EX-99.1 3 mar1004_ex9901.htm EX 99.1

Shire Pharmaceuticals Group plc
Hampshire International Business Park,
Chineham, Basingstoke RG24 8EP UK
Tel +44 1256 894000 Fax +44 1256 894708
http://www.shire.com

New strategic plan builds platform for Shire’s future
Strong 2003 performance – positive outlook for 2004

Basingstoke, UK – 11 March 2004 – Shire Pharmaceuticals Group plc (LSE: SHP, NASDAQ: SHPGY, TSX: SHQ) announces results for the twelve months ended 31 December 2003.

Full Year 2003 Unaudited US GAAP Results Highlights
 
 2003
$M		   2002
$M		   %
Growth
Total revenues
 1,237.1   1,037.3   +19%
Operating income
 394.6   327.0   +21%
Income from continuing operations before
income taxes and equity in (losses) / earnings
of equity method investees
 384.5   329.1   +17%
Net income
 276.1   250.6   +10%
Diluted Earnings Per Share (EPS):
          
Per ordinary share
 54.2c   49.0c   +11%
Per American Depository Share (ADS)
 162.6c   147.1c   +11%
 
          
(1) Average exchange rates for 2003 and 2002 were $1.64: £1.00 and $1.50: £1.00 respectively.        
           

Matthew Emmens, Chief Executive Officer, said:

“Shire had another excellent year in 2003. The ADDERALL® brand maintained its leading position in the ADHD market despite significant competitive challenges. This outstanding performance says much about the attributes of ADDERALL XR®, but more about our sales team and the potential of our business model. We have confidence in our ability to be the leader in meeting the demands of the specialist physician and the prospect of expanding our reach to new therapeutic areas.

“Looking ahead, we expect further pipeline news in 2004 including updates on the approval of FOSRENOL® and ADDERALL XR for the adult indication. We have filed a New Drug Application (NDA) for BIPOTROL®, a novel carbamazepine formulation for bipolar disorder, and a supplemental New Drug Application (sNDA) for PENTASA® 500 mg, for the treatment of ulcerative colitis, with the Food and Drug Administration (FDA). Currently Shire has six projects in registration and the potential for 11 product launches by 2007. We also continue to be in active discussions regarding the acquisition of new products.

“I am extremely confident in our strategy, our business model and prospects for the future. We continue to target on average mid-teens earnings growth and aim to maintain consistent margins beyond 2004.”

Full Year 2003 and Recent Events Highlights

  • 2003 revenues of $1,237.1 million were up 19% compared with 2002, driven by excellent ADDERALL XR sales.

  • Diluted earnings per ADS of 162.6c include closure costs of $13.3 million, associated with the closure of our Lead Optimisation business in Canada and a $10.7 million write-down to fair value of properties now classified as assets held for sale.

  • ADDERALL XR sales of $474.5 million, up 49% on 2002; ADDERALL XR outperformed the market with prescription demand up 49% compared with 2002; the ADDERALL franchise is the leading ADHD brand in the US with 25%1 market share in December 2003.

  • Royalties up 16% on 2002, to $203.6 million; 3TC™ royalties up 9% to $144.6 million, ZEFFIX™ up 17% to $24.7 million and other royalties (mainly REMINYL™) up 63% to $34.3 million.

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  • FOSRENOL, approvable letter responses delivered to the FDA in the US.

  • FOSRENOL, labelling discussions initiated with EU Reference Member State.

  • BIPOTROL, a carbamazepine treatment for bipolar disorder, filed with the FDA in February 2004.

  • PENTASA 500mg, for the treatment of ulcerative colitis, filed with the FDA in March 2004.

  • SPD503, positive data from first Phase III paediatric study.

  • ADDERALL XR approval received in Canada in February 2004.

  • Introduction of dividend policy in 2004.

New Non Executive Director and Audit Committee Chairman

Shire has announced the appointment of David Kappler as Non Executive Director, who will join the Shire Board in April and will take over the Chairmanship of the Audit Committee in June 2004. Mr Kappler is Chief Financial Officer of Cadbury Schweppes plc, the FTSE and NYSE listed global confectionery and beverages group, where he has held a range of senior finance positions during his almost 40 year career with the Group.

Review and update on new strategy

In the summer, following a thorough internal review, we announced a new strategy. We are simplifying Shire - we will search, develop and market but will not invent. Shire will seek to acquire products with substantive patent protection rather than just three years’ Hatch-Waxman exclusivity. We will focus our in-licensing and M&A efforts on the US market, and obtain European rights whenever possible.

Shire has refocused its R&D efforts and technology to concentrate on late stage projects where we will have commercial presence and is creating the flexibility to add new therapeutic areas based on product acquisition opportunities. The strategic review thoroughly evaluated the Group’s pipeline and refocused resources on four projects, which are currently in Phase II and III of development. This approach aims to deliver the combined benefit of increased returns and lower risks.

The implementation of these actions has resulted in:

  • The exit from early stage therapeutic research, which we completed in the third Quarter 2003;
  • The planned exit from the vaccines business, which we are targeting to achieve around mid-year 2004.

These changes have implications for both the Group’s organizational structure and operating sites. We have a new global management structure aimed at close interaction between development, marketing and sales, and new people in key positions reporting directly to the Chief Executive Officer. In addition, we have advanced our plans to reduce the number of North American sites from 14 to four, including the opening of a new US headquarters office on the East Coast. Pennsylvania is currently being considered in this regard. We will close our sites in Newport, Kentucky and Rockville, Maryland. Shire’s world headquarters will continue to be located in Basingstoke, UK.

The cost of the planned reorganization in 2004 is estimated at approximately $55 million (23 cents per ADS), split between retaining and relocating key staff to the new US headquarters, and site closure costs and other relocation expenses. The majority of these costs will be charged under US GAAP as part of operating expenses. It is anticipated that these changes will improve both the efficiency of operation and the cost structure of the Group going forward.

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Outlook

For 2004, Shire expects revenue growth to be in the high single digit range, despite the loss of exclusivity on PROAMATINE in Q3 2003 and the anticipated loss of exclusivity on AGRYLIN in the US in Q4 2004.

We remain committed to our stated aim of achieving earnings growth, on average, in the mid-teens range and maintaining consistent operating margins beyond 2004.

Earnings for 2004 will be affected by the restructuring costs of the planned re-organisation, detailed above, and the outcome of the planned exit of the vaccines business.

Dividend

Reflecting the Company’s stage of development and cash generative profile, the Board intends to declare the payment of the Company’s first interim dividend of 1 pence per share for the six months ending June 2004, with a view to growing the dividend progressively.

