GSK plc
Q2 2011 Earnings Call Transcript

Published: 26 Jul 2011

[Andrew Witty:]

Okay, good afternoon, everybody. While you all grab a seat, I'm going to make a start. Thanks very much for joining us for the Q2 results of GSK today. I'm sure you've all got the press release, and there's a book of the various slides that we're going to present just in a few minutes. I just like to make a couple of introductory comments before I kick off properly. First of all, just to introduce to you, we have got some of my colleagues from the executive management team of GSK here in the room and maybe they can stand up as I introduce them. Abbas Hussain, who runs our Emerging Markets Pharmaceutical business; Deidre Connelly, who runs our U.S. Pharmaceutical business; David Redfern, who's Chief Strategy Officer for the company, also looks after Stiefel and the ViiV business; Moncef Slaoui, who's the Chairman of our R&D Business and also is taking over responsibility for our Global Vaccines business; and of course, I've got Simon Dingemans here at the front with me; and Phil Thomson, who is our Head of Global Communications and IR. So they'll all be here. If you don't hear from them during the session, you'll certainly have a chance to chat with them afterwards when we finish. They'll be delighted to spend a few minutes with everybody over there with a cup of coffee if you just want to nail some of them against the wall and really interrogate them. I've brought a few extras for you. So great a opportunity for you to see them. Good chance for you as well to hear from Simon really for the first time properly as he spent the last 6 months really getting to grips with the organization and really challenging a lot of what we could do and what we could achieve, and I think you can see in the press release today the first really substantive evidence of the new financial architecture for the company, very thoughtful approach to how we should report going forward, trying to clear up, get greater clarity in the way we present our information, how we drive more value out of the business to generate more shareholder returns. And you can see Simon's fingerprints all over that part of what we're trying to do. It's exactly why we wanted him to join the group, and I think you'll hear from him during the rest of the session some further insights into the way he's looking at the business. So it's going to be a great chance for you to hear a bit more from him today. Before we get to that, I'll just give you a quick summary of where I think we are in terms of the group strategy and how things are going, and I think this quarter is quite a turning point actually in terms of GSK on a number of dimensions. First of all, it's really that -- although we still have some headwind for the rest of this year because of Avandia, Valtrex and Pandemic products dropping out, the rate of that headwind really drops now from this point onwards. So it's a turning point in terms of the pressure of the headwind which is running against us. That's the first important thing. Secondly, I think you'll clearly see the delivery of new products and pipeline into the organization. And I'll touch a little bit more on that in a few minutes. Thirdly, you'll see the shape of what this business is going to be for the next several years in terms of our geographic distribution, in terms of the emphasis we have across the business -- different businesses we have whether it be consumer vaccine, emerging market or the traditional pharmaceutical businesses. You can see that shape really crystallize as the restructuring process that we've gone through starts to come toward an end. We're putting in a couple of comments I made today in one of two of the interviews, just a statistic, which I think is just quite shocking actually when you think about it. When we created GlaxoSmithKline in the merger 10 years ago, the total integration synergies of that transaction, the GBP 1.8 billion, the total savings from the restructuring program over the last 3 years and through to the end of 2012 will be GBP 2.5 billion. So to just put into a context the order of magnitude of change in savings, I think that really crystallizes just how much has happened in this group over the last 3 or 4 years. Huge change in the shape, 25,000 people have left the group, 17,000 people have been added to the group; most of the leavers in the West, in the traditional Pharma business; most of the joiners in the East in the emerging markets. Huge change of our manufacturing footprint, 111 factories down to 65, adding back another 12 factories through acquisitions. So we're now at 77. But massive changes in the way our manufacturing footprint looks over that period. Our R&D headcount down 27% in the last 3 years, and yet, you can see the size of the portfolio that's coming through that pipeline. I'll touch on that a bit more during the presentation. And you see a business which is much more balanced in terms of its exposure to specific risks. What you'll also see is a business which is phenomenally disciplined. So we are focused on ensuring that we allocate all of our investment resources to get the best possible return. We are focused on managing our expense base aggressively. You'll see and you'll hear more from Simon on how we believe we can drive greater financial focus in the organization, if you will, add a further turbocharger to what we can do organically in the business in terms of value creation. And you can also see that we're disciplined and not straying off into buying lots of businesses just for the sake of the short-term adrenaline pump that the acquisition gives. We only deploy M&A at a small scale, and we only deploy even then when we're convinced that the returns are a superior way to deploy the money. And I think you've seen us resist all temptations to be drawn off that path in the last 3.5 years, and I think we've been proven to be right to do that. It's been a right way to protect the return profile for shareholders, and it's forced the organization to address organically what needed to be addressed to turn the group into what we think can be an extraordinarily competitive organization in the coming period just as we think many of our competitors are going to go into their worst moments. So let me start off just by giving you a little bit of a sense of where we are up to. Just summarizing the growth performance of the business. Underlying sales growth, excluding Avandia, Pandemic products and Valtrex, Q2, 5%. You can see for the last 6 quarters now the underlying number has been up 4.5%. So I think clearly we've got a momentum in our underlying businesses. As I said already, that comparator set of 3 products, those discontinuing businesses, will start to drop away quite quickly as we go through the second half, and that we are clearly confident that we are going to be able to get back to reported sales growth in 2012. You can see where that growth comes from, and you see the mix of the business as those consumer and vaccine businesses have continued to grow faster than the Pharma business. You can see they've become a more and more important contributor of the total, if you will, absolute amounts of growth in the business. But also, you can see that the Pharma business on an underlying basis continues also to grow. And you've seen in this quarter some further improvements, particularly in the U.S. So this is just an interesting way of looking at the business. This is the group. So this is all businesses integrated together. And you can see that 37% now of GSK's business is outside of the traditional North American and western Europe business areas. And you can see that, that's where all the growth is. Now, we're talking enormous amount about emerging markets. We shouldn't overlook Japan, which continues to be a tremendously exciting marketplace for GSK. Why? Because we've got a very substantial