GlaxoSmithKline : Download full results announcement PDF - 1.2MB

Press release

Second quarter 2021

Issued: Wednesday, 28 July 2021, London U.K.

GSK delivers strong Q2 sales of £8.1 billion, +6% AER, +15% CER

Total EPS 27.9p -39% AER, -28% CER; Adjusted EPS 28.1p +46% AER +71% CER

Highlights

Sales growth driven by strong commercial execution and favourable prior year comparison

• Pharmaceuticals £4.2 billion +3% AER, +12% CER with growth in New and Specialty products (+25% CER) including Respiratory +36% CER, Immuno-Inflammation +46% CER, Oncology +69% CER, total HIV +14% CER
• Vaccines £1.6 billion +39% AER, +49% CER reflecting strong growth in Meningitis +46% CER, Established Vaccines +28% CER, Shingrix +1% CER with improved performance notably in the US and £258 million pandemic adjuvant sales. Continue to expect strong growth from Shingrix in H2
• Consumer Healthcare £2.3 billion -4% AER, +3% CER (+7% CER excluding divestments/brands under review)

Effective cost control supports delivery of adjusted earnings per share growth

• Total Group operating margin 20.7%. Total EPS 27.9p -39% AER, -28% CER
• Adjusted Group operating margin 26.7%. Adjusted EPS 28.1p +46% AER, +71% CER (H1 -10% AER, +2% CER). This included a contribution to growth from COVID-19 solutions of approximately +20% AER, +21% CER in Q2 (+7% AER, +7% CER in H1)
• Q2 net cash flow from operations £1.3 billion. Free cash flow £316 million

Continued R&D delivery and strengthening of pipeline

• FDA rolling review of cabotegravir for prevention of HIV (PrEP) completed
• Positive phase III headline results for daprodustat, potential transformative medicine for anaemia due to chronic kidney disease
• 3 new strategic collaborations announced, iTeos, Alector* and Halozyme strengthen pipeline in next generation immuno-oncology,immuno-neurology and HIV
• Emergency use authorisations for sotrovimab; Phase III started for Sanofi-GSK adjuvanted COVID-19 vaccine and EMA rolling review initiated

Investor Update in June outlined new outlooks for growth and plans to maximise shareholder value

• GSK expects to deliver step-change in sales, operating profit growth and performance from 2022, driven by high quality Vaccines and Specialty Medicines portfolio and late-stage pipeline
• Proposed demerger to create new world-leading Consumer Healthcare company confirmed for mid-2022

Confident in delivering 2021 EPS guidance and reconfirm 2022 outlook

• 2021 Adjusted EPS to decline by mid-to-highsingle-digit percentage at CER
• 2022 meaningful improvements expected in revenues and margins
• 2021 guidance and 2022 outlook exclude any contribution from COVID-19 solutions

Dividend of 19p/share declared for Q2 2021. Continue to expect 80p/share for 2021

Emma Walmsley, Chief Executive Officer, GSK said: "GSK delivered an excellent performance in Q2. We expect this positive momentum to continue through the second half of the year driving us towards the better end of our earnings guidance range for 2021, and meaningful performance improvement in 2022. We continue to strengthen our pipeline and are advancing well towards separation. Our clear priority is to focus on execution, unlocking the value of Consumer Healthcare and delivering the step-changein growth and performance we now see for GSK."

The Total results are presented in summary on page 2 and under 'Financial performance' on pages 12 and 27 and Adjusted results reconciliations are presented on pages 23, 24, 38 and 39. Adjusted results are a non-IFRS measure that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results are defined on page 10 and £% or AER% growth, CER% growth, free cash flow and other non-IFRS measures are defined on page 67, COVID-19 solutions are also defined on page 67. GSK provides guidance on an Adjusted results basis only, for the reasons set out on page 11. All expectations, guidance and targets regarding future performance and dividend payments should be read together with 'Outlook, assumptions and cautionary statements' on pages 68 and 69. * Subject to HSR clearance.