- Ends -

For further information please contact:

Cléa Rosenfeld – Global Investor Relations +44 1256 894 160
Jessica Mann – Global Media +44 1256 894 160
   
Notes to editors  

Shire Pharmaceuticals Group plc

Shire Pharmaceuticals Group plc (Shire) is a global specialty pharmaceutical company with a strategic focus on meeting the needs of the specialist physician and currently focuses on developing projects and marketing products in the areas of central nervous system (CNS), gastrointestinal (GI), and renal diseases. Shire has operations in the world’s key pharmaceutical markets (US, Canada, UK, France, Italy, Spain and Germany) as well as a specialist drug delivery unit in the US.

For further information on Shire, please visit the Company’s website: www.shire.com

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THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements included herein that are not historical facts, are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialise, Shire’s results could be materially affected. The risks and uncertainties include, but are not limited to, risks associated with the inherent uncertainty of pharmaceutical research, product development, manufacturing and commercialisation, the impact of competitive products, including, but not limited to, the impact on Shire’s Attention Deficit Hyperactivity Disorder (ADHD) franchise, patents, including but not limited to, legal challenges relating to Shire’s ADHD franchise, government regulation and approval, including but not limited to the expected product approval dates of lanthanum carbonate (FOSRENOL®), METHYPATCH®, XAGRID® and the adult indication for ADDERALL XR®, the implementation of the planned reorganisation and other risks and uncertainties detailed from time to time in Shire’s filings with the Securities and Exchange Commission.

The following are trademarks of Shire or companies within the Shire Group, which are the subject of trade mark registrations in certain territories.

ADDERALL XR® (mixed amphetamine salts)
ADDERALL® (mixed amphetamine salts)
AGRYLIN® (anagrelide hydrochloride)
CALCICHEW® (calcium carbonate)
CARBATROL® (carbamazepine)
BIPOTROL® (carbamazepine)
FOSRENOL® (lanthanum carbonate)
METHYPATCH® (methylphenidate)
PROAMATINE® (midodrine hydrochloride)
TROXATYL® (troxacitabine)
XAGRID® (anagrelide hydrochloride)
 
The following are trade marks of third parties.
 
3TC (trademark of GlaxoSmithKline (GSK))
PENTASA (trademark of Ferring AS)
REMINYL (trademark of Johnson & Johnson)
ZEFFIX (trademark of GSK)
 
Data sources.
1 IMS Prescription Data – Product specific
2 GSK

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OVERVIEW OF US GAAP FINANCIAL RESULTS

Introduction

Revenues for the year ended 31 December 2003 increased by 19% to $1,237.1 million (2002: $1,037.3 million), which was at the uppermost end of the Company’s guidance range.

The Company recorded net income of $276.1 million, an increase of 10% compared to the prior year (2002: $250.6 million). Diluted earnings per ordinary share were 54.2 cents, or 162.6 cents per ADS, an increase of 11% over 2002, in the middle of the range indicated in the Company’s guidance. This result was achieved after charging $13.3 million of closure costs in respect of Lead Optimisation and $10.7 million write-down to fair value of properties now classified as assets held for sale.

The business generated cash inflows from operating activities of $355.3 million.

Cash, cash equivalents and marketable securities at 31 December 2003 amounted to $1,414.2 million (31 December 2002: $1,213.8 million). After deduction of borrowings, this translates to a net cash position of $1,036.4 million (31 December 2002: $805.7 million). Where appropriate, this may be used primarily to further enhance our portfolio through product and project acquisitions.

The Company initiated a share re-purchase programme during the year, buying back 7.6 million ordinary shares at a total cost of $52.4 million. Additionally, the Company redeemed $29.8 million of its convertible debt.

Product sales

For the year ended 31 December 2003, product sales increased $170.4 million (20%) to $1,029.8 million (2002: $859.4 million) and represented 83% of total revenues.


2003 Product Highlights
   Product Sales
$M		 Sales
Growth
%		 US Rx1
Growth
%		 December 20031
US Market Share
%
   ADDERALL XR 474.5 +49% +49% 23%
   ADDERALL 61.1 -44% -65% 2%
   AGRYLIN 132.5 +11% +7% 27%
   PENTASA 99.3 +14% -1% 17%
   CARBATROL 52.4 +16% +5% 43%
   PROAMATINE 49.3 -3% +2% 15%

ADDERALL XR and ADDERALL for the treatment of attention deficit hyperactivity disorder (ADHD)

ADDERALL XR
Sales of ADDERALL XR for the year ended 31 December 2003 were $474.5 million, an increase of 49% compared to prior year (2002: $317.9 million).

US prescriptions were up 49% over the same period, due primarily to a 19% increase in the total US ADHD prescription market and successful marketing efforts.

Sales growth was in line with prescription volume growth with price increases in April and November 2003 being offset by higher sales deductions and allowances (primarily Medicaid rebate payments and sales allowances for the coupon sampling program).

ADDERALL XR retained 23% share of the total US ADHD market in December 2003, compared with 18% in December 2002.

The Company’s extended release “once daily” ADDERALL XR, is covered by two US patents. During 2003 the Company was notified that Barr Laboratories Inc. (Barr) had submitted an Abbreviated New Drug Application (ANDA) under the Hatch-Waxman Act seeking permission to market a generic version of ADDERALL XR prior to the expiration date of the Company’s two US patents and alleging that one patent is invalid and one is not infringed by Barr’s mixed amphetamine salt product. The Company has filed two suits against Barr seeking a ruling that Barr’s product infringes both of the Company’s US patents.

The Company was also notified in November 2003 that Impax Laboratories Inc. (Impax) has submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of ADDERALL XR, prior to the expiry of the Company’s two US patents and alleging that the

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patents are not infringed by Impax’s mixed amphetamine salt product. In December 2003 the Company filed suit against Impax seeking a ruling that Impax’s product infringes the Company’s two US patents.

ADDERALL
Sales of ADDERALL for the year ended 31 December 2003 were $61.1 million, a decrease of 44% compared to prior year (2002: $109.8 million).

US prescriptions were down 65% over the same period; this was due to the switch of patients to either ADDERALL XR or generic alternatives.

The difference between sales and prescription volume growth was due to a combination of price increases, lower sales deductions and favourable movements in customer stocking levels.

ADDERALL had a 2% share of the total US ADHD market in December 2003, compared with 5% in December 2002.

AGRYLIN for the treatment of thrombocythaemia

Worldwide sales of AGRYLIN for the year ended 31 December 2003 were $132.5 million, an increase of 11% compared to the prior year (2002: $119.2 million).

The increase was primarily driven by substantial sales growth, outside the US market, where AGRYLIN is currently available on a named patient basis.