new product flow rolling out. This year, we launched Cervarix. Already this year, 840,000 girls have been initiated into the Cervarix vaccination program. So again, strong second quarter in terms of Cervarix. We expect to see that flow through the rest of this year. In the last few weeks, we had Rotarix approved for rotavirus prevention in Japan. Again, the first vaccine for that particular disease, just the Cervarix, was first in class. And we've also had Lamictal bipolar approved. This all part of that program that I stood up here 2 years ago and talked about 40 potential new drug opportunities in Japan. We are well through that. We continue to reload that pipeline. Japan is a great innovation marketplace, and I think the team have really solved how to get product there quickly and in a very rapid flow rate. Helped also in Japan by the new pricing regime, which has taken away that historic erosion of being a successful innovator. It's now you're incented to be an innovator, you will pay the price when the product eventually goes generic just as in normal Western markets. But for a company like GSK, where we have so much innovation opportunity. That's why Japan is such an important area for us, and Philippe Fauchet, who's our new head of that business, has really brought now, in addition to this R&D focus, an operational discipline, which I'm confident is going to continue to allow us to deliver great sales growth in our Japanese business. It's not just about geography though, it's about the kind of products that we sell. And again, if we go back to where we started, where we had a business which was very heavily exposed to a few specific risks, mostly around pharmaceutical pricing and pharmaceutical intellectual property, what we said at the time was we wanted to diminish our exposure to those risks. We wanted to move away from the white pill Western market domination that the business had seen the way we perceived it to be all of the risk. And we've done that in a whole variety of ways, partly geographically. So opening up the emerging markets has been a key part of achieving that. Of course, having different devices, different technologies, moving into Biopharmaceuticals is a key dimension. All the benefits of pharmaceuticals but in formulations with high degrees of protection, greater annuity potential than the white pills. Moving into areas like dermatology, same thing. Going into business areas which we believe to have less threat than the traditional white pills. And maybe just take a second to update you on Stiefel. The progress of that integration continued to be extremely positive. Just to give you a couple of examples, in the manufacturing arena, since we bought Stiefel, we acquired through the acquisition 4,000 SKUs, 4,000 different pack volumes within the Stiefel business. Already, we've got rid of 12% of them without any liability to sales. That's important. Even more importantly, it simplified 24% of the formulation. So we've got rid of 1/4 of the formulation complexity, and we've got rid of 75% of the packing complexity. That has allowed us to close 4 out of the 5 factories that Stiefel used to run. And that's one of the reasons why we're $50 million ahead of our synergy target on Stiefel and why it was such a very positive transaction for us. Because what it allowed us to do was to deliver synergies up and down the P&L and open up a significant emerging market business. You'll see in the numbers how strong that business has been during the quarter. And of course, all represents doing businesses which are a little more secure than the traditional white pills. Our Vaccine business, alongside Pharma, has also delivered tremendous new product flow over the last few years, and we're just beginning. There's no question this company wasn't the biggest deliverer of new product innovation during the early 2000s. That's really where the problem started. But what you've begun to see in the last couple of years is we've begun to start to ramp up the flow of new products into the marketplace. We've never promised you that we're going to solve this whole thing with one blockbuster. What we did tell you we would do is deliver a portfolio of small-, medium- and large-sized products over a sustained period, and that portfolio approach would, over time, build up a tremendous momentum. And it's beginning. And we're in the beginnings of that, and you can see in the quarter, almost GBP 600 million of new vaccine of Pharma products growing over 50% and the further incremental GBP 175 million worth of new consumer products launched in the last 3 years, primarily led by Sensodyne Repair & Protect, which continued to allow Sensodyne to grow very strongly. So that is what's driving the stronger, I think, more robust business profile that we need to be able to engage completely and grow during the period which is not getting any easier on the outside. And the outside world, isn't going to cut drug companies a break in the next 3 or 5 years. You need to be robust to underpin your delivery of growth and to deliver your shareholder return. Just a look at consumer in a little bit more detail. This is for the first half. In terms of performance, overall consumer was up 6% for the first half, 4% in Q2, a little bit of stock inventory movement going around. The 6% is much more indicative of what the underlying performance of that business is driven by Sensodyne, again up 15%. Just to remind you all that Sensodyne actually is a 50-year-old brand this year. It was launched 50 years ago. You can see the scale of that product and the performance of it. Panadol, again very much driven both of those by innovation. Lucozade. Fascinating to see how Lucozade is driving our African business, very strong performance, particularly in West Africa, and you can see the growth has been delivered there. Horlicks continues to be an Indian story. One in every 2 families, one in every 2 households in India have Horlicks in their kitchen. That's a great place to be when you're talking about a part of the world where all the dynamism of population growth, where all the focus on healthcare opportunity really is going to move towards, to have that kind of distribution capacity, that kind of presence inside every family across India is a tremendous foundation on which we can then build our vaccine and pharmaceutical businesses. Horlicks is a strategic opportunity for us in those markets. The great news in this quarter is that we continue to see our U.S. business turn the corner and come back toward where we want it to be. This company was once dominated by the U.S. business, which was great when there were no challenges in the U.S. marketplace. But as the U.S. marketplace has continued to get more and more challenging, to be so exposed, no longer became a strength. It became a potential weakness. We've been able to build a business which surrounds that U.S. organization, if you will, take some of the strain off the U.S. organization. But nonetheless, it remains our single most important profit generator in the group, and it's critical that this business grows. I was delighted to see we're back to growth this quarter, and while I'm sure we'll have bumpy quarters over the next few quarters, it's clear that the trend is going in the right direction, particularly as the pits of generics recede and of course, as our new products start to get traction in that marketplace. It's worth bearing in mind that the only thing we're stripping out from those growth rates are Avandia, Valtrex and Pandemic. We're still carrying GBP 35 million a quarter of healthcare levy under the Health Care Reform Act. We're still carrying an incremental further $200 million this year on top of last year's $500 million of price cuts from the American government. All of that has been absorbed by this business, and it's growing. And that's where we really want to stay focused. Now, why is it growing? What have we been doing over this period of time? What's Deidre and her team been doing? These are just a few of the examples. Huge increase in sales force productivity. Yes, sales have come down but we've aggressively managed our cost base at the same time, and we've been able to increase our productivity. 