Q2 Results summary		Total and Adjusted results		Quarterly performance		YTD performance		Financial information
Issued: Wednesday, 28 July 2021, London, U.K.					1

Press release

Q2 2021 results

	Q2 2021		Growth		H1 2021		Growth
	£m		£%			CER%		£m		£%			CER%
Turnover	8,092		6	15	15,510		(7)	(1)
Total operating profit	1,675		(41)	(30)	3,368		(31)	(21)
Total earnings per share	27.9p	(39)	(28)		49.4p	(36)	(27)
Adjusted operating profit	2,158		23	43	4,039		(9)	3
Adjusted earnings per share	28.1p	46	71		51.0p	(10)	2
Net cash from operating activities	1,292		(53)				1,623		(56)
Free cash flow	316		(84)				313		(87)

2021 guidance

We reconfirm our guidance range for 2021 for a decline of mid to high-single digit percent Adjusted EPS at CER, excluding any contribution from COVID-19 solutions.

In 2021, as planned we will continue to increase investment in our pipeline, build on our top-line momentum for key growth drivers and largely complete readiness for separation. Assuming healthcare systems and consumer trends approach normality in the second half of the year, we continue to expect Pharmaceutical revenue to grow flat to low-single digits at CER and Consumer Healthcare revenue to grow low to mid-single digits at CER (excluding brands divested/under review) with above market growth. For our Vaccines business, as noted at the time of announcing full-year 2020 results, we anticipated disruption during the first half of the year, given governments' prioritisation of COVID-19 vaccination programmes and ongoing measures to contain the pandemic. This was expected to impact adult and adolescent immunisations, including Shingrix, notably in the US and this is reflected in our first-half year 2021 Vaccines performance. We are encouraged by the rate at which COVID-19 vaccinations are being deployed in many countries, particularly the US and UK, which provides support for healthcare systems returning to normal, though we are seeing global differentiation in the pace of deployment in other major markets. There remains, however, uncertainty as to the impact of COVID-19, the speed of deployment of mass immunisation programmes and easing of pandemic conditions. In the second half of the year we continue to expect strong recovery and contribution to growth but, with Shingrix sales recovering more slowly in ex-US markets, we now expect Vaccines revenue for 2021 to be broadly flat. We remain confident in the underlying demand for our Vaccine products.

Our strong Q2 2021 performance gives us confidence that, providing we continue to see improving demand for adult vaccinations through the balance of 2021, as well as healthcare systems and consumer trends approaching normality, we are likely to deliver full-year Adjusted EPS towards the better end of our guidance range which is for a decline of mid-to-highsingle-digit percentage at CER excluding any contribution from COVID-19 solutions.

2021 COVID-19 solutions expectations

In H1 2021, we had COVID-19 solution sales of £276 million including £260 million of pandemic vaccines of which £258 million were pandemic adjuvant sales and £16 million of the treatment sotrovimab. The contribution to H1 Adjusted EPS was approximately 7%. For the full year, we expect that the COVID-19 solutions will contribute approximately between 4% to 6% of Adjusted EPS growth. The outcome within that range is dependent upon the success of sotrovimab contracting for 2021, and of pandemic adjuvant contracting for 2022 and the resulting potential charges within COGS as we continue to manufacture for this potential.

All expectations, guidance and targets regarding future performance and dividend payments should be read together with 'Outlook, assumptions and cautionary statements' on pages 68 and 69. If exchange rates were to hold at the closing rates on 30 June 2021 ($1.39/£1, €1.17/£1 and Yen 153/£1) for the rest of 2021, the estimated negative impact on 2021 Sterling turnover growth would be 5% and if exchange gains or losses were recognised at the same level as in 2020, the estimated negative impact on 2021 Sterling Adjusted EPS growth would be around 10%.

Results presentation

A webcast of the quarterly results presentation hosted by Emma Walmsley, GSK CEO, will be held at 2pm BST on 28 July 2021. Presentation materials will be published on www.gsk.com prior to the webcast and a transcript of the webcast will be published subsequently.

