3rd Quarter Results

Group turnover increased 16% AER, 11% CER to £9,385 million in the quarter, with growth delivered by all three businesses, primarily driven by Vaccines and the acquired Pfizer consumer healthcare business to form the new Consumer Healthcare Joint Venture.  Pro-forma turnover growth for the Group was 6% CER.

Pharmaceuticals sales were up 7% AER, 3% CER with HIV sales of £1,267 million, up 5% AER, flat at CER, as growth in Juluca and Dovato offset declines in Tivicay and Triumeq.  Respiratory sales were up 25% AER, 19% CER to £806 million, on growth of Trelegy Ellipta and Nucala.  Sales of Established Pharmaceuticals declined 1% AER, 5% CER to £2,223 million including the impact of loss of exclusivity of Advair.

Vaccines turnover grew 20% AER, 15% CER to £2,308 million, primarily driven by growth in sales of Shingrix.  Meningitis and Influenza vaccines also contributed to growth.

Consumer Healthcare sales grew 30% AER, 25% CER to £2,526 million, primarily reflecting the acquired Pfizer legacy brands.  On a pro-forma basis, turnover grew 3% CER, driven by strong performance in Oral health.

Operating profit

Total operating profit was £2,147 million compared with £1,910 million in Q3 2018.  Adjusted operating profit was £2,786 million, up 10% AER, 3% CER on a turnover increase of 11% CER.  The Adjusted operating margin of 29.7% was down 1.5 percentage points at AER, 2.4 percentage points at CER and down 2.0 percentage points CER on a pro-forma basis.

The unwind of  the fair value uplift on Consumer Healthcare inventory acquired from Pfizer and increased re-measurement charges on the contingent consideration liabilities were partly offset by lower charges for major restructuring and an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands.  GSK now expects the transaction to complete in Q1 2020, subject to legal and regulatory approvals.

Operating profit was also impacted by continuing price pressure, including from the loss of exclusivity of Advair, investment in R&D, including a significant increase in Oncology investment, and investments in promotional product support, particularly for new product launches.  These were partly offset by the benefit from sales growth, particularly in Vaccines, a more favourable mix in Vaccines and Consumer Healthcare and continued tight control of ongoing costs across all three businesses.

Earnings per share

Total earnings per share was 31.4p, compared with 28.8p in Q3 2018.  Adjusted EPS of 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER, on a 3% CER increase in Adjusted operating profit.  The improvement primarily resulted from a reduced tax rate and lower net finance costs partly offset by the higher non-controlling interest allocation of Consumer Healthcare profits.

Cash flow

Net cash inflow from operating activities was £2,515 million (Q3 2018: £2,077 million) and free cash flow was £1,939 million (Q3 2018: £1,554 million).  The increased free cash flow primarily reflected improved operating profits, a lower seasonal increase in trade receivables and inventory, and reduced dividend payments to non-controlling interests.

Group turnover increased 10% AER, 7% CER to £24,855 million in the nine months, with growth delivered by all three businesses.  Pro-forma turnover growth for the Group was 5% CER.

Pharmaceuticals turnover was £12,996 million, up 4% AER, 1% CER.  HIV sales were up 4% AER, 1% CER, to £3,597 million, with growth in Juluca and Dovato partly offset by a decline in Triumeq.  Respiratory sales were up 23% AER, 18% CER, to £2,189 million, on growth of Trelegy Ellipta and Nucala.  Established Pharmaceuticals sales declined 4% AER, 6% CER to £6,603 million, including the impact of loss of exclusivity of Advair.

Vaccines turnover grew 23% AER, 19% CER to £5,415 million, primarily driven by growth in sales of Shingrix.  Meningitis and Influenza vaccines also contributed to growth.

Consumer Healthcare sales grew 12% AER, 10% CER to £6,424 million.  On a pro-forma basis, sales grew 2% CER, driven largely by the International region with double digit growth in India and China.

Operating profit

Total operating profit was £5,059 million in the nine months compared with £3,929 million in 2018.  Adjusted operating profit was £7,120 million, up 9% AER, 3% CER on a turnover increase of 7% CER.  The Adjusted operating margin of 28.6% was down 0.3 percentage points at AER, 1.0 percentage points at CER and down 0.9 percentage points CER on a pro-forma basis.  Reduced re-measurement charges on the contingent consideration liabilities and an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other brands were partly offset by increased charges for major restructuring, primarily arising from write-downs in manufacturing sites.

Operating profit also benefited from sales growth in all three businesses, particularly Vaccines, a more favourable mix in Vaccines and Consumer Healthcare, a benefit from favourable inventory adjustments in Vaccines and continued tight control of ongoing costs across all three businesses.  This was partly offset by continuing price pressure, particularly in Respiratory, including the impact of the loss of exclusivity of Advair, investment in R&D including a significant increase in Oncology investment, and investments in promotional product support, particularly for new launches.