50% of the U.S. sales force has gone in the last 3 years. That's allowed us to come out of a very challenging period with a very productive organization ready to start to launch new products. We're the only company in the U.S. who have replaced the historic incentive scheme, paper prescription incentive scheme. A lot of people think that's going to cost us business. We are convinced it's going to be a competitive advantage because what it's going to lead to is the team working. It's going to create greater access for us to customers, and we're already seeing that. In my most recent visit with U.S. sales force, absolutely top of their mind was this is making a difference with the way we work, it's getting us in to see customers, who would never see us before because they just thought we were here to generate a script. Now, they want to see us because they see us as being part of the solution, giving us the access, gives us the opportunity to do what we need to do. We've completely restructured the way we discount in the U.S. We're seeing benefits in that from our discount levels but also in the way that our customers view us. We're recently ranked as the #1 company in terms of our relationship with the large contracting organizations. We've rediscovered how to launch new products properly. The performance of Votrient, absolutely great performance. Not the first in class but a nicely differentiated product in terms of tolerability in its primary indication, supported by a very focused commercial operation, already 15% market share, growing very strongly. And obviously, in the first half, we saw great data on Sarcoma, which will give us, when it's approved, further opportunity to grow this. Discounting, as I've said already, we changed the way we do it. But we've been able to find significant ways to reduce our cost. One of the reasons Ventolin is growing so strongly is that we've been able to increase our net price of Ventolin by more effective contracting, contracting where we get a return and cutting back where we don't. Portfolio optimization. We had a big sprawling portfolio in the U.S. We've worked hard. We brought Levitra in properly. So instead of it being shared with 2 other companies, 2 other sales forces running around, getting in the way of each other, GSK now owns completely Levitra commercial operations in the U.S, Clarity, focus, a chance to drive more earnings. Entereg ended up being too small for us. It's a distraction, so we've given it back to Adolor for consideration. Just very dispassionate, very objective portfolio management. And then making sure we get the best value out of every single asset we have in the organization. Lamictal. You all know Lamictal went off patent 3 years ago. You can see it's growing again. It's growing again because we've stayed focus on this product, and we believe that with the line extensions we had, we gave physicians what they wanted, which was a way to continue to use the brand and not the generics. All of that said, underlying sales growth, 3%. If you look at the 80% of the U.S. business that we promote, i.e. those products that we believe have potential, they grew 8% in the quarter. So you can see that at the core of that U.S. business, there is a very substantial business, which is responsive to promotion, and the growth was very good. Let's move to R&D because R&D needs to feed markets like the U.S. The U.S. remains, despite all of its challenges, a pro-innovation marketplace, and we need to deliver the product to it. This just simply the tells the story at a super high level about what's been achieved under Moncef's leadership in R&D. And you can see that more or less, in absolute terms, we spend the same on R&D today in pounds, as we spent back in 2007. We do a heck of a lot more R&D. For example, we do a dermatology R&D that we didn't use to do. We do significantly more consumer R&D compared to 4 years ago because we know that has a very high return on investment, very high probability to success, very fast paybacks. And we also do more in vaccines. Overall, that has all been accommodated by tremendous efficiencies within the pharmaceutical business. You've seen now on a whole dimension of fronts the kind of changes we've made, massive changes to discovery. So we've reduced the amount we spend in discovery as you just saw as a proportion of the total. Why? Because obviously, it's the late stage which drives short- to medium-term opportunity for the business, also because by externalizing our discovery operations, we're able to do a lot more for less in terms of exposing ourselves to new ideas and new opportunities. So right now, we have 54 external partners, one of the biggest networks of biotech and academic partnerships. We have 38 in-house Discovery Performance Units. Those have been running for up to 3 years. The newest one, I think, is about 18 months old. The original started back 3 years ago. We're in the process of going through our first 3-year review cycle. You remember we talked about the dragon's den process they have to get through. We're now into the kind of dragon's den on steroids review process that they're now going into. And look, everybody, I can tell you, it's taken extremely seriously because these teams know that they have a potential of being shut down. They have a potential of being held in a status quo, and they have the potential of having significant money added to their investment curve depending on what they've been able to achieve. That's what's going to happen over the next few months. By the end of the year, you should absolutely expect to see some of these teams closed, some recommissioned at the same rate and some recommissioned at a higher rate. The key point of all of these is that we are going to relentlessly keep raising the bar to raise the quality and the prospects of our discovery operations. I think if there's one thing that we've done since I took over as CEO of GSK, that you would have to drag me out before you could change it, it would be the way these DPUs operate. Some of you have had the chance to visit with them. And I think when you walk into those labs and you see all the different disciplines working together in a hothouse environment, not having to book meetings with each other, not having to negotiate for time with each other but literally moving where the signs takes them, I'm convinced we have the way to rediscover success in discovery, and I think the data we're seeing reassures us of that. We're focused on 7 key therapeutic areas where we come up with drugs. And of course we do, from time to time, come up with drugs outside of our 7 key therapy areas. Then what we're going to is what we've already done. We will create specialist organizations, business units, if you will, starting in discovery and flowing through, which will allow us to stay focused. It's obvious that a company this big can be focused on 20 things at the same time from a product portfolio perspective. And so that's why we created ViiV. That's why we created the rare disease unit. And you should fully anticipate we will do more of that as we go forward. Sometimes, those things will be wholly owned. Sometimes, those things will be in partnership with other companies like ViiV, and sometimes they may ultimately be floated off from the group. That's a dynamic which we expect. We think it's the right way to manage our assets, and we're opening up optionality for us to get the most out of each of our assets, while maintaining a core focus for the business. And all of that has been achieved with tremendous change

