GSK plc (GSK) Q1 2013 Earnings Report, Transcript and Summary

Thank you very much and welcome to First Quarter Conference Call for GSK. I’m with here with Simon Dingemans as normal. I’m going to make a few comments followed by Simon and then we’ll open up the call to Q&A. The first quarter was very much in line with our expectations with sales down just 2% and up 2% for ongoing operations, i.e. excluding divestment such as the consumer product sale in Vesicare from last year. My commentary from now on is going to focus on just the ongoing business. I was very pleased to see once again broadly based growth coming from U.S., EMAP, and Consumer Health. With Japan held back only by the Cervarix year-on-year comparison without which it would have been up 11%, and even Europe showing some signs of improvement, although I continue to think that Europe will remain very challenging for the rest of the year. There was good delivery in respiratory, especially from Seretide/Advair, Flovent, and Ventolin in the U.S., oncology especially Votrient in the U.S., a robust vaccine delivery, particularly Synflorix in the emerging market. Our European restructuring is progressing well and we’re around a half way through that particular program of change. Our Consumer Healthcare business delivered excellent growth in all four categories. Wellness was up 8%, oral care up 5%, nutrition up 6%, and skin health up 6%, and in all regions especially international and the U.S. both up 7%. For our largest consumer healthcare product Sensodyne, we saw growth of 19% in markets outside of Europe and the U.S. and I think that just signals once again the very significant opportunity that exists for consumer health in emerging markets and also underpins a lot of the opportunity we see for Rx/Cx synergy in that particular high growth part of the world. We’re also seeing continued encouraging R&D progress with all of our six assets previously highlighted now under review in both Europe and America, and we’re beginning to see the first data from the 14 read outs on other late-stage programs in our next wave of new products. First data for Darapladib and MAGE-A3 both expected during 2013. We’ve delivered strong cash flow performance in the quarter up to £1.4 billion, led by improvements in working capital with an overall reduction of 12 days in our cash conversion cycle down to 203 days versus first quarter 2012. After completion of our announced review, we are now progressing to seek the sale of Lucozade and Ribena subject to achieving appropriate value for shareholders and I hope we’ll be able to conclude that process during 2013. We’ve also announced today the formation of the global established products portfolio made up of over 50 of our pharmaceutical tail brands. This will allow us to focus our resources on the new product portfolio and deliver efficiency gains from our legacy non-promoted brands. We’ll crystallize and report separately this portfolio to shareholders from January 2014 onwards giving greater visibility to another element of our business. But to give you some idea, this portfolio have a turnover of around £3 billion and if they had been separated from the business in the first quarter of 2013, GSK overall would have grown 1% faster than we’ve reported. We continue to actively explore options to further simplify the business and deliver focus on our tightly synergistic portfolios to support our growth delivery from innovation and the further very significant emerging market potential that we see. We bought back relatively few shares during the quarter due to the frequency of regulatory processes in which we are involved, which precluded our involvement in trading in the market. But we continue to expect to buyback between 1 billion, 2 billion pounds worth of shares this year. I am pleased that we’ve been able to increase the dividend once again this time by 6% to 0.18 pence a share and our 2013 guidance is unchanged. We remain on track to deliver sales growth of around 1% at constant exchange rates and EPS growth of between 3% or 4% at constant exchange rate. And with that, I’d like to ask Simon to give you little bit more detail on the results.

