Shares acquired
by ESOP Trusts - - - (57) (57) - (57)
Write-down on
shares held by
ESOP Trusts - - (351) 351 - - -
Share-based
incentive plans - - 171 - 171 - 171
Tax on
share-based
incentive plans - - 14 - 14 - 14
--- --- --- --- --- --- ---
At 31st December
2009 1,416 1,368 6,321 900 10,005 737 10,742
--- --- --- --- --- --- ---
Segmental information
GSK has revised its segmental information disclosures to reflect changes
in the internal reporting structures with effect from 1st January
2010. ViiV Healthcare is now shown as a separate segment. Stiefel
has been integrated with the GSK heritage dermatology business and
is reported within the relevant geographical pharmaceutical segments.
The other trading and other unallocated pharmaceuticals information
has been combined. Comparative information has been restated on a
consistent basis.
GSK's operating segments are being reported based on the financial
information provided to the Chief Executive Officer and the responsibilities
of the Corporate Executive Team (CET). Individual members of the CET
are responsible for geographic regions of the Pharmaceuticals business,
ViiV Healthcare and for the Consumer Healthcare business as a whole,
respectively.
R&D investment is essential for the sustainability of the pharmaceutical
businesses. However, for segment reporting, the USA, Europe, Emerging
Markets and Asia Pacific/Japan pharmaceutical operating profits exclude
allocations of globally funded R&D as well as central costs, principally
corporate functions and unallocated manufacturing costs. GSK's management
reporting process allocates intra-Group profit on a product sale to
the market in which that sale is recorded, and the profit analyses
below have been presented on that basis.
The Other trading and unallocated pharmaceuticals segment includes
Canada, Puerto Rico, central vaccine tender sales and contract manufacturing
sales, together with costs such as vaccines R&D, central dermatology
costs and central manufacturing costs not attributed to other segments.
The Pharmaceuticals R&D segment is the responsibility of the Chairman,
Research & Development and is therefore being reported as a separate
segment.
Corporate and other unallocated costs and disposal profits include
corporate functions, costs for legal matters, fair value movements
on financial instruments and investments and profits on global asset
disposals.
2009
2010 (restated) Growth
Turnover by segment GBPm GBPm CER%
---- ---- ----
US pharmaceuticals 7,648 8,578 (11)
Europe pharmaceuticals 6,548 7,087 (6)
Emerging Markets pharmaceuticals 3,556 2,895 22
Asia Pacific/Japan pharmaceuticals 3,102 2,628 9
ViiV Healthcare 1,566 1,605 (3)
Other trading and unallocated pharmaceuticals 962 901 (1)
---- ----
Pharmaceuticals turnover 23,382 23,694 (2)
Consumer Healthcare turnover 5,010 4,674 5
---- ----
28,392 28,368 (1)
---- ----
2009
2010 (restated) Growth
Operating profit by segment GBPm GBPm CER%
---- ---- ----
US pharmaceuticals 5,043 5,933 (16)
Europe pharmaceuticals 3,744 3,993 (4)
Emerging Markets pharmaceuticals 1,271 948 31
Asia Pacific/Japan pharmaceuticals 1,730 1,352 15
ViiV Healthcare 851 1,071 (21)
Pharmaceuticals R&D (3,105) (3,082) -
Other trading and unallocated
pharmaceuticals (783) (705) 33
---- ----
Pharmaceuticals operating profit 8,751 9,510 (11)
Consumer Healthcare operating profit 1,043 931 8
---- ----
Segment profit 9,794 10,441
Corporate and other unallocated costs
and disposal profits (4,666) (1,184) >100
---- ----
Operating profit before major restructuring 5,128 9,257 (48)
Major restructuring (1,345) (832)
---- ----
Total operating profit 3,783 8,425
Finance income 116 70
Finance costs (831) (783)
Profit on disposal of interest in associates 8 115
Share of after tax profits of associates
and joint ventures 81 64
---- ______
Profit before taxation 3,157 7,891
---- ----
Segmental commentary - 2010
US pharmaceuticals turnover declined 11% reflecting lower turnover
as a result of generic competition to Valtrex, lower pandemic sales,
the impact of healthcare reforms, the discontinuation of promotion
of Boniva and lower sales of Avandia partially offset by the performance
of newer products. The reduced turnover was partially offset by lower
SG&A costs reflecting savings from the restructuring programme and
a receipt for the exclusive promotion rights to Boniva for 2010 in
the USA. Operating profit declined by 16%.