[Simon Dingemans:]

Okay. Thanks, Andrew. And before I start, I just wanted to add my particular welcome to all of you as I think for many of you, this is the first chance we've had to meet face-to-face, and I'm very much looking forward to getting to know all of you a bit better over the coming months. We'll turn to the quarter in a minute, but before we go there, I wanted to take a few minutes just to really describe for you, as Andrew said, my long-term priorities for the group, and in particular, how I'm translating that into a new financial architecture that we're rolling out across the group. And that's going to drive my overall financial strategy for the group, but it's also going to drive our planning priorities, how we think about allocating capital and, in particular, how we report going forward, so that you can see more clearly and more transparently how we're going to drive the group going forward, how we should be measured and what are the kind of key performance indicators that we're using to monitor the business going forward. When Andrew and I were talking before I came on board, we could see clearly a number of opportunities to drive the strategy harder and, most importantly, to drive improved returns from that strategy. And having been on board for about 6 months now, it's quite clear that those opportunities are very real, they're deliverable, but they're only going to be accessible if we take a different approach, and that's really what my financial architecture is about, is making sure that those priorities are clear to the businesses, that we drive them through the planning process into how we drive the business going forward, that we allocate capital according to those principles and that we're absolutely rigorous about how we take those decisions between competing priorities going forward, because there will always be choices to be made in how we deliver those returns. I'll come back to the detail a little bit later after the quarter review, but just to summarize for you, beyond the sales growth that Andrew's already described for you, our strategy is beginning to deliver. The architecture is designed to convert that into stronger earnings per share growth and stronger free cash flow growth. And it's going to do that by 3 things, which is driving operating leverage into the business, delivering improved financial efficiency to the bottom line and improving cash conversion and free cash flow generation. And together, those elements should allow us to deliver sustained, superior returns to shareholders over time. And I'll come back to the detail of that in a minute. But let's turn to the quarter and Andrew's obviously covered a number of the highlights of this, so I'll keep this at a relatively high level. But you'll see in the press release today a refocusing of how we are communicating the business performance of the group, simplifying a number of the different measures and categorizations so that we're really focusing on the group's performance and the drivers behind that in terms of Pharma, Vaccines and consumer and then looking at the geography across the group, where particularly so in Emerging Markets, we see our businesses more and more converging, and our performance in those markets very much feeding off each other. And as you can see in the press release as well today, we have around 37% of our sales outside the U.S. and Europe growing at over 15%. And that really kind of illustrates how those businesses are beginning to combine. So at the top line, you can see very much the impact of the continuing roll-off of Pandemic, Avandia and Valtrex products, which leave reported sales down 2% in the quarter. Below that, if you strip out the decline -- and remember, decline is over GBP 470 million of sales in the quarter alone, you can see the underlying performance up 5%. And that reflects a contribution from the consumer business of 4%, up 5% from the Pharma and Vaccines business. And within Pharma and Vaccines, again, Pharma up 3%, Vaccines very strong and up 19% on an underlying basis, really reflecting very good progress across the portfolio, but particular contributions from Synflorix and other new launches. Emerging Markets is a key part of that growth, and the Emerging Markets is a key part of the growth of Pharma, Vaccines and consumer businesses going forward. And overall, Emerging Markets in Pharma and Vaccines, up 20% in the quarter, driven across the portfolio, including good contributions from respiratory as well as from the Vaccines business. Japan, as Andrew described, also a good contributor, less on the vaccines this particular quarter but more expected during the balance of the year, but good progress also on respiratory and a number of other new product introductions. Elsewhere in the world, the U.S. returned to growth and that 3% growth on an underlying basis that we reported, particularly driven by the recovery of the respiratory business from the first quarter levels, and I'll come back to that in a minute, but also a number of other product introductions across the portfolio, so not just from the respiratory performance. Europe also produced a good performance, down 1 in reported underlying sales, but that really reflects a 6% drag from European government price cuts during the quarter. And as Andrew highlighted, we continue to see that as an issue for the balance of 2011 but within the framework that we've already set out for you, and we continue to expect that overall austerity cuts in Europe and the U.S. combined will impact sales by around GBP 325 million over the balance -- over the whole of 2011. So if you turn to the product contribution to the top line, our respiratory franchise is the biggest contributor, with strong contributions from Seretide/Advair, from Ventolin and Veramyst. On the Seretide/Advair front, 2% up over the quarter. And that's really reflecting good progress in the U.S. of 2% and Europe as well at 2%. But remember, underneath the 2% performance in the U.S., that reflects a mix of volume down 7% and a net benefit of around 3% from pricing and mix. So we think the underlying performance is probably down about 4%, which really reflects a mix of stocking patterns between the first quarter and the second quarter. And as Andrew said, going forward, you should really expect the quarterly progression probably to be a little lumpy, but overall, we see encouraging progress on that front. Below the top line, at the operating level, EPS and free cash flow levels, you can see a significant impact from the Pandemic, Avandia and Valtrex roll-off, and that's really driving the margin performance and the declines that you see at each of these levels, although EPS also affected by the loss of the associate income from Quest following the disposal of our stake earlier in the year. But I think the main message from this performance recorded on the slide is we are where we expected to be. We are on track with the second quarter performance that we were planning for, and we're on track for the first half performance that we were planning for. So overall, as Andrew has highlighted, we're on track in terms of our expectations. So given the amount of noise, I just thought it was worth highlighting how we see the Pandemic, Avandia and Valtrex products rolling off over the balance of the year. And you can see already significant reduction H1 to H1, and in H2 2010, GBP 558 million of sales from those products. We don't expect it to go completely to 0, but you can see that very quickly through the balance of 2011, that distraction and that distortion to the number should disappear. And we remain confident that as we move into 2012, we should see underlying sales growth converging with reported sales growth. At the operating level, the margin, again on track with our expectations, moved back about 1%. And that really primarily driven by the impact of the roll-off of Pandemic, Avandia and Valtrex products on the COGS line where COGS has increased and the reported numbers about 1%. That actually benefits from a number of positive inventory write backs we had in the quarter, so the underlying position is probably around 25%. And remember, the indications we've given you previously are that we expect overall COGS performance over the year to be around 26%. SG&A, really reflecting a mix of issues, both in terms of the Pandemic issue, some currency adjustments but also offset by operational excellence gains and greater efficiencies in the business, leaving it relatively neutral. And on the R&D expense, we've also seen operational excellence benefits reinvested in the late stage pipeline, leaving us overall flat for the quarter. So overall, on track and we remain in line with our guidance for a margin upturn for the rest of the year. Over the first half, we've generated around GBP 2 billion of free cash flow. GBP 750 million of that has gone to fund legal outflows during the quarter as we paid out settlements previously provided for. But probably the biggest factor is GBP 300 million swing in working capital, which really stems from the first quarter and reflects inventory build ahead of the launches of a number of new products in the vaccines and consumer businesses and a number of other Emerging Markets sales initiatives that we're expecting to play out over the balance of the year. But you can imagine, this is a big focus for us, not just in terms of the overall amount but in terms of bringing that back in line and making sure that we're converting that inventory into sales performance going forward. Overall, that leaves net free cash flow for the half at GBP 1.2 billion combined with the disposal profits of around GBP 1.3 billion, we have now paid out a little over GBP 2.5 billion in distributions, reflecting those inflows in dividends and buybacks. So we have left the overall debt position unchanged until with a few bolt on expense and other items, we pushed the debt level at the half year up around GBP 400 million. And so looking back on the half, you can see that we have basically paid out all of our free cash flow and the disposal proceeds, reflecting that capital allocation decision that we highlighted back in February where we're going to balance the opportunities to reinvest in the business with share buybacks and other opportunities to invest, and where do we see the best return. And overall at the moment, we continue to see M&A opportunities outside the group as relatively expensive and generating less attractive returns, and we're continuing to actively purchase shares in the market, and we're up to about 900 million by the end of the first half, on track to execute at the upper end of the range that we gave you back at the beginning of the year. So let me go back to the financial architecture. And as I said earlier, what this is about is trying to create a simple and straightforward framework so that we can use it to drive the business internally, but more importantly, from your point of view, that you can measure us and you can determine our progress from the outside. And what that is designed to do is to take the sales growth that you can see beginning to appear on an underlying basis and convert it into operating profit and then convert it into earnings and then convert it into cash. And by doing that, we'll hopefully be able to drive for you attractive earnings per share growth going forward and free cash flow that we can ultimately then use to generate returns for shareholders. So what are the key elements of that model? And you can see here that we've simplified it down to kind of 4 pillars so that we can drive that into the business in a consistent way, that it's clear what people are being measured on and it's clear on what basis people are expecting to report back their returns and their growth going forward. And the focus on EPS and cash flows, really, because that's what I see as the foundation for generating superior returns going forward. Because the combination of them and our ability to then choose where we put our cash having generated the earnings and convert it into cash in the way I've described is what's ultimately going to secure the long-term future of the group. So it's about balances and choices using a very rigorous capital allocation process based around CFROI metrics that will allow us to be consistent across all the businesses in a way that perhaps we haven't been before. So let's take each of these in turn. At the sales level, this is about managing the matrix. We've got a balanced product and geography, we've got to decide where to put our resources, and we've got to decide where we're going to generate the best returns. And in order to do that, one of the things I've done since I came on board is reorganize the finance function to put it much, much closer to the business so that it can work with the businesses done at a country-by-country, region-by-region level to help drive the decision-making that's really going to get this matrix right, so we're generating the best returns. I've stripped away and centralized under the common functions that Andrew described, which I also have under my brief, a number of the sort of shared services and sort of common finance functions to give more time to the finance organization to be able to really drive the strategy going forward. And I will submit a number of new appointments, including a new CFO in the U.S. business, and aligning the financial leadership of our R&D and vaccines business so that we can really drive this matrix as hard as we can and make sure that we're putting real rigor into the decision-making and that we're driving the best growth out of the allocation of the resources that we're giving it. Below that, at the operating level, we think about this very much in terms of operating margin and operating profit growth. In the past, we've talked a little bit about the individual lines leading to that. But the way I think about it, the cost base of the company is in 3 buckets