In addition, US prescription volumes were up 7% over the same period.

AGRYLIN had a 27% share of the total US AGRYLIN, Hydrea and generic hydroxyurea prescription market in December 2003 (December 2002: 27%).

AGRYLIN remains the only product specifically approved for essential thrombocythaemia in the US. The Company is seeking a paediatric extension for AGRYLIN which would extend its orphan drug exclusivity from March 2004 to September 2004, after which time it is expected to face generic competition. The expected launch of XAGRID in the EU (the trade name of AGRYLIN used in the EU) in the second half 2004, will continue to drive volume growth in markets outside the US.

PENTASA for the treatment of ulcerative colitis

Sales of PENTASA for the year ended 31 December 2003 were $99.3 million, an increase of 14% compared to prior year (2002: $87.2 million).

US prescription volumes were down 1% over the same period.

Price increases and an increase in customer stocking levels generated year on year revenue growth.

PENTASA had a 17% share of the total US oral mesalamine/olsalazine prescription market in December 2003, compared with 18% in December 2002.

CARBATROL for the treatment of epilepsy

Sales of CARBATROL for the year ended 31 December 2003 were $52.4 million, an increase of 16% compared to prior year (2002: $45.3 million).

US prescription volumes were up 5% over the same period, due to renewed promotional efforts in 2003 and the resolution of supply constraints that impacted availability throughout 2002.

Price increases and the launch of the Company’s new 100mg strength in Q4 2003, contributed the remainder of the revenue growth between years.

CARBATROL had a 43% share of the total US extended release carbamazepine prescription market in December 2003, compared with 36% in December 2002.

In August 2003, the Company received notification that Nostrum Pharmaceuticals, Inc. (Nostrum) had submitted an application seeking permission to market its generic version of the 300mg strength of CARBATROL prior to the expiry of the Company’s US patents for CARBATROL. Shire filed a complaint against Nostrum for patent infringement under the Hatch-Waxman Act in September 2003.

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PROAMATINE for the treatment of hypotension

Sales of PROAMATINE, for the year ended 31 December 2003 were $49.3 million, a decrease of 3% compared to prior year (2002: $50.9 million).

US prescription volumes were up 2% over the same period.

Customer de-stocking subsequent to the anticipated launch of generic copies of PROAMATINE in the fourth quarter of 2003, contributed heavily to the decline in revenues between years.

PROAMATINE had a 15% share of the total US PROAMATINE and fludrocortisone acetate prescription market in December 2003, compared with 25% in December 2002.

Royalties

Royalty revenue increased 16% to $203.6 million for 2003 (2002: $174.8 million) as a result of strong sales and positive foreign exchange movements.

2003 Royalty Highlights

Product Royalties
to Shire
$M		 Royalty
growth
%		 Worldwide in-market sales by
licensee in 20032
$M
3TC 144.6 +9%* 1,099
ZEFFIX 24.7 + 17%** 214
Other 34.3 + 63% n/a
*The impact of foreign exchange movements has contributed 4% to the reported growth
**The impact of foreign exchange movements has contributed 6% to the reported growth

3TC
Royalties from 3TC for the year ended 31 December 2003 were $144.6 million, an increase of 9% compared to prior year (2002: $132.5 million). This was primarily due to continued growth in the nucleoside analogue market for HIV. This growth is supported by increases in the number of individuals living with HIV, as well as reduced mortality due to more effective treatment regimens.

For 3TC Shire receives royalties from GSK on worldwide sales, with the exception of Canada, where a commercialisation partnership with GSK exists. GSK’s worldwide sales of 3TC, for the year ended 31 December 2003 were $1,099 million, an increase of 12% compared to prior year (2002: $982 million).

ZEFFIX
Royalties from ZEFFIX for the year ended 31 December 2003 were $24.7 million, an increase of 17% compared to prior year (2002: $21.2 million).

For ZEFFIX Shire receives royalties from GSK on worldwide sales, with the exception of Canada, where a commercialisation partnership with GSK exists. GSK’s worldwide sales of ZEFFIX, for the year ended 31 December 2003 were $214 million, an increase of 15% compared to prior year (2002: $186 million).

Other
Other royalties are primarily in respect of REMINYL, a product marketed worldwide by Johnson & Johnson (J&J), with the exception of the United Kingdom, where a commercialisation partnership with J&J exists. Sales of REMINYL, a treatment for mild to moderately severe dementia of the Alzheimer’s type, is growing well in the Alzheimer’s market.

Cost of product sales

For the year ended 31 December 2003 cost of product sales represented 16% of product sales (2002: 16%).

Research and development

Research and development expenditure increased 14% to $215.8 million in 2003, and as a proportion of total revenues represented 17% (2002: 18%).

Shire’s strategic aim is to focus on the development of later stage and lower risk projects. As a result of this focus Shire closed its early stage therapeutic research (Lead Optimisation) unit in Canada.

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Selling, general and administrative

Selling, general and administrative (SG&A) expenses increased from $332.2 million in 2002 to $376.9 million in 2003, an increase of 13% in contrast with product sales growth of 20% for the period. SG&A expenses were 37% of product sales (2002: 39%).

Depreciation and amortisation

The depreciation and amortisation charge for the year ended 31 December 2003 was $86.7 million (2002: $55.2 million). Included within the 2003 charge are $27.5 million of intangible asset impairments and write-downs (2002: $18.8 million) and $16.7 million of tangible fixed asset write-downs (2002: $nil).

Interest income and expense

In the year ended 31 December 2003, interest income of $16.9 million was received compared with $19.5 million in 2002. The decrease is due to the reduction in interest rates more than offsetting any benefit of the increased cash balance held during the year.

Interest expense increased marginally to $9.5 million (2002: $9.3 million). The interest charged on the 2% convertible note in 2003 was $7.5 million (2002: $8.0 million).

Other expense, net

For the year ended 31 December 2003, other expense, net, totalled $17.5 million. The main components were $15.6 million related to the write-downs of non-current investments to fair value, a foreign exchange loss of $6.7 million and $3.8 million income from the management of GeneChem funds.

For the year ended 31 December 2002, other expense, net, totalled $8.3 million. The main components were a $2.3 million mark to market loss recorded on the Roberts Supplemental Executive Retirement Plan, $8.7 million in respect of write-downs of non-current investments to fair value and $3.3 million income from the two GeneChem venture capital funds.

Taxation

For the year ended 31 December 2003 income taxes increased by 22% to $107.4 million (2002: $88.4 million). The Company’s effective tax rate was 28% for the year ended 31 December 2003 (2002: 27%).

As of 31 December 2003 the Company had recorded net deferred tax assets of $63.1 million (2002: $41.1 million).