Europe pharmaceuticals turnover declined 6% as a result of accelerated
pricing reductions across Europe and lower sales of pandemic products,
Avandia and Valtrex. An 11% reduction in SG&A costs, reflecting savings
from the restructuring programme, helped to limit the decline in operating
profit to 4%.
Emerging Markets pharmaceuticals operating profit increased by 31%
on a turnover increase of 22%, reflecting strong Synflorix and pandemic
vaccine sales, together with the benefit of acquisitions, partially
offset by increased SG&A investment across the region.
Asia Pacific and Japan pharmaceuticals turnover increased 9% as a
result of higher Cervarix and pandemic vaccine sales, partially offset
by lower sales of Relenza. Operating profits increased 15% reflecting
the impact of the mix of sales on cost of goods and cost containment
on SG&A, which only increased 1%.
ViiV Healthcare operating profits decreased 21% primarily as a result
of US healthcare reform and higher SG&A and R&D costs partially offset
by a one-time royalty settlement. The higher SG&A costs were primarily
due to the amortisation of acquired intangible assets.
Pharmaceuticals R&D costs were unchanged, reflecting savings from
the restructuring programme and lower intangible asset impairments
offset by an unfavourable comparison with 2009, which included the
settlement of a royalty dispute and a provision release due to the
reassessment of a receivable balance.
Other unallocated pharmaceuticals costs increased 33% in 2010 principally
due to higher costs from the full-year inclusion of Stiefel and centrally
held manufacturing costs partially offset by lower exchange losses
on inter-company trading.
Consumer Healthcare operating profit increased 8% on a turnover increase
of 5%, reflecting efficiencies of scale in SG&A costs which grew more
slowly than sales.
The increase in Corporate and other unallocated costs primarily reflects
higher legal costs and lower asset disposals.
Q4 2009
Q4 2010 (restated) Growth
Turnover by segment GBPm GBPm CER%
---- ---- ----
US pharmaceuticals 1,854 2,322 (22)
Europe pharmaceuticals 1,647 2,231 (24)
Emerging Markets pharmaceuticals 969 817 16
Asia Pacific/Japan pharmaceuticals 797 794 (11)
ViiV Healthcare 403 415 (4)
Other trading and unallocated
pharmaceuticals 260 331 (27)
---- ----
Pharmaceuticals turnover 5,930 6,910 (16)
Consumer Healthcare turnover 1,267 1,184 4
---- ----
7,197 8,094 (13)
---- ----
Q4 2009
Q4 2010 (restated) Growth
Operating profit by segment GBPm GBPm CER%
---- ---- ----
US pharmaceuticals 1,256 1,544 (21)
Europe pharmaceuticals 927 1,296 (27)
Emerging Markets pharmaceuticals 345 276 19
Asia Pacific/Japan pharmaceuticals 426 409 (12)
ViiV Healthcare 216 250 (16)
Pharmaceuticals R&D (809) (826) (4)
Other trading and unallocated
pharmaceuticals (391) (163) >100
---- ----
Pharmaceuticals operating profit 1,970 2,786 (31)
Consumer Healthcare operating profit 302 261 13
---- ----
Segment profit 2,272 3,047
Corporate and other unallocated costs
and disposal profits (2,309) (370) >100
---- ----
Operating (loss)/profit before major
restructuring (37) 2,677
Major restructuring (283) (230)
---- ----
Total operating (loss)/profit (320) 2,447
Finance income 58 5
Finance costs (240) (213)
Profit on disposal of interest in associate 8 -
Share of after tax profits of associates
and joint ventures 18 11
------ ------
(Loss)/profit before taxation (476) 2,250
---- ----
Segmental commentary - Q4 2010
US pharmaceuticals operating profit declined 21% in the quarter on
a turnover decrease of 22%. This reflected generic competition to
Valtrex, lower pandemic sales, the impact of healthcare reforms and
lower sales of Avandia. SG&A costs decreased by 22%, reflecting savings
from the restructuring programme.