[Andrew Witty:]

Thanks, Simon. Great. Thanks very much. Okay. So let's open up now to Q&A, please. Yes, go ahead.

[Mark Dainty:]

Mark Dainty from Citi. Just a couple of financial questions, actually. The GBP 300 million in savings you have identified for 2012, should we assume all that flows through to the bottom line or some is reinvested? And just on working capital, if I look at some of your peers, in inventory, they've sort of targeted around a 90-days inventory outstanding. Is that something that you think is achievable given your business mix, Advair, complexities et cetera, et cetera?

[Andrew Witty:]

So let me ask Simon to respond to the first, and then I'll pick up on inventory. So yes, Simon.

[Simon Dingemans:]

I think as I said in the presentation, the GBP 300 million and how we'll treat that going forward will very much depend on where we see the best returns. I think, however, you should not expect all of it to drop to the bottom line. We used a measure of around 40% to 50% in terms of the preexisting OE benefits. We'll take decisions going forward as those benefits are realized.

[Andrew Witty:]

And on working capital?

[Simon Dingemans:]

On working capital, I mean, remember that our mix of businesses is quite different from many of the peers at the bottom end of the range. And in particular, our Vaccines business has very long lead times, which is always going to mean that where we can get to will probably be some way back from them. Equally, we think about the risks quite differently. You've got to trade off what you do on the supply chain versus what you do on the way through in terms of delivery to customers. So I'm not in a position where we're going to give targets at this point, but I think there's clearly a significant amount that we can move forward from.

[Andrew Witty:]

There's no question, as far as inventory's concerned, we absolutely recognize there's tremendous scope to bring that down. We're going to be just -- we've got a simple target, particularly a benchmark target from outside with very different business shapes would be created. I mean, if you just look at vaccines. Vaccines, I'm thinking, has something like a 6 to 7 month release time, post manufacturing. So the minute, you have a Vaccine business, you automatically have a big working capital number compared to somebody who doesn't. Equally, you work with biological products. These are processes where you're more likely to have variations because it's a biological process. Again you want more inventory to protect yourself from the unexpected biological variation that might come along. So you're going to see different numbers to the benchmark, but it can come down materially from where we are now. So I think over the next 2 or 3 years, you should expect to see us bring that down aggressively. Last 2 years, we focused very obviously on receivables and payables. We made good progress on that, and it's been just in time in terms of Southern Europe. So we look at our exposure to the Southern European states, it's very much down from where it was 2 years ago. We've done that, now we've got to crack inventory. Thanks, Mark. Yes, go ahead.

[Graham Parry:]

It's Graham Parry from Merrill Lynch. And quick question on Promacta. This is also for -- you said that it was positive data, and you talked about reducing or increasing ability of patients to take interferon. Can I clarify, did you actually hit the primary endpoint of an SVR response rate on that trial?

[Andrew Witty:]

Moncef, do you want to specifically answer that?

[Moncef Slaoui:]

Yes. [indiscernible] significance that make you feel very confident.

[Graham Parry:]

Second question is on Alto. You talked about recruitment being complete for that. I just wondered what your expectations for first stage read out would be? And then the final question was just on the GBP 300 million of savings, just wondering if you could you give us a bit more color on exactly where they're coming from? You talked about Stiefel but that go on there as well.

[Moncef Slaoui:]

On Alto, as you know, this is a event driven client, so it'll be totally inappropriate to predict. Let me tell you, I hope it's going to be as late as possible, because it means the effect is bigger, but the recruitment is complete.

[Simon Dingemans:]

On the GBP 300 million, I think if you worked on the assumption of the mix being similar to where the existing OE benefits have come from, which is roughly about 50% from COGS and the rest split between SG&A and R&D, that wouldn't be a bad measure.

[Graham Parry:]

And is there any color on division area that was coming from, is that predominantly Pharma?

[Simon Dingemans:]

No, I think it's coming out of all of the areas. I mean, take the consumer business, for example. I talked about the sort of the restructuring that we're going to have to do in that business following on from the tail disposal. That -- part of that process is about aligning the manufacturing chain much more to the ongoing business. So in consumer, there will be a number of savings in manufacturing and distribution, in logistics and in the front end. So it's across the board. But it's indicative of actually sort of where we think we can unearth more savings across each of the categories we've already been working on.

[Luisa Hector:]

Luisa Hector from Crédit Suisse. Is there any more color you can give on the tax rate and how you can achieve that 2 percentage point benefit? Any particular driver? What is the mix?

[Simon Dingemans:]

I don't think there's any one particular driver. It is a mix issue and it's a geography issue and it's about aligning our cost base and our profit flows with the changing shape of the group that Andrew described. And that gives us a number of different opportunities that add up to the 2%.

[Andrew Witty:]

I think what's also very encouraging on the tax front as we talk about the next 3 years and the way you've seen. We think then beyond that, you then move into an area where things like the U.K. patent box start to become enacted. So there's clearly opportunity for us to continue to put pressure on the tax rate going out into the future beyond. Now that isn't what drives the first 2 percentage points, but it's a further opportunity we've started to come in. And I think after very many years of seeing that tax rate as pretty stubbornly stuck, you're starting to see a number of ways in which we can get traction on it, which is for over potentially quite a prolonged period.

[Unknown Analyst -:]

Eric Mobits [ph] from Goldman Sachs. A couple of questions. One on the business mix and the pressure you might see on margins because the businesses that are growing regionally are at low margin, significantly low margin than say the U.S. or Europe. So how should we think about that? And then secondly, in your legal disclosures, you talked about settling the standoffs on European Advair litigation. Can you just talk about how that's maybe changed your view or not on the threats in Europe?