Equity in (losses)/earnings of equity method investees

The Company received $3.5 million, representing a 50% share of earnings from the antiviral commercialisation partnership with GSK in Canada (2002: $2.6 million). A loss of $4.6 million was incurred representing a 50% share of the losses in Qualia Computing Inc (2002: loss of $0.9 million).

On 31 December 2003, the Company sold its investment in Qualia Computing Inc. to iCAD Inc.

Discontinued operations

Discontinued operations are in respect of the Company’s US “Over-The-Counter” (OTC) business that was sold in December 2002. The OTC products were acquired as part of the merger with Roberts in 1999 and consisted of non-prescription laxatives and dietary supplements. Shire’s main strategic focus is on innovative prescription pharmaceuticals prescribed by specialty doctors.

Sales generated by the OTC products represented approximately 3% of the Company’s total product sales in 2002.

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R&D Focus

Substantial progress has been made in revising the Company’s R&D focus: Shire out-licensed Japanese development and commercialisation rights for both AGRYLIN and FOSRENOL to the Pharmaceutical Division of Kirin Brewery Company Ltd and to Bayer Yakuhin Ltd respectively. Out-licensing discussions continue for TROXATYL. In addition, partnering discussions are underway for SPD754 (HIV); the remaining antiviral projects SPD756 (HIV) and SPD760 (Hepatitis C) are also now available for partnering.

Central Nervous System

Finalisation of the response to the approvable letter for ADDERALL XR adult indication during Q4 2003 culminated in submission of the response to the FDA in January 2004. A 6-month review period is anticipated. Clinical work to support the paediatric exclusivity extension for ADDERALL XR also progressed in Q4 2003. A successful response to the paediatric written request would extend exclusivity to April 2005.

Support to Noven to define and conduct an enhanced clinical programme for METHYPATCH continued in Q4 2003.

Substantial activity on SPD417 in Q4 2003 culminated in a NDA filing in February 2004. This product, now to be known as BIPOTROL, will be the first carbamazepine-based product for bipolar disorder in the US and utilises a unique dose titration and presentation. Under a NDA the product would be entitled to 3-years Hatch-Waxman exclusivity and the product also has formulation patent protection through 2016.

Key data are now available from the first Phase III paediatric study in ADHD with SPD503. This 8-week study demonstrated highly statistically significant differences from placebo in ADHD-RS, Conners Parent and Teacher Rating Scales and Clinicians Global Impression.

SPD473, Shire’s other non-scheduled, non-stimulant ADHD project, progressed to Phase II with the initiation of a proof-of-concept study in August 2003.

Gastro Intestinal

Support for the PENTASA brand made progress in Q4 2003 culminating in the filing of a supplemental New Drug Application (sNDA) for PENTASA 500mg in March 2004. A 6-month review period is anticipated. This high strength dose form is expected to enhance product acceptability to patients.

SPD746, the high-strength 5-ASA based product for ulcerative colitis, entered phase III at the end of September 2003.

Other Projects

Clinical work to support US paediatric exclusivity extension for AGRYLIN also progressed in Q4 2003. A successful response to the paediatric written request would extend exclusivity to September 2004. In Europe, the regulatory process for XAGRID continues with the Committee for Proprietary Medicinal Products.

Finalisation of the response to the approvable letter for FOSRENOL was a key activity in Q4 2003 and culminated in the response being filed in January 2004. A 6-month review is anticipated. In Europe, FOSRENOL has also progressed with labelling discussions held with the Reference Member State.

R&D Pipeline Update

Shire now has 6 products in Registration. These are FOSRENOL, XAGRID, METHYPATCH, ADDERALL XR Adult, BIPOTROL and PENTASA 500mg. In addition, Shire has two other projects in Phase III: SPD503 and SPD476 and two projects in Phase II: SPD473 and SPD480.

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US GAAP Results for the year ended 31 December 2003        
Consolidated Balance Sheets        
  Unaudited      
  31 December   31 December  
  2003   2002  
  $’000   $’000  
 
 
 
ASSETS        
Current assets:        
Cash and cash equivalents 1,103,286   880,973  
Restricted cash 6,795   16,745  
Marketable securities 304,129   316,126  
Accounts receivable, net 215,690   138,397  
Inventories 45,258   49,216  
Deferred tax asset 64,532   34,849  
Prepaid expenses and other current assets 48,017   30,790  
 
 
 
Total current assets 1,787,707   1,467,096  
         
Investments 73,153   71,962  
Property, plant and equipment, net 161,225   135,234  
Goodwill, net 225,860   203,767  
Other intangible assets, net 307,882   301,084  
Deferred tax asset -   6,216  
Other non-current assets 22,953   23,264  
 
 
 
Total assets 2,578,780   2,208,623  
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Current instalments of long-term debt 1,054   888  
Accounts payable and accrued expenses 215,494   184,107  
Other current liabilities 37,127   16,725  
 
 
 
Total current liabilities from continuing operations 253,675   201,720  
Current liabilities from discontinued operations -   12,784  
 
 
 
Total current liabilities 253,675   214,504  
         
Long-term debt, excluding current instalments 376,781   407,302  
Deferred tax liability 1,400   -  
Other long-term liabilities 23,798   13,651  
 
 
 
Total liabilities 655,654   635,457  
 
 
 
Shareholders’ equity:        
Common stock of 5p par value; 800,000,000 shares        
authorised; and 477,894,726 (2002: 484,344,412) shares        
issued and outstanding 39,521   40,051  
Exchangeable shares; 5,839,559 (2002: 5,874,112) shares        
issued and outstanding 270,667   272,523  
Additional paid-in capital 983,356   1,027,499  
Accumulated other comprehensive income/(loss) 79,007   (41,431)  
Retained earnings 550,575   274,524  
 
 
 
Total shareholders’ equity 1,923,126   1,573,166  
 
 
 
Total liabilities and shareholders’ equity 2,578,780   2,208,623  
 
 
 

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US GAAP Results for the year ended 31 December 2003
Consolidated Statements of Operations

                 
Years ended 31 December     Unaudited          
      2003   2002   2001  
      $’000
  $’000
  $’000
 
Total revenues     1,237,101   1,037,298   852,956  
Cost of revenues     (163,114)   (133,682)   (112,006)  
     
 
 
 
Gross profit     1,073,987   903,616   740,950  
Operating expenses     (679,373)   (576,578)   (597,842)  
     
 
 
 
Operating income     394,614   327,038   143,108  
Interest income     16,856   19,536   19,667  
Interest expense     (9,470)   (9,252)   (12,035)  
Other expense, net     (17,539)   (8,262)   (52,933)  
     
 
 
 
Total other income/(expense), net     (10,153)   2,022   (45,301)  
     
