AstraZeneca Annual Report and Form 20-F Information 2011

Financial ReviewResults of operations – summary analysis of yearto 31 December 2011 continuedRevenue increased by 1% on a Reported basis but decreased by 2%on a CER basis. As in 2010, revenue benefited from strong growth ofCrestor, Symbicort and Seroquel but was offset by lower revenues forNexium, Arimidex and Seloken/Toprol-XL. Emerging Markets salesgrowth of 10% (Reported: 11%) and Established ROW 4% (Reported:14%) was offset by a decline in US sales of 2% (Reported: 2%) andWestern Europe of 11% (Reported: 7%). Further details of our salesperformance are contained in the Performance 2011 sections of theTherapy Area Review from page 56 and the Geographical Reviewfrom page 77.Core gross margin of 82.2% increased 1.3 percentage points (Reported:1.0 percentage points). The year-on-year improvement in the marginwas largely due to the impact of the intangible impairment related tolesogaberan on 2010 gross margin and a $131 million benefit fromthe settlement of patent disputes with PDL Biopharma Inc. in 2011.Core R&D expenditure was $5,033 million, 15% higher than last year(Reported: 19%), driven by higher intangible impairments chargedto R&D expenditure in 2011, including $285 million for olaparib and$150 million for TC-5214, and late stage project spend.Core SG&A costs of $9,918 million were 2% lower than in 2010(Reported: 1% higher). Investment in Emerging Markets and recentlylaunched brands, as well as the impact of the US healthcare reformexcise tax were more than offset by operational efficiencies acrossEstablished Markets.Core other income of $845 million was $65 million less than the previousyear principally as a result of a higher level of disposal gains in 2010.Core pre-R&D operating margin was 54.2%, up 1.0 percentage points(Reported: 0.7 percentage points), as the higher gross margin wasonly slightly offset by lower Core other income and higher SG&A costsas a percentage of revenue.Core operating profit was $13,167 million, a decrease of 4% (Reported:3%). Core operating margin declined by 1.2 percentage points(Reported: 1.6 percentage points) to 39.2% as a result of the higherR&D spend and lower Core other operating income.Core EPS were $7.28, up 7% (Reported: 9%), with the lower operatingprofit offset by a lower effective tax rate, lower net interest as well asthe benefit of a lower average number of shares outstanding.Within Core adjustments, restructuring costs and amortisation werebroadly in line with last year’s level. Non-core intangible impairmentsand legal provisions were significantly reduced from 2010. In 2011,Core adjustments also included the profit on the sale of our dental andhealthcare subsidiary Astra Tech. Excluded from Core results were:> Impairment charges of $22 million (2010: $568 million), arisingfrom impairments of assets capitalised as part of theMedImmune acquisition.> $135 million (2010: $612 million) of legal provision charges inrespect of the ongoing Seroquel product liability litigation, AverageWholesale Price litigation in the US and the Toprol-XL antitrustlitigation. In line with prior years these have been excluded fromour Core performance and full details of these matters are includedin Note 25 to the Financial Statements from page 184.> Restructuring costs totalling $1,161 million (2010: $1,202 million),incurred as the Group continues its previously announcedefficiency programmes.> Amortisation totalling $537 million (2010: $518 million) relating toassets capitalised as part of the MedImmune acquisition and theMerck exit arrangements.> Profit on sale of our subsidiary Astra Tech of $1,483 million. On31 August, we completed the sale of Astra Tech to DENTSPLYInternational Inc. for a net cash consideration of $1,772 million.Further details of this disposal are included in Note 22 to theFinancial Statements on page 170.Reported operating profit was up 10% at CER (Reported: 11%) at$12,795 million, largely as a result of the impact of the profit on thedisposal of Astra Tech. Reported EPS were $7.33, up 29% (Reported:31%), as a result of the same factors affecting Core EPS along with theprofit recognised on the disposal of Astra Tech.Net finance expense was $428 million, against $517 million in 2010,due to reduced interest payable on lower debt balances ($46 million)and a lower net pension interest expense of $55 million principally dueto increased pension assets held by our defined benefit schemes.The 2011 taxation charge of $2,351 million (2010: $2,896 million)consists of a current tax charge of $2,578 million (2010: $3,435 million)and a credit arising from movements on deferred tax of $227 million(2010: $539 million).The current year tax charge includes a prior period current tax creditof $102 million (2010: charge of $370 million). The reported effectivetax rate for the year was 19.0% (2010: 26.4%). The reported effectivetax rate has benefited from the non-taxable gain on the disposal ofAstra Tech and an adjustment in respect of prior periods following theannouncement in March 2011 that HM Revenue & Customs in the UKand the US Internal Revenue Service (IRS) agreed the terms of anAdvance Pricing Agreement regarding transfer pricing arrangementsfor AstraZeneca’s US business for the period from 2002 to the end of2014 and a related valuation matter as detailed more fully in Note 4 tothe Financial Statements from page 152. Excluding these benefits, theeffective tax rate for the year was 26.4% on a reported basis. This26.4% tax rate is applied to the taxable Core adjustments to operatingprofit, resulting in a Core effective tax rate for the year of 22.0%including the benefit of the Advanced Pricing Agreement and relatedvaluation matter settlement. A description of our tax exposures is setout in Note 25 to the Financial Statements on page 189.Total comprehensive income for the year increased by $1,364 millionfrom 2010 to $9,470 million. This was driven by the increase in profitfor the year of $1,935 million, offset by a decrease of $571 million inother comprehensive income, principally due to $741 million ofactuarial losses on our defined benefit schemes arising from lowerdiscount rates being applied to our long-term pension obligationsreflecting external market conditions.Cash flow and liquidity – 2011All data in this section is on a Reported basis.Cash generated from operating activities was $7,821 million in the yearto 31 December 2011, compared with $10,680 million in 2010. Thedecrease of $2,859 million is primarily driven by higher tax paymentsmade this year, including a net amount of $1.1 billion in relation to theAdvance Pricing Agreement between the UK and US governments’ taxauthorities and the settlement of a related valuation matter, an increasein trade and other receivables and higher contributions made to our UKdefined benefit pension fund.Investment cash inflows of $577 million include the sale of Astra Tech($1,772 million). Cash outflows on the purchase of tangible fixed assetsamounted to $839 million in the year, in line with 2010. Further detailsof the Astra Tech disposal are included in Note 22 to the FinancialStatements from page 170.Net cash distributions to shareholders increased from $5,471 millionin 2010 to $9,370 million in 2011 through dividend payments of$3,764 million and net share repurchases of $5,606 million, asignificant increase on 2010 repurchases of $2,110 million. Thisreflects the Board’s 2010 stated objective of $4 billion sharerepurchases in 2011, with the target increased in 2011 followingthe Board’s decision to use the net proceeds from the Astra Techsale to increase share repurchases.86 Financial ReviewAstraZeneca Annual Report and Form 20-F Information 2011