[Andrew Witty:]

Let me take the second and then maybe Simon, you talk about the margin. So we'd come to an agreement with Sandoz. This is on the so-called -- it's actually on the SBC element of the patent because the patent had expired in what was dated 2010, but in some countries, mostly in Southern Europe, there were supplemental extensions. This patent had already gone in a whole bunch of countries and we just took the view that actually it was no point spending money in litigation on this point. It was just a marginal call, we took it. We don't think it changes anything. Remember this patent's been absent in the U.K. since 2004, and then in other countries subsequently. So we've had a very long period of time without this patent. I'll say something they've said on this stage and similar stages so many times. It's never been about the patents. Never. And it's always been about whether or not people can manufacture the product to a standard #1. And then is that standard substitutable or not. And if the patents were there originally, but actually it's never been about a patent issue, which is why I think when you look at the U.S., nobody's ever filed a paragraph 4 against the patents in the U.S. But again, it just gives you that same sense that it's about whether they can make it and whether what they make is equivalent or not. We believe that is not going to happen in the U.S., certainly not as fully substitutable generic. It's hard to see even a branded generic in anything other than the medium to long run. In Europe, we're going to see, as I've said many times, probably sporadic generics. We'll see what comes along and we think it's very, very unlikely to have a single European scenario. We think it's going to be very different market by market. And who knows how that plays out? But we've dealt with that in the past with many different products. So as far as this particular settlement is concerned, we see it has no impact on what may or may not happen.

[Simon Dingemans:]

And on margin and mix, I mean, you're right that obviously a lot of the growth that we've seen has been in some of the lower margin businesses in the group. But at the same time, look at the overall operating profit performance. That's where you get straight into the kind of cost reduction efforts as well. But we're playing off the mix versus those cost reductions where we invest to drive overall operating margin and overall operating profit. We're not driving them individually by business because ultimately, operating profit is what's going to turn into earnings per share and therefore into cash flow. So I think expect to see us doing more of that as we think about kind of where to invest and where to change the mix of the business. But you've already seen us doing it over the last couple of years, and the decline I showed you in that chart was really most heavily weighted to the beginning of the chart. And I think we're going to be focused in that way going forward.

[Andrew Witty:]

I think as well, there's a build on that, what we've tried to do, and I think you see some of that in things like core business services or the corporate costs, those shared services, we spend 20% less today than we did 3 years ago on our cost of administration, so things like HR, IT, those sorts of things. What we've really done is we've tried to unhook those cost rows from the sales line, and the same is true of R&D. You're not going to hear us forecast in the future R&D as a percent of sales. We'll talk about it. If we talk about anything, we'll talk about absolute number of pound notes because actually, we don't think R&D should grow just because the sales line grows. Now that's sort of been a bit meaningless, while the sales line hasn't been growing. Once the sales line starts to grow, the separation of those curves is going to become very apparent, right? So as long as we can stick to that decoupling, if you will, of some of those big areas, that's going to create margin opportunity. Some of that, plus the other things that Simon's described in terms of cost reduction and all the rest of it, some of that will end up being reinvested, some of it will go to drive the operational leverage that we anticipate coming through, and it's going to be turbocharged in the first couple of years by further leverage, below OP but before EPS in the shape of tax and interest. And that's really the way where trying it. So rather -- what you're going to get from us is a bit less detailed forecasting of cost rows and probably a bit sharper target in around the OP level, and then where we're going to ahead with in terms of overall margin.

[Florent Cespedes:]

Florent Cespedes, Exane BNP Paribas. A few quick ones. You deliver on the cost control, we believe that your next challenge will be on the research portfolio. When could it be possible to have an update on the late stage portfolio? Could it be possible to have towards the end of the year when we have the DPUs update or maybe later next year? And a follow-up on the DPUs, you have to understand that some units will disappear and maybe some new ones will be created. Could it be possible to see new ones beyond the 7 core areas? And maybe last one, on products, on the respiratory, could we have a quick update on the antagonist [ph] program in the U.S. and where you stand regarding the discussions with the FDA, if there is any new potential safety clinical trial there?

[Andrew Witty:]

Okay. So as far as an update on the pipeline, as far as -- so remember the DPUs is really is the early phase discovery activity. So what we do or don't say about the late phase is kind of independent of what might or might not happen with the DPUs. And we'll certainly give you an update of what the conclusions are of the DPUs. We're not going to tell you exactly which targets we'll research and what we've stopped, but we'll certainly give you a feel for how many closures, how many doubling up, how many status quo decisions we took, how many starts we took. And we've got -- one of the great things about this whole process in discovery, is we've got literally dozens of scientists in the company putting forward their ideas for new DPU opportunities. It's kind of creating that innovative vibe inside the organization again, because they see these chances to get -- they get their chance to do what they've always dreamed of. Now, if they don't do it well in the first 3 years, then they're at risk to get stopped. But there's a tremendous atmosphere, so we will update you on the shape of those conclusions. Now, as far as the late stage is concerned, we will come to you with an update on that pipeline. And it will be somewhere, it will be either the end of this year or the first quarter of next year. We haven't quite nailed down exactly when it's going to be, but somewhere in that window. And the reason why we're not rushing that is we want to have a reasonable amount of data on the key assets before. There's no point coming in and talking to you and saying we've got 2 bits of data today, but we're going to have 5 bits of data next week. We need to come to you with a substantial quantity of the data. So it'd be somewhere around that kind of period. And I'm excited that we're going to have that opportunity to show you all of that. As far as U.S. is concerned, as far as the Relovair programs, we're very comfortable that we have everything we need already underway in terms of what's required for the COPD program. As you know, we haven't got any specific asthma trials underway for a U.S. filing but we have a very big program x U.S. The whole thing is justified, the asthma indication is justified on the x U.S. opportunity. And as you've seen, FDA's view continues to evolve, then we'll make a decision on filing for the U.S. a bit nearer the time. But the option's open for us there. And if you ask me today, I'd say there's a reasonable chance we might end up filing in the U.S. for asthma, but we're not committing to that right now. We need to just see how that opinion continues to evolve. But we're not planning to do a big safety trial in advance of those filings, and I think we're in good shape as we stand. Now we are commissioning the safety trial on Advair along with other marketed companies, right? So we're doing those safety trials as required by FDA. But as it stands today, that's not being required so far for these programs for Relovair. And I think we're in very good shape on those programs. And our expectation is that we should be in a position to file in the first half of 2012.

[Unknown Analyst -:]

[indiscernible] Just a question on your respiratory portfolio and especially the new fixed dose combination of LABA/LAMA that you want to bring to the market, I mean you were with Novartis to bring this new fixed dose combination. So what's your strategy? Did you plan to file [indiscernible] the 2 components, the LABA/LAMA with your new device? And also, with regards to the device, how this generally differs from discussed? And finally, just on the share buyback program, what should we expect going forward not for 2011, but going forward?