Thank you, Andrew. While it’s still early days, I’m pleased with the start to the year and after the challenges of last year, I’m particularly pleased that we have been able to deliver another quarter in line with our expectations with continued momentum across all of our key growth markets. This may be less visible in the reported numbers, given the already flat comparators. But it gives us confidence as Andrew has highlighted that we remain on track to deliver against our guidance for the year of EPS growth in constant currency terms of 3% to 4% on sales growth of around 1% again in constant currency. Our financial architecture is allowing us to prioritize better the investments we need to make to drive those growth objectives as well as identify more clearly where we can release costs and resources and improve our efficiency. As we flagged before the main contributions to the leverage this year will come from financial efficiencies and I’m pleased to be able to report good progress this quarter with both financing costs and tax charges in line with where they need to be to deliver our full-year objectives. We’re also using our financial architecture more rigorously to drive earnings ahead of sales over time and convert more of those earnings to cash that we can either reinvest in the business or return to shareholders, and the 6% dividend increase this quarter is clear evidence of the progress we’re making on this front. Now, let me comment on the quarterly turnover and regional highlights in a little bit more detail. As usual, the focus will be on CER growth rates and core results. Group sales were down 2% but excluding the divestments made in 2012, sales grew 2%. This 2% is after absorbing the headwind of about 1.5% from the Cervarix sales drop in Japan, which I also highlighted in February. Turning to the U.S. our Pharmaceuticals and Vaccines business grew 4% excluding the Vesicare divestment in Q1 last year. Promoted brands contributed 7 percentage points of growth with strong performances from respiratory and oncology, offset by 3% headwind from generics including recent launches against Lamictal XR and a number of dermatology products. Moving to Europe, Q1 sales were down 3% benefiting from some of the operational measures we’ve been taking but more significantly from less pressure on price due to the annualization of several austerity measures. Despite this, pricing was still a 3% headwind in the quarter. Volumes were flat and remain under pressure and the environment in Europe remains uncertain and challenging, but we continue to be cautious about the outlook here. In EMAP, we continue to make investments for the long-term and in the quarter total sales grew 8% with strong contributions from the respiratory portfolio up 8% and Augmentin up 27%. EMAP vaccine sales grew 7%, which was better than we had originally expected due to a shift in the phasing of tenders. This benefited Q1, but will impact Q2. This shift in vaccines will also likely drag the overall reported EMAP performance meaningfully below trend for the second quarter. But as we’ve highlighted, we continue to expect the majority of vaccine sales in EMAP in the second half. Excluding vaccines in Japan, our Pharmaceuticals business grew 12% with strong growth from respiratory after a strong start of the allergy season and several new product launches also contributing meaningfully offsetting the impact of generic erosion to Paxil. Our ongoing consumer business was up 6% with strong growth across all regions and categories. Sales in the U.S. up 7%, Europe up 4%, and international up 7% after the impact to the reclassification of certain products in the China business; the star in this region however, was clearly India up 19% with continuing strong growth of Horlicks and the growing contribution from the launch of Sensodyne. Turning to the costs, on the operating side the total core operating margin for the quarter was 29.7%, which includes an 82 million net exchange gain that we took in the quarter on the settlement of inter-company transactions driven primarily during the period when we saw rapid strengthening of the U.S. dollar. Excluding currency, the overall margin declined 2.7 percentage points. But remember in Q1 last year, the Vesicare turnover and the one-off royalty adjustments, which had no costs associated with them also disproportionately, benefited the margin in that period. Excluding these two factors, the operating margin was down approximately 0.4% year-on-year. Cost of goods as a percentage of sales, excluding the Vesicare and royalty adjustment was up by 1.4 percentage points, reflecting 0.6% of ongoing pressure on COGS from negative geographic and product mix factors. Volume reductions and inventory write-offs drove the rest despite being partly offset by better pricing discipline and cost management. Total SG&A grew 2% excluding currency in line with ex-divestment sales, driven by continued investments in our growth businesses and also keep in mind that we are carrying the investment here to support the new product launches. R&D expense was down 4% in the quarter reflecting both cost management and the phasing of projects. I continue to expect us to manage R&D spend to be broadly in line with last year at around 3.6 billion. Overall, we will continue to manage our margin and operating cost base aggressively including pursuing both ongoing savings and one-off benefits. As a reminder, the one-off benefit saving we had in Q2 last year of around a 100 million. We continue to pursue other one-off savings this year but the timing of these is more likely to be in the second half. Total incremental restructuring benefits in 2013 are expected to contribute approximately 600 million the phase in which will clearly vary from quarter-to-quarter but again likely to have a weighting in the second half given the relatively recent start to the new change program. Financial efficiencies are also contributing in our net funding rate helping to keep net financing expense broadly in line with last year despite the significant step-up in our net debt. Our core income tax rate of 22.4% in the quarter is 3.5 points better than Q1 2012 keeping us very much on track to deliver rates of 24% for the full year. As anticipated, the Q1 tax rate included the benefit of the U.S. R&D credit associated with 2012. Moving to cash flow for the quarter, we continue to be highly cash generative, cash generated from operations was over 1.4 billion before legal, which reflects good progress in our management’s working capital which as Andrew highlighted has reduced by 12 days since Q1 last year with particular progress in inventory management. Net debt for the quarter increased from 14 billion to 15.4 billion, 700 million of this is due to the net impact mix change, the balance being the successful completion of our transactions to increase our ownership in the Indian consumer business from 43% to 72.5%. The left the free cash flow available to fund the vast majority of cash returned to shareholders during the quarter, which totaled over 900 million including 870 million in dividends and 47 million of share repurchases. The level of share buybacks in the quarter has been restricted by the limited windows we’ve had given the current data flow, but we’re still targeting to repurchase 1 billion to 2 billion of our shares this year. In summary, we knew this was going to be a negative growth quarter because of the comparisons from last year, but these complete their roll-off in Q2. And aside from the distortion of our reported numbers, our Q1 performance is very much in line with our expectations and Q2 is on track to deliver our financial guidance for the full year. With that, I will turn it back to Andrew.