Europe operating profit declined 27% in the quarter on a turnover
decrease of 24% reflecting lower sales of pandemic products, Avandia
and Valtrex and accelerated pricing reductions across Europe.
Emerging Markets operating profit increased 19% on a turnover increase
of 16%.
Asia Pacific and Japan turnover and operating profit decreased 11%
and 12% respectively principally as a result of lower sales of Relenza
in the quarter.
ViiV Healthcare operating profits decreased 16% as a result of US
healthcare reforms and higher SG&A and R&D costs, partially offset
by a one-time royalty settlement.
Pharmaceuticals R&D costs reduced by 4% reflecting savings from the
Operational Excellence programme partly offset by higher intangible
asset impairments.
Other unallocated pharmaceuticals costs increased in the quarter principally
due to higher exchange losses of GBP51 million (2009: GBP18 million),
higher central vaccines costs and lower pandemic sales in Canada.
Consumer Healthcare turnover increased 4% and operating profits increased
by 13% as a result of gains on asset disposals in the quarter.
Corporate and other unallocated costs increased significantly as a
result of the higher legal charges in the quarter and the unfavourable
comparison with Q4 2009, which included the accounting gain on the
creation of ViiV Healthcare and the disposal of assets to Aspen.
Legal matters
The Group is involved in various legal and administrative proceedings,
principally product liability, intellectual property, tax, anti-trust
and governmental investigations and related private litigation concerning
sales, marketing and pricing which are more fully described in the
'Legal Proceedings' note in the Annual Report 2009.
At 31st December 2010, the Group's aggregate provision for legal and
other disputes (not including tax matters described under 'Taxation'
on page 28) was GBP4.0 billion which includes the provision for Q4
2010 of GBP2.2 billion for legal and other disputes, primarily in
respect of additional provisions for the investigation by the US Attorney's
Office for the District of Colorado into the Group's US sales and
promotional practices and for product liability cases regarding Avandia
(rosiglitazone), as announced on 17th January 2011.
In respect of a number of legal proceedings in which the Group is
involved, it is not possible to make a reliable estimate of the expected
financial effect, if any, that will result from ultimate resolution
of the proceedings. In these cases, the Group may disclose information
with respect to the nature and facts of the cases but no provision
is typically made.
The ultimate liability for legal claims may vary from the amounts
provided and is dependent upon the outcome of litigation proceedings,
investigations and possible settlement negotiations. The position
could change over time, and, therefore, there can be no assurance
that any losses that result from the outcome of any legal proceedings
will not exceed the amount of the provisions reported in the Group's
financial accounts by a material amount.
Significant developments since the date of the 2009 Annual Report
(as previously updated by the Legal matters section of the Results
Announcements for Q1, Q2 and Q3 2010 and the 17th January 2011 announcement)
are as follows:
On 26th October 2010, the Group finalised a previously reported agreement
with the US Attorney's Office for the District of Massachusetts and
the US Department of Justice with respect to the investigation of
the Group's former manufacturing facility in Cidra, Puerto Rico. Under
the agreement and as a comprehensive settlement of pending claims
against the Group arising from the investigation, the Group paid a
total of $750 million (GBP500 million) in civil and criminal penalties,
and SB Pharmco Puerto Rico, Inc., a subsidiary of the Group, pleaded
guilty to certain charges. As previously disclosed, the Group is in
the process of negotiating a Corporate Integrity Agreement with the
Office of Inspector General that will cover manufacturing compliance
matters. The Group has received Civil Investigative Demands and a
subpoena from several State Attorneys General offices relating to
the matters at issue in the federal investigation. The enquiries are
at an early stage, and the Group is co-operating with these offices.
As previously reported, the Group has continued to receive new product
liability cases regarding Avandia in the USA and has increased its
provision for legal disputes including for Avandia cases filed since
Q2 2010 and an estimate of future claims. The Group has reached agreements
to settle the majority of Avandia product liability claims known as
at 31st January 2011.