 
 
 
Income from continuing operations before income                
taxes and equity in (losses)/earnings of equity method                
investees     384,461   329,060   97,807  
Income taxes     (107,353)   (88,350)   (67,781)  
Equity in (losses)/earnings of equity method investees     (1,057)   1,668   1,985  
     
 
 
 
Income from continuing operations     276,051   242,378   32,011  
Income from discontinued operations (net of income                
tax expense of $nil, $3,588,000, and $3,963,000                
respectively)     -   6,108   6,748  
Gain on disposition of discontinued operations (net of                
income tax expense of $1,224,000)     -   2,083   -  
     
 
 
 
Net income     276,051   250,569   38,759  
     
 
 
 
                 
Earnings per share:                
Basic                
               
Continuing operations     55.4c   48.4c   6.5c  
Discontinued operations     -   1.6c   1.4c  
     
 
 
 
Net income     55.4c   50.0c   7.9c  
     
 
 
 
Diluted                
Continuing operations     54.2c   47.4c   6.4c  
Discontinued operations     -   1.6c   1.3c  
     
 
 
 
Net income     54.2c   49.0c   7.7c  
     
 
 
 
Weighted average number of shares:              
Basic     498,212,826   500,687,594   492,594,226  
Diluted     518,967,395   522,418,246   504,875,587  

The results for the year ended 31 December 2001 have been restated to reflect the disposal of our OTC business that has been accounted for as a discontinued operation.

11




US GAAP Results for the year ended 31 December 2003            
Consolidated Statements of Cash Flows            
             
Year ended 31 December Unaudited          
  2003   2002   2001  
  $’000   $’000   $’000  
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income from continuing operations 276,051   242,378   32,011  
Adjustments to reconcile net income to net cash provided by operating activities:            
   Depreciation and amortisation 42,474   36,434   45,809  
   Increase/(decrease) in provision for doubtful            
      accounts and discounts 3,268   (1,139)   3,015  
   Increase/(decrease) in provision for rebates and
       returns		 17,089   (2,297)   35,526  
   Stock option compensation - options (24)   (166)   2,278  
   Stock option compensation - warrants -   -   4,502  
   Tax benefit of stock option compensation,            
   charged directly to equity 692   688   3,805  
   Decrease/(increase) in deferred tax asset (22,067)   (9,884)   2,275  
   Non cash exchange gains and losses 8,558   12,495   (1,017)  
   Equity in losses of equity method investees 1,057   (1,668)   (1,985)  
   Other elements 1,468   -   1,788  
   Write-down of long term investments 15,616   8,732   61,596  
   Write-down of intangible assets 27,489   18,777   25,393  
   Write-down of property, plant and equipment 6,026   -   -  
   Write-down of assets held for resale 10,689   -   -  
   (Gain)/loss on sale of property, plant and            
   equipment (169)   1,376   8,112  
   Loss on sale of intangible assets -   -   2,052  
Changes in operating assets and liabilities, net of acquisitions:            
   (Increase)/decrease in accounts receivable (57,932)   61,159   (52,033)  
   Decrease/(increase) in inventory 7,387   (3,543)   5,278  
   (Increase)/decrease in prepayments and other            
   current assets (13,024)   9,801   (29,124)  
   Increases of property, plant and equipment 12,470   -   -  
   held for resale            
   Decrease in other assets 311   2,905   823  
   Increase/(decrease) in accounts and            
   notes payable and other liabilities (3,822)   (13,581)   27,970  
   Increase/(decrease) in deferred income 19,372   (17,409)   17,409  
Dividend received from equity method investees 2,289   -   -  
 
 
 
 
Net cash provided by operating activities 355,268   345,058   195,483  
 
 
 
 

12



US GAAP Results for the year ended 31 December 2003
Consolidated Statements of Cash Flows (continued)

Year ended 31 December Unaudited          
  2003   2002   2001  
  $’000   $’000   $’000  
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:            
Decrease/(increase) in short-term deposits 11,997   407,653   (367,206)  
Purchase of subsidiary undertakings -   (17,300)   -  
Purchase of long-term investments (5,643)   (5,933)   (20,351)  
Purchase of intangible assets (47,049)   (24,032)   (35,986)  
Purchase of property, plant and equipment (52,165)   (22,647)   (13,604)  
Proceeds from sale of long-term investments 1,000   4,108   -  
Proceeds from sale of property, plant and equipment 1,262   721   7,081  
Proceeds from sale of intangible assets -   -   4,556  
Proceeds from sale of a business -   71,000   -  
Movements in restricted cash 9,950   (16,745)   -  
 
 
 
 
Net cash (used in)/provided by investing activities (80,648)   396,825   (425,510)  
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:            
(Redemption)/proceeds from 2% convertible loan notes (29,775)   -   400,000  
Payment of debt issuance costs -   -   (9,000)  
Repurchase/payments on long-term debt, capital leases and notes (579)   (3,381)   (207,762)  
Proceeds from exercise of options 5,195   6,008   70,192  
Proceeds from issue of common stock, net     -   1,526  
Payment for the redemption of stock (52,392)   -   -  
 
 
 
 
Net cash (used in)/provided by financing activities (77,551)   2,627   254,956  
 
 
 
 
Effect of foreign exchange rate changes on cash and            
cash equivalents 25,244   6,964   (1,509)  
 
 
 
 
Net increase in cash and cash equivalents 222,313   751,474   23,420  
Cash flows provided by discontinued operations -   11,459   1,354  
 
 
 
 
Net increase in cash and cash equivalents 222,313   762,933   24,774  
Cash and cash equivalents at beginning of period 880,973   118,040   93,266  
 
 
 
 
Cash and cash equivalents at end of period 1,103,286   880,973   118,040  
 
 
 
 
             
             
            13




Selected notes to the Unaudited US GAAP Financial Statements

(1) Analysis of revenues, operating income and reportable segments

The Company has disclosed segment information for the individual operating areas of the business, based on the way in which the business is managed and controlled. The Company evaluates performance based on operating income or loss before interest and income taxes.

For 2003 our reporting has been expanded as set out below to provide more information on the Corporate and International segments. The 2002 and 2001 reportable segments have been restated on this basis.