Thank you very much Simon and I’m delighted to be able to open up the call for Q&A. So perhaps the chair of the call could once again describe what the protocol is.

So, ladies and gentleman, your question-and-answer session will now begin. (Operator Instructions) Thank you. And we have a question for you straightaway. It’s from the line of Andrew Baum with Citi. Please go ahead Andrew. Andrew Baum – Citigroup: Good afternoon. I have three questions, if I could. First, both with your global health business now and previously with ViiV – you have two assets which could be monetized outside GSK as well as within. Perhaps you could talk through the operational issues and potential triggers which will determine both the decision and timing for any move to externalize the assets and monetizing them. Second, I know that you’re reluctant to give any long term guidance on tax, but perhaps you could give some kind of sense of the increase in economic profit that’s going to be booked in the UK over the next five years as a function of the investment you’ve announced last quarter in terms of restructuring some of your operations and bringing them back to the UK. And then thirdly, regarding emerging markets, your first quarter growth in EMAP in 2012 was 2%, which make the 8% you post here look somewhat less than you might have imagined. Is vaccine the only reason for that or are there additional factors to explain why there wasn’t a stronger earnings growth given the pretty low comp first quarter 2012?

Thanks Andrew for the questions. I’ll ask Simon to comment on the tax guidance point in a second. As far as the two sets of portfolio globally established products and ViiV, they are obviously very, very different types of profile businesses, albeit we’re developing somewhat similar approach to the way in which we crystallize them as more visible groups within the company for you to look at and understand better. ViiV of course is moving into potentially a very interesting growth phase with the potential approval of dolutegravir later in the year. And as a consequence, our view of that business will be very largely dictated by what we believe to be the medium term growth prospects not just from dolutegravir, but also from the follow-on programs and particularly the long acting programs, which are looking very, very exciting actually. So, I think the ViiV business are judgments we need to let some water flow under the bridge around what the real growth profile of that will be over the next few years. I have to say it has been extraordinarily successful in achieving its goals since we created it and I’m delighted that we did it. The global established products business is very different kind of proposition, so this is a very, very substantial fragmented portfolio across the group. So the first order of business is really to bring that business under a coordinated focus to make sure that we’re driving out manufacturing efficiencies, simplification efficiencies, winning every tender we can win on these older products simply by focusing on it. Secondly, what we’re also doing is we’re taking the opportunity inside the company to really guide all of our employees, so we essentially have three sets of products within the company going forward. We have the new products or as we would call them the franchise products, because they’re going to be led by our new franchise launch organization which Moncef’s now establishing, it’s fully up and running and really driving all of the launch agenda for the new products, we have the new products, franchise products. Now the classic products which are the large promoted products on which the company currently relies, and then we have the Global Established Products which I have announced today as essentially the tail. So, what that then allows the organization to do is to start to make some very clear allocation of resource decisions and prioritization decisions to make sure that all of the businesses get the right resource, because obviously as we move into launch mode with the advanced pipeline, we have a whole new business about to arrive at GSK. And to make sure that we get the right value release from all of the business, we need to have that kind of focus. So, the first two or three orders of business for the Global Established Products Andrew, is very much around internal efficiency, capturing value and ensuring the organization remains focused and allocates resources appropriately as and when the new products arrive as well. It obviously creates optionality for the future. How we choose to execute that optionality remains to be defined, but I would expect that you’ll start to see the focus that we are making on this portfolio, I think you should expect to start to see some things happen as the consequence of that, relatively sooner than later. But whether or not we go all the way into something like a ViiV type structure and then whether we went all the way to a sort of flotation I think is an unanswered question, but I am very happy to have the option opened up as a consequence of this decision. As far as the EM growth is concerned, we very often see Q1 as being a relatively slower growth quarter for the emerging markets. In fact the most encouraging part I think was the pharma, what we saw this quarter was the pharma and vaccines had very similar growth rate. It was not one thing or the other which was driving the quarter. Historically, we’ve tended to see the pharma business be quite slow to start and in fact that was certainly the case last year, I think this is quite a robust quarter actually and we’re pleased that we got a little bit more vaccine business, a little bit more quickly than we expected and that has obviously helped. Actually it looks pretty robust and I think we are off to a pretty decent start, particularly when you compare this, when you look our sustained growth rate over the last several quarters compared to most of our peers. So, I think this is a decent start for the year, you know plenty of challenges to come, but not a bad start. And on the tax I will ask Simon to comment.