On 11th November 2010, GSK was served with a suit by the Utah Attorney
General's Office asserting various statutory and common law claims
relating to the Group's development and marketing of Avandia. The
suit is in its early stages.
In November 2010, Banner Pharmacaps, Inc. (Banner) sent the Group
notice that it had filed an Abbreviated New Drug Application (ANDA)
to market a generic version of Avodart (dutasteride). The notification
contained a "Paragraph IV" certification alleging that two Group patents
expiring in 2013 and one patent expiring in 2015 covering dutasteride,
the active ingredient in Avodart, and its use were invalid or not
infringed by Banner's proposed generic dutasteride product. These
patents are the same patents that were the subject of the Group's
settlement with Teva Pharmaceuticals, Inc. (Teva) in March 2010. Since
Teva was the first to file an ANDA with a Paragraph IV certification,
it holds 180-day exclusivity as to all later filers. Banner cannot
obtain final FDA approval until the expiration or forfeiture of Teva's
180 days of exclusivity. The Group sued Banner in the US District
Court for the District of Delaware in January 2011.
In December 2010, Anchen Pharmaceuticals, Inc. (Anchen) sent the Group
notices that it had filed ANDAs with Paragraph IV certifications for
Avodart and Jalyn, challenging the Group patent expiring in 2015 that
covers dutasteride. Jalyn is a combination of dutasteride and tamsulosin,
and is covered by the same patents that cover Avodart. Anchen cannot
obtain final FDA approval of Jalyn until at least September 2013 since
they have not challenged the Group's patents that cover dutasteride
which expire at that time. Anchen cannot obtain FDA approval of Avodart
until the later of September 2013 or expiration or forfeiture of Teva's
180-day exclusivity. The Group sued Anchen in the US District Court
for the District of Delaware in January 2011.
On 26th January 2011, the District Court of The Hague issued a decision
in the invalidity action brought by Sandoz (acting with Hexal) against
the Dutch part of the Group's European Seretide patent together with
the corresponding Supplementary Protection Certificate (SPC). The
District Court revoked the SPC based upon the patent. The Group is
reviewing the decision and determining whether to file an appeal.
To date, no generic Seretide product has been approved in any major
European market despite the revocation of certain patents covering
Seretide in some countries.
Developments with respect to tax matters are described in 'Taxation'
below.
Taxation
The charge for taxation on profit before major restructuring charges
amounted to GBP1,544 million and represented an effective tax rate
of 34.3% (2009: 28.0%). This was impacted by the significant legal
charges in the year.
The charge for taxation on total profits amounted to GBP1,304 million
and represented an effective tax rate of 41.3% (2009: 28.2%). The
Group's balance sheet at 31st December 2010 included a tax payable
liability of GBP869 million and a tax recoverable asset of GBP56 million.
During the year, GSK agreed and settled further open years with major
tax authorities up to and including 2008. In Canada, the Federal Court
of Appeal overturned a judgment of the Tax Court of Canada in respect
of GSK's transfer pricing in the early 1990's and remanded the case
back to the Tax Court for reconsideration. The parties seeking leave
to appeal to the Supreme Court of Canada. Otherwise transfer pricing
and other issues are as previously described in the 'Taxation' note
to the Financial Statements included in the Annual Report 2009.
GSK continues to believe that it has made adequate provision for the
liabilities likely to arise from periods which are open and not yet
agreed by tax authorities. The ultimate liability for such matters
may vary from the amounts provided and is dependent upon the outcome
of agreements with relevant tax authorities or litigation where appropriate.
