Full Year Results 2011 7 th February 2012
Sir Andrew Witty Chief Executive Officer Simon Dingemans Chief Financial Officer
Delivering our strategy Grow a diversified global business Deliver more products of value Simplify the operating model
Delivering our strategy Grow a diversified • 38% sales generated outside US global business and EU • 22% of sales “White Pill Western Market” vs 40% in 2007 Deliver more • £5.3bn of Group sales from products of value strengthened EM business • £2.1bn Japan Rx/Vx sales (+35% vs 2008) Simplify the • £3.5bn Vaccines sales operating model (+22% vs 2008) • £5.2bn Consumer Healthcare sales (+18% vs 2008) 2011 reported turnovers; CER growth rates
Delivering our strategy Grow a diversified • 19 new product launches in global business 4 years • Pharma R&D budget broadly Deliver more unchanged since 2007 (CER) products of value • Over 200,000 patients in GSK trials (<100,000 in 2007) • Maintained ~30 assets in Simplify the PhIII/registration operating model • Significant restructure of Discovery organisation
DPU approach to Drug Discovery is delivering 2008 2011 2012 TA DPUs Full review rebalancing established 40 38 Extensive review completed Q4 2011 4 DPUs created 3 DPUs closed 6 DPUs with >20% increased investment 5 DPUs with >20% decreased investment Overall Drug Discovery budget unchanged
DPU approach has led to significant improvements in GSK Drug Discovery • Co-location leads to • Increased agility drives • DPU structure breaks rapid decision making faster process & lower cost traditional hierarchies
Visibility of multiple waves of pipeline delivery Up to 30 6 complete 1 filed Ph III C2MD * 4 ready to file (2012-14) in 2012 * Commit to Medicine Development – Typically phase IIb
Increasing confidence that respiratory portfolio will drive expanding market share ICS/ SABA ICS LABA LABA ~27% of £2.2bn rescue market ~67% of £7.7bn ICS/LABA market ~32% of £2.6bn steroid market GSK 33% share of the £21bn Global Asthma/COPD market Source: IMS Health MAT Sept 2011.
Increasing confidence that respiratory portfolio will drive expanding market share ICS/ LAMA/ LAMA/ Anti- SABA ICS LABA LABA LAMA LABA MABA ICS p38 FLAIR IL5 � � � � � � � � � � GSK pipeline £4.4bn maintenance bronchodilator £2.2bn rescue market market £0.5bn biological severe asthma £7.7bn ICS/LABA market market £2.6bn steroid market £2.7bn oral asthma market Source: IMS Health MAT Sept 2011.
Returns on R&D investment increased to 12%; on track to deliver 14% return rate GSK assessment of R&D IRR Industry historical 1 GSK Feb 2010 GSK Feb 2012 GSK target 15 late-stage portfolio 2 late-stage portfolio 2 IRR (%) 10 5 0 Increased risk adjusted sales following positive data Some early impact of cost reduction programmes Reduced late stage attrition 1. McKinsey, Nature Reviews, Drug Discovery (Aug 09) for small molecules. 13% for biopharms. 2. Projected rate of return based on investment made to create late stage pipeline & expectations on future sales. Late-stage portfolio includes pharma assets and vaccines launched from 2007 onwards (2010 analysis) and 2009 onwards (2012 analysis) plus phase IIb & III pipeline.
Delivering in innovation-led markets USA Japan Turnover: £7 billion in 2011 Turnover: £2.1 billion in 2011 • • ~80% of business is promoted Fastest growing large pharma • • products growing +6% company in Japan in 2011 Customer orientated approach First in class with Avodart , • • provides competitive edge Promacta , Cervarix and Rotarix Structure fit for purpose and ready Potential to launch >25 new • • to launch new portfolio indications in next 3 years, including 10 new drugs & vaccines 2011 Rx+Vx turnover. Growth rates are CER for underlying sales.