Yeah, Andrew thanks for the question. I think as we have discussed before on the tax side my objective is to deliver a structure into the company, which allows us steady downward progress in the rate and you are seeing that delivered over the course of this year and the Q1 rate was very much part of that plan. We expect to get the R&D credit in the quarter, but its part of the overall position for the year. I think beyond 2013 to your point, yes we do see very material value to us and our shareholders coming from the patent box and the benefits of being able to move quite a lot of our pipeline into the fence that surrounds that but it’s also not just at it or about the shape of the business, pulling some of the revenues away of higher tax jurisdictions like the U.S. and making sure that our central activities are really benefitting from where the best incentives lie. So that’s really what makes us a sustainable proposition. I am not sure I can quantify at this point, because it depends how the product themselves do, but I certainly think we see a lot more opportunity to go for.

Thank you, Andrew. Next question.

Thank you. Our next question is from the line of Brian Bourdot of Barclays. Please go ahead, Brian. Brian Bourdot – Barclays Capital: Thanks very much, so good afternoon, Brian Bourdot from Barclays. Two questions please, one on cost of sales and second question on the development pipeline please. First on cost of sales, I think you’ve mentioned that there was some cost due to the unwinding of cost of manufacturing volume shortfalls. Could you please explain little bit detail and illustrate what that actually is and how important that is in the context of the 1.4 percentage point increase? The second question on the development pipeline, specifically with regard to your BRAF and MEK inhibitors, I see you’ve filed the combination in Europe. You announced this a little while ago. There is no news about a similar submission in the U.S., I am just wondering if you are still hopeful of being able to submit data for the combination in the U.S. prior to the readout of the Phase III study whether you can get something similar there or whether there is a definitive no thank you from the FDA. Thank you very much.

Brian, thanks so much. Let me ask Simon to comment first on the COGS and then I’ll come back to on the MEK, BRAF.

Yes, Brian. This issue really stem down to the way that we account for the inventory, we have in the supply chain. So if you think about our vaccines and pharma providers, we talk before about how long some of that supply chain dollar costs go to the balance sheet and inventory as we manufacture the product and release as we sell, and some of the volumes we made in 2012 are only now being sold in Q1 2013. And if you also remember, the environment we were in last year, where clearly we were under pressure in a number of our businesses, that led to lower volumes than we had originally been planning and some under-recovery of costs which will pause therefore the overall mix, and that’s why I flag to the full year that we were likely to see some pressure from the cost of goods in the quarter and in fact during the balance of 2013. Now, this will probably be largely a first-half effect or not completely but that’s how it arises, and it’s about 0.7% of the 1.4% increase that we called out.

Thanks, Simon. Brian, as far as the MEK/BRAF is concerned, obviously we are not going to predict a specific filing time, but we fully anticipate being able to file during this year and we have no particular concern around timing or all the potential opportunity for us to file. So I think everything is on track there and not much more to say really. Thanks very much. Next question.