Paid/ Pence per
Dividends payable share GBPm
---- ---- ----
2010
First interim 8th July 2010 15 764
Second interim 7th October 2010 15 759
Third interim 6th January 2011 16 816
Fourth interim 7th April 2011 19 967
---- ----
65 3,306
---- ----
2009
First interim 9th July 2009 14 701
Second interim 8th October 2009 14 713
Third interim 7th January 2010 15 763
Fourth interim 8th April 2010 18 919
---- ----
61 3,096
---- ----
Weighted average number of shares
2010 2009
millions millions
---- ----
Weighted average number of shares - basic 5,085 5,069
Dilutive effect of share options and share
awards 43 39
---- ----
Weighted average number of shares - diluted 5,128 5,108
---- ----
Q4 2010 Q4 2009
millions millions
---- ----
Weighted average number of shares - basic 5,090 5,072
Dilutive effect of share options and share
awards 42 44
---- ----
Weighted average number of shares - diluted 5,132 5,116
---- ----
Net assets
The book value of net assets decreased by GBP997 million from GBP10,742
million at 31st December 2009 to GBP9,745 million at 31st December
2010. This reflects dividend payments and the increased provision
for legal charges, partially offset by the operating activities in
the year. At 31st December 2010, the net deficit on the Group's pension
plans was GBP1,224 million compared with GBP1,745 million at 31st
December 2009. The decrease in the pension deficit arose predominantly
from a net increase in asset values in the UK and the USA, deficit
reduction contributions by the company and a decrease in the long-term
inflation rate, partly offset by reductions in the rate used to discount
UK pension liabilities from 5.7% to 5.5% and the rate used to discount
US pension liabilities from 5.75% to 5.2%.
The carrying value of investments in associates and joint ventures
at 31st December 2010 was GBP1,081 million, with a market value of
GBP1,977 million.
At 31st December 2010, the ESOP Trusts held 105 million GSK shares
against the future exercise of share options and share awards. The
carrying value of GBP845 million has been deducted from other reserves.
The market value of these shares was GBP1,308 million.
GSK did not purchase any shares for cancellation in the year. At 31st
December, the company held 474.2 million Treasury shares at a cost
of GBP6,286 million, which has been deducted from retained earnings.
Reconciliation of cash flow to movements 2010 2009
in net debt GBPm GBPm
---- ----
Net debt at beginning of the year (9,444) (10,173)
(Decrease)/increase in cash and bank overdrafts (642) 1,054
Cash inflow from liquid investments (91) (87)
Net increase in long-term loans - (1,358)
Net repayment of short-term loans 1,290 102
Net repayment of obligations under finance
leases 45 48
Debt of subsidiary undertakings acquired (20) (9)
Exchange adjustments 61 1,041
Other non-cash movements (58) (62)
---- ----
Decrease in net debt 585 729
---- ----
Net debt at end of the year (8,859) (9,444)
---- ----
Related party transactions
The Group's significant related parties are its joint ventures and associates
as disclosed in the Annual Report 2009, apart from JCR Pharmaceutical Co.
Limited, a Japanese pharmaceutical company, which is now being accounted for
as an associate following the acquisition of further shares in May 2010.
There were no material transactions with any of the Group's joint ventures
and associates in the year. There were also no material transactions with
Directors. Subsequent to the year-end, the Group sold its entire shareholding
in Quest Diagnostics Inc. The sale comprised a secondary public offering and
an accompanying repurchase of shares by Quest Diagnostics which together are
expected to generate gross proceeds of $1.1 billion (GBP0.7 billion) after
tax.
Contingent liabilities
There were contingent liabilities at 31st December 2010 in respect
of guarantees and indemnities entered into as part of the ordinary
course of the Group's business. No material losses are expected to
arise from such contingent liabilities.
Exchange rates
The Group operates in many countries and earns revenues and incurs
costs in many currencies. The results of the Group, as reported in
Sterling, are affected by movements in exchange rates between Sterling
and other currencies. Average exchange rates, as modified by specific
transaction rates for large transactions, prevailing during the period
are used to translate the results and cash flows of overseas subsidiaries,
associates and joint ventures into Sterling. Period-end rates are
used to translate the net assets of those entities. The currencies
which most influenced these translations and the relevant exchange
rates were:
2010 2009 Q4 2010 Q4 2009
---- ---- ---- ----
Average rates:
GBP/US$ 1.55 1.56 1.58 1.62
GBP/Euro 1.16 1.12 1.16 1.12
GBP/Yen 136 146 130 149
Period end rates:
GBP/US$ 1.56 1.61 1.56 1.61
GBP/Euro 1.17 1.13 1.17 1.13
GBP/Yen 127 150 127 150
During 2010, average Sterling exchange rates in both the full year
and Q4 were stronger against the Euro but weaker against the US Dollar
and the Yen compared with the same periods in 2009. Period end Sterling
exchange rates were also stronger against the Euro but weaker against
the US Dollar and the Yen.