[Andrew Witty:]

So share buyback for 2011, we're going to be at the upper end of the 1 billion to 2 billion range. We haven't given any numbers out for next year other than to say 2 things

[Michael Leacock:]

Michael Leacock from RBS. Two questions. Firstly, if I may, in terms of the U.S. sales versus incentive [ph] scheme, I wondered if perhaps you would be able to comment. In what outcomes are you expecting from the sales reps. What sort of metrics are being targeted to deliver and how will we know that they're a success. And secondly, [indiscernible] mostly competitive landscape like for deals, yes? I think we're expecting some of a bit of follow ons from the other way around at some point. Can you just give us an update on that landscape? It would be very welcome.

[Andrew Witty:]

Okay. Deidre, do you want to make a comment on the sales force incentive program?

[Deidre Connelly:]

Yes, in terms of the sales incentive, what we've changed is previously, most of the incentive was dependent on additional scripts at the doctor level. We have devised a program that now requires that our sales professionals have 3 things that they need to meet on metrics. One is product knowledge [indiscernible] knowledge, which enables them to have a more sophisticated discussion with their customer. Second is business acumen, so the investment of their resources, both in time and dollars. And third, is the total sales and profitability of the region. So there's still a commercial sales incentive that's been pulled up to the region. Those are the three parts of incentive plan.

[Andrew Witty:]

And the way you're going to know if it’s working is sales are going to go up. I think I had a fascinating, not long, maybe about a month ago in Chicago, I met with a bunch of our sales force. And it was really, and I was just -- sometimes you go there over the last few years and people will tell you all about stuff that's happening. And then it was very interesting just to hear the kind of shift in perception of our U.S., people on the front line. And one of the things that really came out from that conversation was actually how positive this was. So one of the quotes that really struck me was the representative said, "It's amazing now. I actually helped my colleague get their appointment because I know it doesn't matter if they get the script or I get the script. Whereas before, I'd do anything to stop them getting the appointment because they might have gotten my script." Which actually, as a company, is just nuts, right? So I'm delighted that we're the first company in the U.S. to be doing this. I think this is really going to change the way that we compete. I think it's massively changing the way customers see the company. But also, of course, by the way, rightly or wrongly diminishes one of the things our critics think is wrong about the industry in terms of what's driving the pressure in the system. So by -- we're trying to mitigate some risks in the downstream, we're also creating a better relationship with customers. I think we're going to create a much more cohesive team orientation in the organization and ultimately, that's going to lead to better customer relationships and better sales. ViiV. So when's the next ViiV going to be, David?

[David Redfern:]

I mean, firstly on ViiV, I should say it's going incredibly well. So we're very pleased with the focus that the team under Dominic [ph] have brought, and you can see that actually in the sales numbers, Epzicom up 7% and sales entry up 37%. So a real acceleration in the 2 promoted brands and pipeline progressing very well and we have the data from the registration studies on the integrated inhibitor next year. I mean, I think the short answer is we're absolutely open to those sort of structured deals. ViiV as I’ve said has been a very good experience and it certainly possible that more could follow. I would say, having been involved with ViiV right at the beginning, these are very complex deals to put together technically. There's an awful lot of tax issues, there's an awful lot of separation issues. And you do need quite a large number of stars to align. You need a sort of symbiotic balance between the 2 companies in terms of what they're thinking and what they will bring. And it's not always the case, but we're certainly open to it and we'll see down the track.

[Mark Purcell:]

Mark Purcell from Barclays Capital. Two questions. Firstly on respiratory, could you help us understand what you believe the impact of Seretide generics is going to be from a pricing perspective i.e. how reference pricing might change across Europe, how pricing might change in emerging markets, et cetera, going forward? I'm thinking about this from 2 aspects. One, the pricing of traditional respiratory medicines as we know today, and then secondly, looking at the data coming through in sort of Phase IIb at the moment in your new mechanisms, what you have to show these new products to gain pricing and value. So for a CPD drug, do you have to show a 25%, 30% exacerbation benefit, do you have to show mortality benefit? That's the question. And the second one is on productivity. With due respect to what you've said already, I think on the gross margin, historically that's how it was to keep the gross margins flat x royalties going forward. I just wondered if that is a sort of a 1,000-foot goal that the company still holds. And I think on G&A, correct me if I'm wrong, I think it used to be 8% to 9% of sales. So I understand what you're saying in terms of sales reaccelerating and you wanted to get to sort of mid-single digit range where some of your competitors were. So could you help us understand where you are now? You were at 8% to 9%, where are you now to give us some shape of how that's changing?

[Andrew Witty:]

Sure. So in terms of the margin structure, we're still targeting to bring down that G&A rate, and we're on track to do that some time over the next 3 years. So that's quite a punchy reduction and you certainly need some sales growth to create the oxygen to allow you to -- it's very hard to take 50% of something down without any kind of sales growth. So absolutely we're aiming to do that. We continue to drive toward it. We've done, as I've said already, we took 20% of our corporate infrastructure costs out in the last 3 years where a lot of the leverage comes in the next few years is things like the ERP platform, our first deployment of the ERP takes place in a couple of weeks. So that moves very quickly then to put the whole group on to a standard platform across the organization. We continue to take out seniority across the company. So this year, I think we have something like 10% of Vice Presidents have gone in terms of the upper echelon of the organization. Why is that important? Because the VP is the first who commissions all the costs in the organization. So if you can keep your upper command relatively tight, then you take away an awful lot of cost and complexity underneath. So that goal is still there. In terms of COGS, the challenge on COGS is we've got price pressure, mix pressure, so particularly Avandia and generic dropping out and royalties coming in. So whether or not we will be able to hold that COGS line into the far future, I think we can get pretty close, but I think we're not going to guarantee it. One of the reasons why we say, let's focus on that OP number, because actually if we can make up for what we're missing at the COGS line somewhere else in the system do you really care? And the proper answer is you probably shouldn't care, because ultimately you're still delivering that profitability level at the bottom. And we don't want to walk away from good business opportunity simply because it's our lower gross margin down the current. Now if you did that. we'd get rid of the vaccine business because the vaccine business is a lower gross margin than Pharma. You see what I mean? So I think we just got a bit of a flexibility in that one. As far as Seretide is concerned, listen, even before you start with generics, you have to recognize that in Europe is tremendous price pressure in Europe. I mean 5% or 6% of price pressure in the core is enormous actually when you think about it. So across the whole of Europe, you'd definitely got a dynamic of governments being very aggressive on price and they're very aggressive on market access hurdles. Now, how long ago, 3 years, 3.5 years ago we reconfigured how we did files, right? The med submission program inside GSK really aimed to rethink how we filed, and we have a language inside the business called reimbursable files. So the goal for Moncef's organization isn't just the drug approval, it's the reimbursable approval. And so the whole point, and sometimes we've taken 6 months' time liability to get more data generated before we file. We think that, that's going to allow us to get the best prices that we can in the marketplace. But bottom line, when Moncef and I put this strategy together at the beginning, we both agreed that the core assumption should be that the average new drug of the future would have a lower yield than the average new drug of the past, i.e. there wouldn't be so many blockbusters, because pricing would be so much more aggressive. That's why you need the portfolio. So our strategic response to that issue is of course, we want to generate the data to get the best price possible, but we're going to hedge that by having a portfolio of products so that no single product has to carry the burden of everything. And that's the whole underpinning of the strategy of the group over the last 3.5 years, to get ready for exactly that situation, which is clearly here. And I would much rather be in the position we're moving into now, where we have broad portfolio of products to negotiate, we're we've invested the R&D cost to get differentiation, and where actually we don't need to die in a ditch for the last EUR 5. Because we know if we can't get the EUR 5 on drug a, we've got drug b. And I think that's very from are the industry's been over the last 10 or 15 years, where people are prepared to literally argue themselves to a standstill to get that last few dollars or euros of cost. They want to be there in this world. You want to be there with a portfolio, and that's exactly what we've been striving to build