Information available on GSK's website does not form part of, and is not incorporated by reference into, this Results Announcement.

Q2 Results summary		Total and Adjusted results		Quarterly performance		YTD performance		Financial information
Issued: Wednesday, 28 July 2021, London, U.K.					2

Press release

Operating performance - Q2 2021

Turnover					Q2 2021
			Growth		Growth
	£m		£%		CER%
Pharmaceuticals	4,229	3	12
Vaccines	1,571	39	49
Consumer Healthcare	2,292		(4)		3
Group turnover	8,092		6		15

Group turnover was £8,092 million in the quarter, up 6% AER, 15% CER.

Pharmaceuticals turnover in the quarter was £4,229 million, up 3% AER, 12% CER. The quarter results show significant growth over the same quarter last year, driven by strong growth in New and Specialty products, favourable US RAR adjustments and a prior year comparator that was impacted by destocking of COVID-19 related first quarter additional demand.

Vaccines turnover grew 39% AER, 49% CER to £1,571 million, primarily driven by pandemic adjuvant sales, higher demand for DTPa-containing vaccines in the US and higher demand for Bexsero in the US and in Europe. Vaccines turnover excluding pandemic vaccines grew 16% AER, 24% CER to £1,311 million.

Consumer Healthcare turnover declined 4% AER, but increased 3% CER to £2,292 million. Sales excluding brands divested/under review declined 1% AER but increased 7% CER supported by a favourable comparative in Q2 2020 as a result of destocking including the reversal of the benefit of the accelerated purchases in the first quarter in 2020 across all categories as a result of the COVID-19 pandemic.

Operating profit

Total operating profit was £1,675 million in Q2 2021 compared with £2,850 million in Q2 2020. The total operating margin was 20.7%. This decrease in Total operating profit primarily reflected the net profit on disposal of the Horlicks and other Consumer brands of £2,304 million in the prior period partly offset by the related loss on sale of the shares in Hindustan Unilever of £476 million.

Adjusted operating profit was £2,158 million, 23% higher than Q2 2020 at AER, 43% higher at CER on a turnover increase of 15% CER. The Adjusted operating margin of 26.7% was 3.7 percentage points higher at AER, and

5.6 percentage points higher on a CER basis than in Q2 2020. The increase in Adjusted operating profit primarily reflected leverage from a favourable comparison to destocking in Q2 2020 in Pharmaceuticals and Consumer Healthcare, £258 million of pandemic adjuvant sales, increased demand for Meningitis and DTPa-containing Vaccines, a favourable prior period RAR adjustment in Pharmaceuticals, continued tight control of ongoing costs and benefits from continued restructuring. This was partly offset by increased investment behind launches and increased investment in R&D.

Earnings per share

Total EPS was 27.9p, compared with 45.5p in Q2 2020. This primarily reflected an unfavourable comparison to net profit on disposal in Q2 2020 of the Horlicks and other Consumer brands partly offset by the related loss on sale of the shares in Hindustan Unilever. In Q2 2021 a credit of £325 million to Taxation was recorded resulting from the revaluation of deferred tax assets following enactment of the proposed change of UK corporation tax rate from 19% to 25% (effective 2023).

Adjusted EPS was 28.1p compared with 19.2p in Q2 2020, up 46% AER, 71% CER, on a 43% CER increase in Adjusted operating profit reflecting sales increases in Pharmaceuticals and Consumer Healthcare including a benefit from destocking in Q2 2020 and increased Vaccines sales including pandemic adjuvant sales, lower interest costs, a lower effective tax rate and a lower non-controlling interest allocation of Consumer Healthcare and ViiV profits. The contribution to growth from COVID-19 solutions was approximately 20% AER, 21% CER.