Accounting presentation and policies
This unaudited Results Announcement containing condensed financial
information for the three and twelve months ended 31st December 2010
is prepared in accordance with the Disclosure and Transparency Rules
of the United Kingdom's Financial Services Authority and the accounting
policies set out in the Annual Report 2009, except that GSK has implemented
IFRS 3 (Revised) 'Business combinations', IAS 27 (Revised) 'Consolidated
and separate financial statements: recognition and measurement' and
IFRIC 17 'Distributions of non-cash assets to owners'. None of these
changes has had a material impact on the results for the periods under
review.
The income statement, statement of comprehensive income, cash flow
statement and statement of changes in equity for the year ended 31st
December 2010 and the balance sheet at that date, are subject to completion
of the audit and may also change should a significant adjusting event
occur before the approval of the Annual Report 2010 on 1st March 2011.
This Results Announcement does not constitute statutory accounts of
the Group within the meaning of sections 434(3) and 435(3) of the
Companies Act 2006. The balance sheet at 31st December 2009 has been
derived from the full Group accounts published in the Annual Report
2009, which has been delivered to the Registrar of Companies and on
which the report of the independent auditors was unqualified and did
not contain a statement under section 498 of the Companies Act 2006.
Internet
This Announcement and other information about GSK are available on
the company's website at: http://www.gsk.com.
Additional income statement information
Year ended 31st December 2010
Other Operating
Cost of SG&A R&D operating Operating margin
Turnover sales costs costs income profit %
--- --- -- -- --- --- ---
US
pharmaceuticals 2010 GBPm 7,648 (935) (1,856) - 186 5,043 65.9
2009
(restated) GBPm 8,578 (952) (2,065) - 372 5,933 69.2
Growth CER % (11) (2) (11) - (50) (16)
Europe
pharmaceuticals 2010 GBPm 6,548 (1,427) (1,395) - 18 3,744 57.2
2009
(restated) GBPm 7,087 (1,493) (1,609) (2) 10 3,993 56.3
Growth CER % (6) (2) (11) - 80 (4)
Emerging Markets
pharmaceuticals 2010 GBPm 3,556 (1,252) (1,054) (3) 24 1,271 35.7
2009
(restated) GBPm 2,895 (1,031) (915) (4) 3 948 32.7
Growth CER % 22 21 16 (25) >100 31
Asia Pacific /
Japan
pharmaceuticals 2010 GBPm 3,102 (633) (733) (28) 22 1,730 55.8
2009
(restated) GBPm 2,628 (595) (669) (22) 10 1,352 51.4
Growth CER % 9 4 1 18 >100 15
ViiV Healthcare 2010 GBPm 1,566 (323) (274) *(93) (25) 851 54.3
2009
(restated) GBPm 1,605 (327) (168) *(27) (12) 1,071 66.7
Growth CER % (3) (1) 63 >100 >100 (21)
Pharmaceuticals
R&D 2010 GBPm - - (160) (2,954) 9 (3,105)
2009
(restated) GBPm - - (182) (3,019) 119 (3,082)
Growth CER % - - (13) (3) (92) -
Other trading
and unallocated
pharmaceuticals 2010 GBPm 962 (863) (495) (652) 265 (783)
2009
(restated) GBPm 901 (873) (509) (641) 417 (705)
Growth CER % (1) - 12 2 (36) 33
Total
pharmaceuticals 2010 GBPm 23,382 (5,433) (5,967) (3,730) 499 8,751 37.4
-----------------
2009
(restated) GBPm 23,694 (5,271) (6,117) (3,715) 919 9,510 40.1
-----------------
Growth CER % (2) 4 (2) - (46) (11)
----------------- ----------- ----- --------- -------- --------- -------- ---------- ---------- ----------
Consumer
Healthcare 2010 GBPm 5,010 (1,902) (1,939) (158) 32 1,043 20.8
2009
(restated) GBPm 4,674 (1,755) (1,850) (150) 12 931 19.9
Growth CER % 5 6 3 5 >100 8
Corporate
and other
unallocated
costs 2010 GBPm - (70) (4,482) (76) (38) (4,666)
2009
(restated) GBPm - (69) (1,233) (86) 204 (1,184)
Growth CER % - 1 >100 (13) (>100) >100
Results before
major
restructuring 2010 GBPm 28,392 (7,405) (12,388) (3,964) 493 5,128 18.1
-----------------
2009
(restated) GBPm 28,368 (7,095) (9,200) (3,951) 1,135 9,257 32.6
-----------------
Growth CER % (1) 4 35 - (57) (48)
----------------- ----------- ----- --------- -------- --------- -------- ---------- ---------- ----------
* Note: This excludes HIV discovery research (pre-Phase IIb) which
is conducted by GSK and Pfizer and R&D expenditure related to the Shionogi
JV and Phase IV clinical expenditure which are reported within the
ViiV Healthcare OOI and SG&A lines respectively.