Thank you. Your next question is from the line of Tim Anderson with Sanford. Please go ahead, Tim. Tim Anderson – Sanford Bernstein: Thank you. A few questions, in the past, you’ve described Relvar and Breo not really as a replacement for Advair, but rather it’s something that rounds up your portfolio of products in respiratory. Is this still how you view the drug? It’s not clear to me how you are going to position one product versus the other. Can you give us any guidance on likely pricing in the U.S.? Second question is on respiratory as well and FDA earlier this year commenting that they wanted to get a guidance document out on combination respiratory generics. Just be curious to get your perspective on this and whether you think that some point we might actually get through generics in the U.S. as the FDA putting this guidance document out, raises that possibility. And then last question can you just give us specific timing on seeing the Darapladib and MAGE-A3 data in 2013, I know both I believe this is the first set, somehow, but can you narrow down the timing?

Tim thanks very much for the question. So as far as the Relvar/Breo is concerned, I mean, why I said repeatedly is that we shouldn’t – the observers of the company sometimes have got themselves into position where you think the only product GSK had in respiratory and sometimes the only product GSK at all in full development was Relvar/Breo. And one of the things I’ve been trying very had over the last five years to do is to ensure people understood that there was a lot more to our respiratory portfolio than simply Relvar/Breo and also that there was more to our development portfolio; and as a consequence we shouldn’t get over fixated just on that single product. Now obviously it goes in for a very significant and important strategy for us, and as I have made clear at least two Investor Days, one of the things that we are very keen to do is, is to secure and protect if you will our market share of the categories that the respiratory business that we are already in and to grow market share in categories in which we are already in. So Relvar/Breo plays a very critical role for us in terms of securing the long-term share for the company on the Seretide/Advair business. Obviously, we have generics Seretide in parts of the world and if possible we’ll have them at some point in the future in the U.S. and I’ll come back to that more specifically in connection to your second question. We don’t anticipate that in the short run, but of course in the long, long run, it is possible. So, it is appropriate for us to look to Relvar/Breo to be a product, which can take up some of the strain if you will for us on that particular challenge. Ultimately though, the products is only going to get used, if it is received by physicians and patients and improvement or more appropriate medicine for them versus that current options. And I think when we look at Revolade what we see particularly on the dosing frequency, we see particularly around the clinical data in COPD for the U.S. We think there is a compelling proposition there, when you add to that the improvements in the device that we’ve made, all of the feedback we’re getting from actually from everybody, from patients, from physicians and from payers it’s pretty positive. And I think ultimately that what positions a drug and this will go where the benefit take it in terms of its profile and I think there are some real opportunity then of course as time goes by with our [SUMMIT] study and the SUMMIT study, we will have new data coming up which hopefully will bring even further crystallization for the clinical benefits in COPD. So it’s an important drug for us. It’s not the only drug in our portfolio and I think for me that’s always been the critical thing for people to understand that we will move into company dominated by one or two drugs to a company with a broad portfolio of new opportunities. This is a very important part of that and it will be, I believe is very important product of the company. I’m not going to get more into physicians and more pricing for all the obvious competitive reasons and no need for us to do so and I think better for us to keep our powder dry until we start and obviously the physician in particular will be dictated by the final label that is agreed with the FDA. So inappropriate to get into that kind of detail and so we know exactly where the FDA labeling fit because that’s what drives it. As far as the generic risk is concerned, bottom line, I and the company don’t believe or it hasn’t changed. We don’t think there is chance of a substitute for generic pre-2016 maybe longer than that, but we certainly don’t think its pre 2016, three and a half years is a long time so things can change, but a lot would have to change for that to be a substitute for generic. It’s not the first time there have been conversations around guidelines and you’ll be well aware that last year the FDA themselves tried commission work to try and find the way to populate those sorts of guidelines. We think like nitric oxide test, which ultimately failed. And so, I think actually not much has changed. I think as long as we had Seretide as long as I’ve been CEO for sure, we’ve had these nine, every nine, ten month cycles. One day, presumably there may well be a change, but as of today, we don’t see that and for all practical purposes, we don’t anticipate a generic in the U.S. in the next several years and certainly we now are in a position where we feel highly confident that if the FDA approve our products, we’re going to have a decent amount of time in the U.S. marketplace without there been generics. And if we think back to where we all were back in 2008 when people were telling me, and I think the sell side consensus were zero adverse sale. If you think about where we are now versus where people thought we might be in 2008, it’s remarkably more positive situation; I think we are in good shape. As far as MAGE-A3 and Darapladib concerned, we’ve told you many, many times this is an event driven trial, so I can’t give you the precise month or date as this date is going to come out. We would expect the melanoma, MAGE-A3 trial to start to readout this year. I think the lung trial is more likely to readout in early 2014, but I think we’ll start to see the melanoma trial readout in 2013 and again I think we’ll see the first, at least the first study start to readout on Darapladib this year. But why I can’t tell you, it won’t be before April 24, I can’t tell you how much later in the year it would be. But as soon as we know, you’ll know. Tim Anderson – Sanford Bernstein: Thank you.