Year ended 31 December US   International   Biologics   Corporate   R&D   Total  
2003 $’000   $’000   $’000   $’000   $’000   $’000  
 
 
 
 
 
 
 
Product sales 846,438   158,643   24,757   -   -   1,029,838  
Licensing and development 3,376   301   -   -   -   3,677  
Royalties 14   10,314   -   193,245   -   203,573  
Other 13   -   -   -   -   13  
 
 
 
 
 
 
 
Total revenues 849,841   169,258   24,757   193,245   -   1,237,101  
 
 
 
 
 
 
 
                         
Cost of product sales 94,597   53,166   15,351   -   -   163,114  
Research and development -   -   -   -   215,781   215,781  
Selling, general and                        
administrative 234,091   76,912   9,134   56,777   -   376,914  
Depreciation and                        
amortisation 30,965   24,338   4,571   26,804   -   86,678  
 
 
 
 
 
 
 
Total operating expenses 359,653   154,416   29,056   83,581   215,781   842,487  
 
 
 
 
 
 
 
Operating income/(loss) 490,188   14,842   (4,299)   109,664   (215,781)   394,614  
 
 
 
 
 
 
 
                         
Year ended 31 December US   International   Biologics   Corporate   R&D   Total  
2002 $’000   $’000   $’000   $’000   $’000   $’000  
 
 
 
 
 
 
 
Product sales 714,655   131,465   13,268   -   -   859,388  
Licensing and development 2,661   403   -   -   -   3,064  
Royalties 215   8,999   -   165,598   -   174,812  
Other revenues -   34   -   -   -   34  
 
 
 
 
 
 
 
Total revenues 717,531   140,901   13,268   165,598   -   1,037,298  
 
 
 
 
 
 
 
                         
Cost of product sales 63,356   59,242   11,084   -   -   133,682  
Research and development -   -   -   -   189,179   189,179  
Selling, general and                        
administrative 211,032   68,290   8,480   44,386   -   332,188  
Depreciation and                        
amortisation 28,999   11,200   4,138   10,874   -   55,211  
 
 
 
 
 
 
 
Total operating expenses 303,387   138,732   23,702   55,260   189,179   710,260  
 
 
 
 
 
 
 
Operating income/(loss) 414,144   2,169   (10,434)   110,338   (189,179)   327,038  
 
 
 
 
 
 
 

14



Selected notes to the Unaudited US GAAP Financial Statements (continued)

(1) Analysis of revenues, operating income and reportable segments (continued)

Year ended 31 December US   International   Biologics   Corporate   R&D   Total  
2001 $’000   $’000   $’000   $’000   $’000   $’000  
 
 
 
 
 
 
 
Product sales 587,449   106,286   5,616   -   -   699,351  
Licensing and development 4,507   991   -   -   -   5,498  
Royalties 264   5,604   -   139,287   -   145,155  
Other revenues -   900   2,052   -   -   2,952  
 
 
 
 
 
 
 
Total revenues 592,220   113,781   7,668   139,287   -   852,956  
 
 
 
 
 
 
 
                         
Cost of product sales 58,655   40,754   12,597   -   -   112,006  
Research and development -   -   -   -   171,029   171,029  
Selling, general and                        
administrative 179,115   41,542   1,203   37,875   -   259,735  
Depreciation and                        
amortisation 18,375   10,744   4,129   12,561   -   45,809  
Asset impairments and                        
restructuring charges -   -   -   29,699   -   29,699  
Merger transaction                        
expenses -   -   -   83,470   -   83,470  
Loss on disposition of                        
assets -   8,100   -   -   -   8,100  
 
 
 
 
 
 
 
Total operating expenses 256,145   101,140   17,929   163,605   171,029   709,848  
 
 
 
 
 
 
 
Operating income/(loss) 336,075   12,641   (10,261)   (24,318)   (171,029)   143,108  
 
 
 
 
 
 
 

15



Selected notes to the Unaudited US GAAP Financial Statements (continued)

(2) Earnings per share

Basic earnings per share is based upon the net income available to common stockholders divided by the weighted-average number of common shares outstanding during the year.

Diluted earnings per share is based upon net income available to common stockholders divided by the weighted-average number of common shares outstanding during the year and adjusted for the effect of all dilutive potential common shares that were outstanding during the year.

Year ended 31 December 2003   2002   2001  
  $’000   $’000   $’000  
 
 
 
 
Numerator for basic earnings per share 276,051   250,569   38,759  
Interest charged on convertible debt, net of tax 5,218   5,585   -  
 
 
 
 
Numerator for diluted earnings per share 281,269   256,154   38,759  
 
 
 
 
             
  Number of   Number of   Number of  
  shares   shares   shares  
 
 
 
 
Weighted-average number of shares:            
Basic 498,212,826   500,687,594   492,594,226  
Effect of dilutive shares:            
Stock options 1,859,076   1,883,475   11,362,332  
Warrants -   -   919,029  
Convertible debt 18,895,493   19,847,177   -  
 
 
 
 
Diluted 518,967,395   522,418,246   504,875,587  
 
 
 
 
             
Basic earnings per share 55.4c   50.0c   7.9c  
 
 
 
 
Diluted earnings per share 54.2c   49.0c   7.7c  
 
 
 
 

The computation of weighted average number of shares for diluted EPS for the year ended 31 December 2001 does not include convertible debt because, after eliminating interest charged to operations from the numerator, the inclusion would be anti-dilutive.

Warrants to purchase approximately 1.4 million common shares for the year ended 31 December 2003 (2002: 1.4 million) were anti-dilutive and were therefore excluded from the computation of diluted earnings per share.

Stock options to purchase approximately 17.0 million common shares for the year ended 31 December 2003 (2002: 17.5 million) were anti-dilutive and were therefore excluded from the computation of diluted earnings per share.

16



Selected notes to the Unaudited US GAAP Financial Statements (continued)

(3) Analysis of revenues

  Q1   Q2   Q3   Q4   Year   2003   2003
  2003   2003   2003   2003   2003   change   % of total
  $’000   $’000   $’000   $’000   $’000   %   revenues
 
 
 
 
 
 
 
Net product                          
sales:                          
ADDERALL XR 115,163   102,429   121,255   135,609   474,456   +49%   38%
ADDERALL 18,899   19,191   8,961   14,083   61,134   -44%   5%
AGRYLIN 39,674   36,551   25,907   30,409   132,541   +11%   11%
PENTASA 29,719   24,754   19,838   24,943   99,254   +14%   8%
CARBATROL 9,421   13,915   11,619   17,440   52,395   +16%   4%
PROAMATINE 13,835   18,301   8,102   9,052   49,290   -3%   4%
Calciums 6,108   6,359   7,009   9,469   28,945   +25%   2%
Others 23,534   24,950   35,655   47,684   131,823   +24%   11%
 
 
 
 
 
 
 
  256,353   246,450   238,346   288,689   1,029,838   +20%   83%
 
 
 
 
 
 
 
Royalty income:                          
3TC 34,139   37,540   35,300   37,575   144,554   +9%   12%
ZEFFIX 6,399   5,721   6,217   6,367   24,704   + 17%   2%
Others 7,225   8,575   8,218   10,297   34,315   + 63%   3%
 