The following table provides additional financial analysis for worldwide
vaccines and worldwide dermatologicals which are not segments for financial
reporting purposes and are managed within the geographical pharmaceutical
segments. Consequently, these results are included within the financial
information of the relevant geographical pharmaceuticals segments as
reported to the CEO and presented in the tables on pages 23 to 26.
Year ended 31st December 2010
Other Operating
Cost of SG&A R&D operating Operating margin
Turnover sales costs costs income profit %
--- --- --- -- --- --- ---
Worldwide
vaccines 2010 GBPm 4,326 (1,394) (664) (538) 85 1,815 42.0
2009
(restated) GBPm 3,706 (1,154) (671) (529) 105 1,457 39.3
Growth CER % 15 23 (3) 3 (19) 20
Worldwide
dermatologicals 2010 GBPm 1,087 (250) (339) (47) (5) 446 41.0
2009
(restated) GBPm 707 (191) (152) (30) 2 336 47.5
Growth CER % 51 29 >100 53 (>100) 30
All other
pharmaceuticals 2010 GBPm 17,969 (3,789) (4,964) (3,145) 419 6,490 36.1
(restated) GBPm 19,281 (3,926) (5,294) (3,156) 812 7,717 40.0
Growth CER % (8) (3) (5) (1) (48) (19)
Total
pharmaceuticals 2010 GBPm 23,382 (5,433) (5,967) (3,730) 499 8,751 37.4
(restated) GBPm 23,694 (5,271) (6,117) (3,715) 919 9,510 40.1
Growth CER % (2) 4 (2) - (46) (11)
----------------- ----------- ----- --------- -------- -------- -------- ---------- ---------- ----------
Three months ended 31st December 2010
Other Operating
Cost of SG&A R&D operating Operating margin
Turnover sales costs costs income profit %
--- --- -- -- --- --- ---
US
pharmaceuticals Q4 2010 GBPm 1,854 (225) (412) - 39 1,256 67.7
Q4 2009
(restated) GBPm 2,322 (270) (513) - 5 1,544 66.5
Growth CER % (22) (16) (22) - >100 (21)
Europe
pharmaceuticals Q4 2010 GBPm 1,647 (383) (344) - 7 927 56.3
Q4 2009
(restated) GBPm 2,231 (476) (461) (2) 4 1,296 58.1
Growth CER % (24) (18) (23) - 75 (27)
Emerging Markets
pharmaceuticals Q4 2010 GBPm 969 (338) (276) (1) (9) 345 35.6
Q4 2009
(restated) GBPm 817 (294) (246) (2) 1 276 33.8
Growth CER % 16 16 11 (50) (>100) 19
Asia Pacific /
Japan
pharmaceuticals Q4 2010 GBPm 797 (163) (205) (7) 4 426 53.5
Q4 2009
(restated) GBPm 794 (189) (191) (7) 2 409 51.5
Growth CER % (11) (16) (4) (14) 50 (12)
ViiV Healthcare Q4 2010 GBPm 403 (68) (80) *(30) (9) 216 53.6
Q4 2009
(restated) GBPm 415 (89) (58) *(15) (3) 250 60.2
Growth CER % (4) (24) 38 100 >100 (16)
Pharmaceuticals
R&D Q4 2010 GBPm - 1 (40) (777) 7 (809)
Q4 2009
(restated) GBPm - - (45) (781) - (826)
Growth CER % - - (13) (3) - (4)
Other trading
and unallocated
pharmaceuticals Q4 2010 GBPm 260 (315) (197) (209) 70 (391)
Q4 2009
(restated) GBPm 331 (331) (181) (227) 245 (163)
Growth CER % (27) (6) (19) (8) (71) >100
Total