Cash flow

The net cash inflow from operating activities for the quarter was £1,292 million (Q2 2020: £2,760 million). Free

cash inflow was £316 million for the quarter (Q2 2020: £1,949 million inflow). The decrease primarily reflected an adverse comparison to the significant reduction in trade receivables in Q2 2020 as a result of collections following strong sales in Q1 2020, adverse timing of returns and rebates and taxes compared to Q2 2020, increased purchases of intangible assets and reduced proceeds from disposal of intangible assets as the Consumer Brands Disposal programme is now complete. This was partly offset by increased operating profit, a lower seasonal increase in inventory and lower dividends to non-controlling interests.

Q2 Results summary		Total and Adjusted results		Quarterly performance		YTD performance		Financial information
Issued: Wednesday, 28 July 2021, London, U.K.					3

Press release

Operating performance - H1 2021

Turnover					H1 2021
			Growth		Growth
	£m		£%		CER%
Pharmaceuticals	8,111	(5)	2
Vaccines	2,795	(5)	-
Consumer Healthcare	4,604		(12)		(7)
Group turnover	15,510		(7)		(1)

Group turnover was £15,510 million in the six months, down 7% AER, 1% CER.

Pharmaceuticals turnover in the six months was £8,111 million, down 5% AER but up 2% CER, with growth from Respiratory and HIV partly offset by declines in Established Pharmaceuticals. In the first half of last year, the additional COVID-19 related demand experienced towards the end of the first quarter was broadly reversed in the second quarter. In the current year, the market environment continues to be impacted by COVID-19, impacting our Established Pharmaceuticals products in International and Europe regions.

Vaccines turnover declined 5% AER, but was flat at CER to £2,795 million, primarily driven by pandemic adjuvant sales, offset by the adverse impact of the COVID-19 pandemic on Shingrix. Vaccines turnover excluding pandemic vaccines declined 14% AER, 9% CER.

Consumer Healthcare turnover for the six months declined 12% AER, 7% CER to £4,604 million largely driven by the divestment programme which completed in Q1 2021 as well as the H1 2020 comparative including a particularly strong first quarter given accelerated purchasing due to the COVID-19 pandemic.

Operating profit

Total operating profit was £3,368 million in H1 2021 compared with £4,864 million in H1 2020. The total operating margin was 21.7%. The decrease in total operating profit primarily reflected an unfavourable comparison to the net profit on disposal in Q2 2020 of the Horlicks and other Consumer brands and resultant sale of shares in Hindustan Unilever.

Adjusted operating profit was £4,039 million, 9% lower than H1 2020 at AER, but 3% higher at CER on a turnover decline of 1% CER. The Adjusted operating margin of 26.0% was 0.4 percentage points lower at AER, but

1.1 percentage points higher on a CER basis than in H1 2020. The increase in Adjusted operating profit primarily reflected a benefit from incremental pandemic adjuvant sales, sales growth in Pharmaceuticals and tight control of ongoing costs including reduced promotional and variable spending across all three businesses as a result of the COVID-19 lockdowns, favourable legal settlements compared to increased legal costs in 2020 and benefits from continued restructuring across the Group. This was partly offset by an adverse mix in Vaccines as well as higher supply chain costs and under-recoveries, divestments in Consumer Healthcare and increased investment in R&D across Vaccines and Pharmaceuticals.

Earnings per share

Total EPS was 49.4p, compared with 77.0p in H1 2020. This primarily reflected an unfavourable comparison to the net profit on disposal in Q2 2020 of the Horlicks and other Consumer brands partly offset by the related loss on sale of the shares in Hindustan Unilever. These factors were partly offset by lower major restructuring costs and lower re-measurement charges on the contingent consideration liabilities. In Q2 2021 a credit of £325 million to Taxation was recorded resulting from the revaluation of deferred tax assets following enactment of the proposed change of the UK corporation tax rate from 19% to 25% (effective 2023).

Adjusted EPS was 51.0p compared with 56.9p in H1 2020, down 10% AER but up 2% CER, on a 3% CER increase in Adjusted operating profit reflecting incremental pandemic adjuvant sales, sales increases in Pharmaceuticals, tight cost control and favourable legal settlements, lower interest costs, a lower non-controlling interest allocation of Consumer Healthcare and ViiV profits, partly offset by lower non-pandemic sales in Vaccines, primarily Shingrix and a higher effective tax rate. The contribution to growth from COVID-19 solutions was approximately 7% AER, 7% CER.