Thank you. Next question.

Thank you. We have another question. This one is from Kerry Holford of Credit Suisse. Please go ahead Kerry. Kerry Holford – Credit Suisse: : And secondly, on the global established products portfolio, I wonder if you could give us a broad idea of the current geographic split, of that group. I believe it is quite heavily rated to Europe. And then thirdly, just to clarify on [Novartis], which will set it stronger in Q1, you mentioned a prior-year catch up adjustment there. Is it fair for us to assume that the royalty income returns to around ₤70 million to ₤80 million per quarter going forward anytime?

Thanks, Kerry. Let me say the established product question and then Simon can pick up the FX and the royalty question. Simply put, roughly, roughly about 30% U.S., 30% Europe, 20% EM, 10% everywhere else. But importantly to recognize that the U.S. 30% is dominated by handful of brands, everywhere else is more like 50%. So, the complexity and the proliferation is massively skewed ex-U.S. with Europe and the emerging markets been a bit similar in terms of profile, if you will of complexity, but the actual revenue report, it is about 30:30:20:10. On the FX, I want Simon address this.

Yeah, I think on the FX, the gain we recorded in the first quarter will stay with us. This is as I explained in my comments really about crystallizing again on intercompany trading. So there is genuine contribution into the earnings of the company. If you roll forward the period and rates from the end of the first quarter through the balance of the year and assume that [EGAL] is in place versus the exchange gain, then we would expect probably about 1.5% currency gain at the top line and about 3% bottom line really reflecting the amortized benefits of that exchange gain over the period of the time. That’s the reason for the difference primarily. And then on royalties, I think we’re expecting that these probably go back to similar levels quarter-by-quarter to what you’ve seen as them as a bit of a catch up in the first quarter but that’s not going to repeat itself. So you will commensurate in the right direction.

Thanks, Simon. Thanks, Kerry. Next question.

Okay. Thank you for your question. Next question is from Graham Parry of Bank of America Merrill Lynch. Please go ahead, Graham. Graham Parry – Bank of America Merrill Lynch: Thanks for taking the questions. Firstly, just a broader question on the established and products business and the potential ultimate divestment and Pfizer has gone down that path and hasn’t been able to willing to divest that yet. So just wonder what your initial focus, would there be a buyer in the market for those kinds of products? And secondly on Advair dynamics in the U.S., we have obviously seen a bit of shifting around of price and inventory. Can you just explain to us where inventory sits now, so we hire low? And then on pricing, we’ve seen two price increases in October. There was a double-digit price benefit year-on-year in the quarter, should we be thinking that as a trend for the foreseeable future. And then thirdly, if you could just give us the exact price impact for Europe and year-on-year during the quarter as you’ve done in prior quarters. Thanks.