 
 
 
 
 
 
  47,763   51,836   49,735   54,239   203,573   +16%   17%
 
 
 
 
 
 
 
Licensing 394   702   1,355   1,226   3,677   +20%   -
Other 7   -   6   -   13   -62%   -
 
 
 
 
 
 
 
Total revenues 304,517   298,988   289,442   344,154   1,237,101   +19%   100%
 
 
 
 
 
 
 
                           
  Q1   Q2   Q3   Q4   Year   2002   2002
  2002   2002   2002   2002   2002   change   % of total
  $’000   $’000   $’000   $’000   $’000   %   revenues
 
 
 
 
 
 
 
Net product sales:                          
ADDERALL XR 61,875   75,821   78,000   102,244   317,940   +874%   31%
ADDERALL 46,170   28,321   18,128   17,163   109,782   -65%   11%
AGRYLIN 23,436   29,435   28,725   37,611   119,207   +39%   12%
PENTASA 17,547   21,479   21,619   26,511   87,156   +15%   8%
CARBATROL 11,572   12,574   10,944   10,161   45,251   +23%   4%
PROAMATINE 9,573   10,868   14,398   16,069   50,908   +34%   5%
Calciums 4,699   5,703   6,126   6,633   23,161   +11%   2%
Others 21,635   22,660   27,564   34,124   105,983   +15%   10%
 
 
 
 
 
 
 
  196,507   206,861   205,504   250,516   859,388   +23%   83%
 
 
 
 
 
 
 
Royalty income:                          
3TC 30,636   30,720   32,501   38,672   132,529   +10%   13%
ZEFFIX 5,293   4,510   5,547   5,885   21,235   +25%   2%
Others 3,647   5,282   5,437   6,682   21,048   +160%   2%
 
 
 
 
 
 
 
  39,576   40,512   43,485   51,239   174,812   +20%   17%
 
 
 
 
 
 
 
Licensing 682   923   726   733   3,064   -44%   -
Other 217   (212)   5   24   34   -99%   -
 
 
 
 
 
 
 
Total revenues 236,982   248,084   249,720   302,512   1,037,298   +22%   100%

17



US GAAP Results for the 3 months ended 31 December 2003
Consolidated Statements of Operations

3 months ended 31 December 2003      
  $’000   2002  
  Unaudited   $’000  
 
 
 
Total revenues 344,154   302,512  
Cost of revenues (47,490)   (47,173)  
 
 
 
Gross profit 296,664   255,339  
Operating expenses (174,271)   (154,693)  
 
 
 
Operating income 122,393   100,646  
Interest income 3,757   4,843  
Interest expense (2,138)   (3,199)  
Other expense, net (9,542)   (8,693)  
 
 
 
Total other expense, net (7,923)   (7,049)  
 
 
 
Income from continuing operations before income taxes and        
equity in (losses)/earnings of equity method investees 114,470   93,597  
Income taxes (32,231)   (24,316)  
Equity in earnings/(losses) of equity method investees 642   (1,635)  
 
 
 
Income from continuing operations 82,881   67,646  
Income from discontinued operations (net of income tax        
expense of $673,000) -   1,146  
Gain on disposition of discontinued operations (net of income        
tax expense of $1,224,000) -   2,083  
 
 
 
Net income 82,881   70,875  
 
 
 
         
Earnings per share:        
Basic        
Continuing operations 16.7c   13.5c  
Discontinued operations -   0.6c  
 
 
 
Net income 16.7c   14.1c  
 
 
 
Diluted        
Continuing operations 16.3c   13.2c  
Discontinued operations -   0.6c  
 
 
 
Net income 16.3c   13.8c  
 
 
 
Weighted average number of shares:        
Basic 495,031,261   501,411,413  
Diluted 516,404,663   522,473,225  

18




UK GAAP Results for the year ended 31 December 2003
Consolidated Profit and Loss Account

For the year ended 31 December Unaudited      
  2003   2002  
  £’000   £’000  
 
 
 
Turnover: group and share of joint venture 764,662   697,314  
Less: share of joint venture’s turnover (3,594)   (762)  
 
 
 
Continuing operations 761,068   696,552  
Discontinued operations -   15,975  
 
 
 
Group turnover 761,068   712,527  
Cost of sales (102,384)   (95,042)  
 
 
 
Gross profit 658,684   617,485  
Net operating expenses (2003: including £426,362,000 (958,619)   (1,150,630)  
exceptional goodwill impairment. 2002: £613,983,000)        
Other operating income 698   -  
 
 
 
Operating loss: (299,237)   (533,145)  
         
 
Continuing operations - Group (299,237)   (541,603)  
Discontinued operations -   8,458  
 
 
 
  (299,237)   (533,145)  
 
         
Share of joint venture’s operating loss (2,806)   (559)  
 
 
 
Total operating loss (302,043)   (533,704)  
Finance charges, net 3,702   6,931  
 
 
 
Loss on ordinary activities before taxation (298,341)   (526,773)  
Tax on loss on ordinary activities (65,014)   (61,626)  
 
 
 
Retained loss for the year transferred from reserves (363,355)   (588,399)  
 
 
 
Loss per share        
Basic (72.9p)   (117.5p)  
Diluted (72.9p)   (117.5p)  

Consolidated Statement of Total Recognised Gains and Losses

For the year to 31 December Unaudited      
  2003   2002  
  £’000   £’000  
 
 
 
   Loss for the year (363,355)   (588,399)  
   Translation of the financial statements of overseas        
   subsidiaries (47,157)   (62,739)  
 
 
 
   Total recognised gains and losses relating to the year (410,512)   (651,138)  
 
 
 

19





UK GAAP Results for the year to 31 December 2003
Consolidated Balance Sheet
  Unaudited      
  31 December   31 December  
  2003   2002  
  £’000   £’000  
 
 
 
Fixed assets        
Intangible assets – intellectual property 171,548   183,404  
Intangible assets – goodwill 1,365,583   1,900,896  
Tangible assets 97,054   84,001  
Fixed asset investments 33,269   37,345  
Investment in joint ventures        
   Share of gross assets -   5,082  
   Share of gross liabilities -   (342)  
 
 
 
  1,667,454   2,210,386  
 
 
 
Current assets        
Stocks 25,282   30,571  
Debtors        
- due within one year excluding deferred tax 141,046   106,125  
- due within one year – deferred tax 36,049   21,646  
- due after more than one year excluding deferred tax 9,224   9,535  
- due after more than one year – deferred tax -   3,861  
Current asset investments 169,895   196,364  
Cash at bank and in hand 621,670   558,432  
 