Delivering our strategy Grow a diversified • Reduced sales force in US and EU global business by ~8,000; added ~7,500 in RoW since 2007 • Global support functions; 23% Deliver more decrease in costs vs 2008 products of value • Exited 19 manufacturing sites since 2006 Simplify the • R&D footprint reduced by 46% since 2006 operating model • New SAP ERP platform implementation on track
Strategy delivers stronger platforms for growth Reshaped R&D delivers sustainable pipeline flow Businesses in innovation markets structured to launch new products Increased portfolio of affordable Pharma, Vaccines and Consumer brands in Emerging Markets Consumer Healthcare business refocused around Global brands and Emerging Markets Continue to drive world leading Vaccine business
Strategy is delivering sustainable financial performance and returns to shareholders Sales growth Reshaped R&D delivers sustainable pipeline flow Operating leverage Businesses in innovation markets structured to launch new products Returns to Increased portfolio of affordable Pharma, Vaccines shareholders and Consumer brands in Emerging Markets Consumer Healthcare business refocused around Financial Global brands and Emerging Markets efficiency Continue to drive world leading Vaccine business Cash flow growth
Headline results Before major restructuring Growth % £m FY 2011 CER £ Turnover 27,387 (3) (4) Underlying turnover 26,880 4 3 Operating profit 8,397 65 64 Operating profit (excluding legal) 8,554 (5) (6) EPS 114.1p >100 >100 EPS (excluding legal) 116.8p (3) (3) Free cash flow 4,141 Adjusted free cash flow (excluding legal) 5,607 Legal costs were £157m in 2011 and £4,001m in 2010; legal payments were £1,466m in 2011 and £2,047m in 2010
Group underlying turnover growth of +4% is broadly based Pharma Vaccines Consumer 68% of GSK 13% of GSK 19% of GSK £18.7bn £3.5bn £5.2bn +2% +11% +5% Asia Pacific (7%) £1.8bn 38% of GSK + 10% sales are now outside US & Europe Sales numbers are reported sales; growth rates at CER on underlying basis; numbers in () are % of Group sales. Total sales were £27.4bn; £995m (-6%) sold outside territories above, representing 4% of Group sales.
2011 operating margin was impacted by loss of high margin sales and pricing pressure 2011 2010 Sales growth Margin Margin Op margin* 30.4% FY'10 Operating COGS 26.5% 26.1% leverage SG&A 30.2% 29.5% Financial R&D 14.3% 14.0% efficiency Op margin* 29.0% FY'11 Cash flow 20% 21% 22% 23% 24% 25% 26% 27% 28% 29% 30% 31% growth * Excluding legal and OOI
OE programme and cost savings have partially offset the mix and pricing pressures on COGS Sales growth 26.1% COGS margin FY'10 0.6% Pandemic, Avandia, Valtrex Operating leverage US HC reform and EU austerity 0.3% pricing 0.4% Regional/product mix Financial efficiency (0.9%) OE savings and cost management 26.5% COGS margin FY'11 Cash flow growth 24% 25% 26% 27% 28%
Cost savings have enabled investment in higher growth businesses Sales growth 29.5% SG&A margin FY'10 Pandemic, Avandia, 0.9% Valtrex (net of underlying sales growth) Operating leverage US HC reform levy 0.4% 0.8% Investment markets Financial efficiency OE savings and cost (1.4%) management 30.2% SG&A margin FY'11 Cash flow growth 26% 27% 28% 29% 30% 31% 32%
Remain focused on driving operating leverage Turnover Simplification of supply Sales growth chain Greater focus on R&D £3,912m procurement capabilities 14.3% COGS Operating £7,259m leverage IT systems roll out on track 26.5% SG&A, Consolidation of global £8,272m functions 30.2% Financial efficiency Improving R&D productivity OPM* 29% £300m of additional annual savings from OE programme Cash flow growth Operating Profit & Margin * OPM = Operating profit margin excluding legal, OOI and major restructuring
Making progress on delivery of financial efficiencies Operating Profit 2011 2012 >> Sales growth Continue to target Held net debt steady at ~£9bn A-1/P-1 short-term debt rating Operating ~2% reduction in finance rate leverage Effective interest rate is ~8% by 2013; Offset by increase in net debt Group tax rate reduced to Reduction in core income tax ~26.2%* in 2011 rate to ~25% by 2014 Financial efficiency Long-term share buyback Share count reduced to programme £1-2bn in 2012 4,958m (-2.6%) at end of 2011 Cash flow growth EPS * Excludes the impact of the tax on disposal of the Quest shares
Generated ~£5.6bn free cash flow (ex legal) in 2011 £ Million Sales growth 1,466 477 9,830 10,000 1,128 7,713 2,135 8,000 Operating leverage 5,607 6,000 1,228 209 4,141 4,000 Financial efficiency 2,000 0 Cash flow EBITDA Working Legal Other Cash from Tax & Capex Minorities FCF FCF cap Ops Interest (Ex-Legal) growth EBITDA is reported (includes major restructuring). Capex includes expenditure on intangibles, net of proceeds from sale of PPE Other primarily includes accounting gains on Quest and Zovirax disposals, and decrease in other net liabilities
Progress in reducing working capital but significant opportunity remains Sales growth Conversion cycle Working capital as % of sales 27% Dec 09 Dec 10 Dec 11 23% Operating 21% DSO 70 66 61 leverage DIO 200 190 192 Financial DPO (26) (35) (43) efficiency 2009 2010 2011 Total 244 221 210 Cash flow growth
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