Yeah. On the Europe, it’s minus 3 on price. Volume rounds to zero, it’s about plus 0.4 or something like that. So the price was minus 3 for the quarter. In terms of the established products business, there are buyers out there. Whether there are buyers out there for a single block like this is a different question but there will be buyers and there are buyers out there for long. So one of the interesting questions for the people, who’re going to be focusing on this is, are there elements of this business which would be better on the outside of the company than the inside. If it may and I think I would encourage you to think not just this is now, because we called out as a block that all actions going forward will only apply to the block. It may very well be that the focus giving to the block reveal that there are sub-segments where we want to do something different from other sub-segments, and I would just encourage you to think that way. I think that notwithstanding that this type of business is extremely amenable to these type structures rather than next service straight disposal type structures. And you could imagine that different companies will have broadly similar goals of trying to drive efficiencies and synergies through these sorts of tail businesses. So it maybe that those sorts of options have more legs on them than again a huge big block sale, so if you ask me today, I would say more likely to be sub-segment solutions for sale that indeed is the path we want to go down or possibly these type solutions rather than big block sales would be my guess, but I’d reiterate what I said all along. We’ve got no specific agenda in mind at this point in time for the whole business and our initial focuses are going to be on driving value add and operation efficiency with the very nice problem to have of trade and optionality, which we didn’t have yesterday and I think that’s really what we want to try and do and let’s see what comes. I’m sorry, just repeat your second – at the dynamics on volumes. So essentially we’ve seen fairly significant destocking across the whole of the U.S. chain for our business in actually all the way through December and most of Q1. So, we’re running at I think our end market inventory is now the lowest we’ve had for three years as a proposition of sales as selling days actually held in inventory in the retail and the wholesale chain, we’ve seen a sustained destock run all the way through December, which is very atypical, normally see it does a build-up in December. We actually saw a destock through December. We’ve seen a sustained destock of wholesale and retail run all the way through the quarter. And so as we stand today, our overall inventory and respiratory that’s in no exception and there is no exception is running at very, very low levels relative to history. And obviously we didn’t particularly call out, but it is one of the reasons why I feel that this first quarter – felt very good about this first quarter in terms of how we’ve done, because that’s been a fairly material, underlying hidden headwind in the system, but it’s – we continue to deliver good numbers and I think the U.S. in particular, I’m pleased with that. On the flip side for the U.S., we’ve had one or two surprise generics coming on the very tail end of the business, and we think (inaudible) things like that, which are about being slightly on the negative side and slightly disappoints in small, but they had offered some level. So it’s been an interesting quarter for us in the U.S. around inventory and then one or two generic things. We see some very nice strengthening of underlying performance of Advair, helped a little bit by price, but nonetheless, we’ve seen it continue quarter-on-quarter improvement in the performance of the Advair business is not obviously good, for the short run, excellent platform for us to introduce Relvar and the Zephyr program assuming that both approved. Thank you very much, Graham and next question.

(Operator Instructions) Next question is from the line of Kyle Rasbach with Cowen & Company. Please go ahead, Kyle. Kyle Rasbach – Cowen & Company: Thanks for taking the question. Earlier this week Novartis, as you may have seen reported some LABA/LAMA combination data for QVA149 and sure that it met its primary COPD exacerbation standpoint. Glaxo doesn’t appear to have a comparable study underway for an oral. There is some longer term safety and tolerability trials underway of exacerbations with a secondary end point that these trials here to be undersized to gartner any kind of exacerbations claim. Maybe if you could tell us about how you see the competitive landscape for the LABA/LAMA combination is developing and how important in exacerbations right maybe and then just a quick and easy question and that is, whether or not the factors that contributed to the GBP82 million SG&A benefit in Q1, will also continue in the second quarter, thank you.

To start on, why do you hit the SG&A question, I will come back later on in the call.

The GBP82 million really results from the period when you saw the dollar strengthened very rapidly, so, it’s about the inter-company trading during periods like that, assuming that doesn’t repeat itself, no, there will be no further contribution during the balance of the year from those kind of factors. As far as the LABA/LAMA competitive landscape is concerned, I think particularly for the U.S., I’m pretty optimistic as we stand today, obviously we have a file under review as we sound for once a day treatment if not totally from the timing competitors are going to be in terms of being able to get on a similar basis and we continue to build up our clinical profile. Whether we have everything there on day one, we may not in terms of every single claim that we hope on they will be able to get for the product. But in terms of timing of arrival, I think we’re in very good shape compared to where we used to two or three years ago and I think again if we went back and read, while the commentary was that the marketplace was in terms of who was going to get that first and with what type of profile. I think things are pretty reversed, very significantly, but I think timing is very good for us. I think dosing frequency look very good for us with the competitive advantage and gradually I think we’ll be building up a very compelling data package and we’re very, very optimistic about this program. And coming halt on the yields of Breo and Relvar and in advance of a series of further respiratory products, if all goes well with FDA then I think it was in a very strong position since the portfolio, both of inhaled and other products particularly excited to see the belimumab for Phase III date coming in next year as well. So, for me, the portfolio does in timing and clinical package. I think we’re absolutely that big time on timing subject to FDA dosing and portfolio and we’re building up our clinical packages being lot more later on Zephyr at the ATA in May. And I think that will continue to reassure people that profile as a product. So, thanks very much for the question, Kyle. Kyle Rasbach – Cowen & Company: Thank you.