pharmaceuticals Q4 2010 GBPm 5,930 (1,491) (1,554) (1,024) 109 1,970 33.2
-----------------
Q4 2009
(restated) GBPm 6,910 (1,649) (1,695) (1,034) 254 2,786 40.3
Growth CER % (16) (9) (13) (3) (57) (31)
------------ ------------------------ --------- -------- -------- -------- ---------- ---------- ----------
Consumer
Healthcare Q4 2010 GBPm 1,267 (477) (475) (42) 29 302 23.8
Q4 2009
(restated) GBPm 1,184 (436) (453) (45) 11 261 22.0
Growth CER % 4 6 2 (7) >100 13
Corporate
and other
unallocated
costs Q4 2010 GBPm - (12) (2,260) (17) (20) (2,309)
Q4 2009
(restated) GBPm - (13) (632) (13) 288 (370)
Growth CER % - (8) >100 23 (>100) >100
Results before
major
restructuring Q4 2010 GBPm 7,197 (1,980) (4,289) (1,083) 118 (37) (0.5)
-----------------
Q4 2009
(restated) GBPm 8,094 (2,098) (2,780) (1,092) 553 2,677 33.1
Growth CER % (13) (6) 51 (3) (79) (>100)
------------ ------------------------ --------- -------- -------- -------- ---------- ---------- ----------
* Note: This excludes HIV discovery research (pre-Phase IIb) which
is conducted by GSK and Pfizer and R&D expenditure related to the Shionogi
JV and Phase IV clinical expenditure which are reported within the
ViiV Healthcare OOI and SG&A lines respectively.
The following table provides additional financial analysis for worldwide
vaccines and worldwide dermatologicals which are not segments for financial
reporting purposes and are managed within the geographical pharmaceutical
segments. Consequently, these results are included within the financial
information of the relevant geographical pharmaceuticals segments as
reported to the CEO and presented in the tables on pages 23 to 26.
Three months ended 31st December 2010
Other Operating
Cost of SG&A R&D operating Operating margin
Turnover sales costs costs income profit %
--- --- --- -- --- --- ---
Worldwide
vaccines Q4 2010 GBPm 994 (421) (175) (162) 14 250 25.2
Q4 2009
(restated) GBPm 1,523 (404) (195) (179) 21 766 50.3
Growth CER % (36) 7 (13) (9) (33) (71)
Worldwide
dermatologicals Q4 2010 GBPm 288 (68) (98) (10) (8) 104 36.1
Q4 2009
(restated) GBPm 255 (72) (67) (19) 1 98 38.4
Growth CER % 10 (7) 40 (53) (>100) 4
All other
pharmaceuticals Q4 2010 GBPm 4,648 (1,002) (1,281) (852) 103 1,616 34.8
Q4 2009
(restated) GBPm 5,132 (1,173) (1,433) (836) 232 1,922 37.5
Growth CER % (12) (15) (15) - (56) (17)
Total
pharmaceuticals Q4 2010 GBPm 5,930 (1,491) (1,554) (1,024) 109 1,970 33.2
Q4 2009
(restated) GBPm 6,910 (1,649) (1,695) (1,034) 254 2,786 40.3
Growth CER % (16) (9) (13) (3) (57) (31)
------------ ------------------------ --------- -------- -------- -------- ---------- ---------- ----------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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