Cash flow

The net cash inflow from operating activities for the six months was £1,623 million (H1 2020: £3,725 million). Free

cash inflow was £313 million for the six months (H1 2020: £2,480 million inflow). The decrease primarily reflected adverse exchange impacts, reduction in trade receivables in H1 2020 as a result of collections following strong sales in Q1 2020, adverse timing of returns and rebates and taxes compared to Q2 2020 and increased inventory, increased purchases of intangible assets and reduced proceeds from disposal of intangible assets as the Consumer Brands Disposal programme is now complete. This was partly offset by increased operating profit and lower dividends to non-controlling interests.

Q2 Results summary		Total and Adjusted results		Quarterly performance		YTD performance		Financial information
Issued: Wednesday, 28 July 2021, London, U.K.					4

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R&D pipeline

We focus on the science of the immune system, human genetics and advanced technologies to develop Vaccines and Specialty Medicines in four core therapeutic areas - Infectious Diseases, HIV, Oncology and Immunology/Respiratory. We also remain open to opportunities outside these core therapy areas where there are scale opportunities consistent with the science of the immune system and human genetic validation.

As disclosed at the Investor Update on 23 June 2021, the company has a robust late-stage R&D pipeline with many assets having the potential to be first-in-class or best-in-class, as well as offering significant strategic lifecycle opportunities. The late-stage pipeline is expected to help deliver the sales ambition set by the company for 2021-2026 and beyond.

Our R&D pipeline currently comprises 63 Vaccines and Specialty Medicines.

Pipeline news flow highlights since Q1 2021 Results are listed below in chronological order.

Infectious diseases

Shingrix

• Received FDA approval for the prevention of HZ (herpes zoster) in adults who are immunodeficient or immunosuppressed due to disease or therapy.

Klebsiella candidate vaccine

• Started a Phase I study of the tetravalent bioconjugate candidate vaccine Kleb4V that includes O-antigen combined with our proprietary adjuvant system.

MenABCWY candidate vaccine

• Started a Phase I study of the Meningococcal ABCWY 2nd generation candidate vaccine to assess immunogenicity and safety in healthy adolescents and adults aged 15 to 25 years who had previously been vaccinated with the MenACWY vaccine.

Priorix

• Delivered a regulatory submission to the FDA for immunisation against measles, mumps and rubella.

Respiratory Syncytial Virus (RSV) candidate vaccines

• Positive phase I/II data for RSV maternal candidate vaccine (recombinant PreF protein) presented at the European Society for Paediatric Infectious Diseases annual meeting.
• Development of phase II RSV paediatric candidate vaccine (viral vector) discontinued following assessment that target efficacy profile was unlikely to be met.

HIV

Cabenuva (cabotegravir/rilpivirine)

• Presented data from the CUSTOMIZE study showing new long-acting HIV regimen Cabenuva can be successfully implemented in a broad range of US healthcare practices, even during COVID-19.

Dovato (dolutegravir/lamivudine)

• Presented data from SALSA the second Dovato switch study confirming non-inferior efficacy and no virologic failure versus a broad range of regimens of at least 3 drugs.

GSK3810109 (VRC-N6LS; broadly neutralising antibody)

• Started a Phase II study with a broadly neutralising antibody for the treatment of HIV.

Cabotegravir (long-acting integrase inhibitor)

• Completed a rolling submission of a new drug application with the FDA for long-acting cabotegravir for the prevention of HIV.

ENHANZE® drug delivery technology

• ViiV Healthcare and Halozyme entered a global collaboration and license agreement to enable the development of "ultra-long-acting" medicines for HIV.

Q2 Results summary		Total and Adjusted results		Quarterly performance		YTD performance		Financial information
Issued: Wednesday, 28 July 2021, London, U.K.					5