[James Millett:]

James from the CLA. Just a quick question for Simon on the capital allocation policy within the group that he's talked about today and how that actually works in practice. I just wondered if you could give us a bit more color on how you will control that process within the group going forward? And to what extent is the genuinely new methodology for you?

[Simon Dingemans:]

I think there's a couple of elements to that. As I said at the end of my presentation, we're in the process of rolling out a new planning process across the corporation to really kind of build in the metrics that we're going to use and make sure that those are going to be applied consistently. So how is that going to happen, that's how it's going to happen. We've also changed the metrics so that we're using, going forward, a CFROI benchmark that will allow us to compare between different projects and different investments, whether it's in sales force or in capital allocation or capital projects that we can kind of use across the board. It also focuses on the cash returns that are being driven out of that. And that is a shift from where we've been in the past, where we view similar metrics but perhaps more of a balance of NPV and IRL [ph] type calculations relative to ROIC which has largely been applied to M&A going forward. So consistent capital allocation benchmarks across the business is how we're going to make that happen. And already, Andrew and I had a session last week on this year's capital spending projects where we've been through kind of the largest of those and we'll be scrubbing down the next batch in the coming weeks, and then we'll be going to the planning process over the summer, then all of the businesses are being asked to put forward capital expenditure plans as part of their plan, which they've not been asked to do before. So those are a few of the concrete changes we're making.

[Andrew Witty:]

I think also just to summarize how I think things are -- have already begun but are changing now is I think the finance organization under Simon's leadership is going to be much more hands on into the guts of the company. And we had a perfectly good finance organization, but it was more of a keep in school kind of finance organization. I think what you're going to see is a much more -- Simon's going to role model it obviously at the top. But as he said, through some of the key appointments we've been making and where he's inserted people deep into some of the key bits of the company, what we're really trying to make sure is that finance is really part of the driver of the future, not just simply checking what happened yesterday. And that's a very simplistic way to describe it, but it's very fundamental. And obviously, a really positive shift. And it's going to create an awful lot of value and opportunity in the business, because really what you're looking at in this business, it's all about making sure that the next dollar gets spent on the best return and opportunity. And clearly, as everyday goes by, that opportunity looks slightly different and we need to make sure we're on top of that to get the absolute best return.

[Mark Clark:]

It's Mark Clark from Deutsche Bank. A question for Simon on core EPS. I'm surprised no one's asked this so far. I just wanted to ask you a couple of things. Firstly, when you talk about removing legal charges, is that just the large onetime items like Advair rather than the sort of bread-and-butter legal costs that are part of every drug companies' quarterly numbers? And secondly, due to the pre-exceptional and pre-legal EPS figures you've reported, e.g. the 26p and the 29p or whatever it was last year. Do they give a reasonably good approximation to the core EPS or is there any sort of major differences you'd like to point out our way?

[Simon Mather:]

Well, I think going forward, we will take out legal charges as all our peers do, but we will also take out a number of amortization, other write-offs, other one offs that again are consistent with what our peers do. So there is more by way of adjustment than the strip outs you've just highlighted. And as I said in the presentation, what we'll do is we'll come back before the end of the year and we'll give you all of the adjustments so that you can track 2011 into 2012, and that you've got a clean base on which to start from. So rather than try to kind of recreate it out of what we've already got, we'll give that to you going forward. But we do believe that is the cleaner measure going forward and that's why a number of our peers already use it.

[Andrew Witty:]

Okay. Let me thank you very much for the questions. Just to summarize where we're up to, and as we're coming on track for this year, not all of our guidance has remained unchanged for the rest of this year. Share buyback continues a cliff up towards the upper end of the range we've given you. As we move into next year, we expect to see reported sales growth, we expect to see expansion of our operating margin and we also expect to be able to start to deliver greater financial efficiency between OP and EPS. What's critical, I think, is what we've started to lay out for you is the corner or the inflection point that we believe we're now hitting in this company. It isn't just about the next 6 months or the next 18 months, it's actually about what the shape of the group is going to be over the next 5 or 10 years. But what it's showing you is a group, which through its restructuring has got a portfolio of activities which exposes us to where all the growth is. 93% of all the births in the world are outside of America and Europe. So if you're in the healthcare business and the Vaccine business, you'd better be big outside of America and Europe. That's a good example. If you look at where our Consumer business is exposed, 60% of our consumer business post disposal will be in emerging markets. So you have a very different sort of shape to underpin our future growth, and as you've heard today, what we're focused on doing is not just seeing that growth over that period in sales. Also, working hard to make sure that year-on-year-on-year, we look for ways to further drive cost reduction and margin leverage, whether it be in the core business or in the financial dimension of the organization. So not just about the next 18 months, about the next 18 months showing what the trajectory can be for the subsequent several years. It's been a long time in terms of reshaping the organization, but I think you should be able to see today what that looks like. And the portfolio of R&D assets, I think, clearly demonstrates the progress that's been made and the way in which that those assets are going to start coming to market over the next few months. On that note, I'd also remind you that we remain the company with the highest number of FDA approvals since 2007. So we can discover the stuff. We can develop it and we do get them registered. And as you start to see that build up, you're going to start to see a bigger and bigger contribution from new products come in alongside everything else. If you think back for the last 3 years, we've battled our way through headwinds without much new product and in the middle of a massive restructuring program. Think about the future, very substantially reduced headwinds, new product portfolio, big established businesses, which have been redesigned for where we think the opportunity over the next few years. A very different picture next 3 or 5 years compared to the last 3 or 5 years. With that, I'd like to thank you for your attention. As I said earlier, we're going to join you over there if you'd like to for a cup of coffee. And for people who have not had a chance to ask a questions, please feel free to do so. Thanks very much.