Thank you. We have another question please. This one is from Peter Verdult of Morgan Stanley. Please go head, Peter. Peter Verdult – Morgan Stanley: Peter Verdult from Morgan Stanley. Apologize as already these questions would have been asked, but I joined late on the call, but Andrew maybe on Ribena, Lucozade. Am I right in thinking annualized sales around the 0.5 billion mark at the moment, wondering if you could give us a sense to what growth rates were those brands in 2012 and in the first quarter this year and then may be support in terms of use of proceed if you do divest this year, should we think about as being used for general corporate use or is there any intention to fully redistribute those proceeds straight to shareholders. And then just again on the Global Established Products. Can you give me a sense as to what the geographic split is and again what sort of growth rates that business is posting any sort of detail there? Could you please share, thanks.

Peter, thanks very much. So as far as the Ribena presently, yeah let’s wait and see when we started what we get and tell you what we’re going to do with the proceeds and we are too far ahead of myself. But you know I think as a general point going forward and we have a variety of different close on cash both in terms of shareholder and in terms of just managing the business. And I think it’s a general holding point, I would say, it’s going to go into that pool and support the various products which we make super clear in terms of what we want to with cash. So, we’ll be more specific about that when we get that. In terms of growth rates, was very, very strong growth particularly, so right Lucozade in particular has a footprint, which is dominated by basically Britain and Northern Ireland and that business in the quarter was basically down 2%, has a very significant business in Nigeria one or two other smaller emerging markets. That business is up 16%. So we got a bit of a mix going on and I think it’s not a surprise effect you can know that the UK was affected by a very long, very dull, very cold spring and when you’re selling a product like Lucozade having some sum makes it huge difference. So little bit down in the UK, Europe, down 7, up 16 in the emerging markets dominated by Nigeria giving an total quarter performance or down too. We got some very exciting new product launches coming up in the next few months and if I believe the BBC, I am looking at a hot long summer. I would expect that number to improve as we went through the rest of the year. Can you just repeat your second question for me? Peter Verdult – Morgan Stanley: It’s just on the Global Established Products, I’m sure this question has already been asked but can you remind me again what the geographic split is for that business…

Yeah. Peter Verdult – Morgan Stanley: 3 billion, again what sort of growth you’re seeing from that business?

Yeah. It’s more or less 30% America, 30% Europe, 20% and 10% everywhere else more or less. I made a comment earlier of the potential benefit, the complexity of the business i.e. the number of brands is not reflected that way. So there is a handful of brands in America there are then a lot of brands in Europe and EMAP and the rest of the world. So complexity isn’t reflected by revenue shares. In terms of growth rate, Q1 is down 7% and if you’d taken that business out of our numbers just for the sake of it, GSK would have grown 1% faster than we reported. So it’s dragging about 1% of the reported growth rate for the company and the business itself was down 7%. Peter Verdult – Morgan Stanley: Thanks very much.

Thank you. Next question.

Thank you. Your next question is from the line of Florent Cespedes from Exane. Please go ahead, Florent. Florent Cespedes – Exane BNP Paribas: (inaudible). Thank you for taking my question. First one on cost, could you tell us how do you see the marketing and R&D cost in the next quarters knowing that you will launch a new product and you will hear us to invest in your portfolio? Second on research of more on the projects, we understand at May 3, you will be the next exciting products in the reports results. Can you share with us your force on this one and how are you – we should read the first data and when we should ask your idea of the potential of these projects? And last question on the European area, could you give us some color on the environment there and how would you see the trend going forward beginning for the deterioration or improvement or kind of statutory improvement? Thank you.