Earnings per share

Total earnings per share for the nine months was 67.7p, compared with 49.0p in 2018.  Adjusted EPS of 99.2p compared with 88.3p in 2018, up 12% AER, 7% CER, on a 3% CER increase in Adjusted operating profit.  The improvement primarily resulted from the lower non-controlling interest allocation of Consumer Healthcare profits, a reduced effective tax rate and an increased share of after tax profits of associates, partly offset by increased net finance costs.

Cash flow

Net cash inflow from operating activities was £4,567 million (2018: £4,302 million) and free cash flow was £2,474 million (2018: £2,375 million).  The increase primarily reflected improved operating profits, a lower seasonal increase in trade receivables, lower contingent consideration payments and reduced dividend payments to non-controlling interests.

Total reported results represent the Group's overall performance.

GSK also uses a number of adjusted, non-IFRS, measures to report the performance of its business.  Adjusted results and other non-IFRS measures may be considered in addition to, but not as a substitute for or superior to, information presented in accordance with IFRS.  Adjusted results are defined below and pro-forma growth and other non-IFRS measures are defined on page 58.

GSK believes that Adjusted results, when considered together with Total results, provide investors, analysts and other stakeholders with helpful complementary information to understand better the financial performance and position of the Group from period to period, and allow the Group's performance to be more easily compared against the majority of its peer companies.  These measures are also used by management for planning and reporting purposes.  They may not be directly comparable with similarly described measures used by other companies.

GSK encourages investors and analysts not to rely on any single financial measure but to review GSK's quarterly results announcements, including the financial statements and notes, in their entirety.

GSK is committed to continuously improving its financial reporting, in line with evolving regulatory requirements and best practice and has made a number of changes in recent years.  In line with this practice, GSK expects to continue to review its reporting framework.

Adjusted results exclude the following items from Total results, together with the tax effects of all of these items:

Costs for all other ordinary course smaller scale restructuring and legal charges and expenses are retained within both Total and Adjusted results.

As Adjusted results include the benefits of Major restructuring programmes but exclude significant costs (such as significant legal, major restructuring and transaction items) they should not be regarded as a complete picture of the Group's financial performance, which is presented in Total results.  The exclusion of other Adjusting items may result in Adjusted earnings being materially higher or lower than Total earnings.  In particular, when significant impairments, restructuring charges and legal costs are excluded, Adjusted earnings will be higher than Total earnings.

GSK has undertaken a number of Major restructuring programmes in recent years in response to significant changes in the Group's trading environment or overall strategy, or following material acquisitions.  Costs, both cash and non-cash, of these programmes are provided for as individual elements are approved and meet the accounting recognition criteria.  As a result, charges may be incurred over a number of years following the initiation of a Major restructuring programme.

Significant legal charges and expenses are those arising from the settlement of litigation or government investigations that are not in the normal course and materially larger than more regularly occurring individual matters.  They also include certain major legacy matters.

Reconciliations between Total and Adjusted results, providing further information on the key Adjusting items, are set out on pages 20, 21, 34 and 35.

GSK provides earnings guidance to the investor community on the basis of Adjusted results.  This is in line with peer companies and expectations of the investor community, supporting easier comparison of the Group's performance with its peers.  GSK is not able to give guidance for Total results as it cannot reliably forecast certain material elements of the Total results, particularly the future fair value movements on contingent consideration and put options that can and have given rise to significant adjustments driven by external factors such as currency and other movements in capital markets.

Pro-forma growth

The acquisition of the Pfizer consumer healthcare business completed on 31 July 2019 and so GSK's reported results include two months of results of the former Pfizer consumer healthcare business from 1 August 2019.

The Group has presented pro-forma growth rates at CER for turnover, Adjusted operating profit and operating profit by business taking account of this transaction.  Pro-forma growth rates for the quarter are calculated comparing reported results for Q3 2019, calculated applying the exchange rates used in the comparative period, with the results for Q3 2018 adjusted to include the equivalent two months of results of the former Pfizer consumer healthcare business during Q3 2018, as consolidated (in US$) and included in Pfizer's US GAAP results.  Similarly, pro-forma growth rates at CER for the nine months to 30 September 2019 are calculated comparing reported results for the nine months to 30 September 2019, calculated applying the exchange rates used in the comparative period, with the results for the nine months to 30 September 2018, adjusted to include the equivalent two months of results of the former Pfizer consumer healthcare business, as consolidated (in US$) and included in Pfizer's US GAAP results.