 
 
  1,003,166   926,534  
         
Creditors: amounts falling due within one year (141,722)   (131,885)  
 
 
 
Net current assets 861,444   794,649  
 
 
 
Total assets less current liabilities 2,528,898   3,005,035  
Creditors: amounts falling due after more than one year        
   Convertible debt (202,659)   (243,547)  
   Deferred tax (782)   -  
   Other creditors (16,957)   (13,782)  
 
 
 
  (220,398)   (257,329)  
 
 
 
Net assets 2,308,500   2,747,706  
 
 
 
Capital and reserves        
Called-up share capital 23,895   24,217  
Share premium 3,218,695   3,214,512  
Exchangeable shares 190,425   191,552  
Capital reserve 2,755   2,755  
Capital redemption reserve 380   -  
Other reserves 24,247   24,247  
Profit and loss account (1,151,897)   (709,577)  
 
 
 
Equity shareholders’ funds 2,308,500   2,747,706  
 
 
 

20


UK GAAP Results for the year to 31 December 2003
Consolidated cash flow statement

  Unaudited      
Year to 31 December 2003   2002  
  £’000   £’000  
 
 
 
Net cash inflow from operating activities (note 2a) 280,275   302,321  
Returns on investments and servicing of finance:        
Interest received 13,165   15,434  
Interest paid (9,404)   (8,458)  
Interest element of finance lease rentals paid (59)   (45)  
 
 
 
Net cash inflow from returns on investments and        
servicing of finance 3,702   6,931  
 
 
 
Taxation:        
Overseas corporation tax paid (66,874)   (73,145)  
 
 
 
Capital expenditure and financial investments:        
Purchase of long term investment (3,447)   (2,957)  
Purchase of intangible fixed assets (30,238)   (15,470)  
Purchase of tangible fixed assets (31,400)   (15,014)  
Proceeds from sale of a business 559   44,103  
Proceeds from sale of tangible fixed assets 1,060   542  
 
 
 
Net cash (outflow)/inflow for capital expenditure and        
financial investments (63,466)   11,204  
 
 
 
Acquisitions and disposals:        
Purchase of subsidiary undertaking -   (11,647)  
Expenses of acquisitions -   (235)  
Net cash acquired with subsidiary undertakings -   33  
 
 
 
Net cash outflow from acquisitions -   (11,849)  
 
 
 
Cash inflow before management of liquid resources        
and financing 153,637   235,462  
 
 
 
Management of liquid resources:        
Increase in cash placed on short-term deposit 17,848   254,561  
Financing:        
Exercise of share options 3,114   3,985  
Share repurchase (31,808)   -  
Capital element of finance leases (160)   (74)  
Net decrease in debt during the year (18,053)   (832)  
 
 
 
Net cash (outflow)/inflow from financing (46,907)   3,079  
 
 
 
Increase in cash in the year 124,578   493,102  
 
 
 

21



UK GAAP Results for the year to 31 December 2003
Reconciliation of movements in Group shareholders’ funds

  Unaudited      
Year to 31 December 2003   2002  
  £’000   £’000  
 
 
 
Loss for the year (363,355)   (588,399)  
Other recognised gains and losses relating to the year (47,157)   (62,739)  
 
 
 
  (410,512)   (651,138)  
Repurchase of ordinary share capital (31,808)   -  
Loan conversion -   955  
Proceeds on exercise of employee share options 3,114   3,983  
 
 
 
Net reductions to shareholders’ funds (439,206)   (646,200)  
 
 
 
Opening shareholders’ funds 2,747,706   3,393,906  
 
 
 
Closing shareholders’ funds 2,308,500   2,747,706  
 
 
 
         
         
Notes to the UK GAAP Financial Statements        
         
(1) Loss per share        

Loss per share has been calculated by dividing the loss on ordinary activities after taxation for each year by the weighted-average number of shares in issue during those years.

The weighted-average number of shares used in calculating fully diluted earnings per share is the same as the basic number of shares used in calculating the basic earnings per share adjusted for the effects of all dilutive potential ordinary shares. No amounts were included in the weighted average number of shares in 2003 and 2002 for potenetially dilutive options and convertible debt as their inclusion would be anti-dilutive in a loss making period.

Year to 31 December Unaudited      
  2003   2002  
  £’000   £’000  
 
 
 
Loss for the period (for basic and diluted EPS) (363,355)   (588,399)  
 
 
 
         
  Number of shares   Number of shares  
 
 
 
Weighted-average number of shares:        
Basic and fully diluted 498,212,826   500,687,594  
 
 
 

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UK GAAP Results for the year to 31 December 2003
Notes the UK GAAP financial statements (continued)

(2) Notes to the consolidated cash flow statement

(a) Reconciliation of operating loss to net cash inflow from operating activities

  Unaudited      
Year to 31 December 2003   2002  
  £’000   £’000  
 
 
 
Group operating loss (299,237)   (533,145)  
Exchange loss -   962  
Depreciation 13,404   9,073  
Amortisation of intangible fixed assets 120,705   153,979  
Profit on sale of discontinued operations (698)   (2,006)  
(Profit)/loss on sale of fixed assets (100)   854  
Write-off of fixed asset investments 9,491   5,809  
Write-off of intangible fixed assets 442,815   631,447  
Write-off of tangible fixed assets 5,965   -  
Decrease/(increase) in stocks 3,320   (1,485)  
(Increase)/decrease in debtors (27,868)   51,832  
Decrease in creditors 12,478   (14,999)  
 
 
 
Net cash inflow from operating activities 280,275   302,321  
 
 
 

(b) Analysis and reconciliation of net funds

      Acquired       Other        
  Start of   in year       non-cash   Exchange   End of
Year to 31 December year   excl. cash   Cash flow   changes   movement   year
2003 (unaudited) £’000   £’000   £’000   £’000   £’000   £’000
                       
Cash at bank and in hand 558,432   -   124,578   -   (61,340)   621,670
Debt due within one year (389)   -   443   (446)   (39)   (431)
Finance leases (162)   -   160   (155)   (1)   (158)
 
 
 
 
 
 
  557,881   -   125,181   (601)   (61,380)   621,081
Debt due after one year (244,325)   -   17,610   446   23,186   (203,083)
Finance leases (3,757)   -   -   155   364   (3,238)
 
 
 
 
 
 
  309,799   -   142,791   -   (37,830)   414,760
Current assets                      
investments 196,364   -   (17,848)   -   (8,621)   169,895
 
 
 
 
 
 
Net funds 506,163   -   124,943   -   (46,451)   584,655
 
 
 
 
 
 
                       

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UK GAAP Results for the year to 31 December
2003 Notes the UK GAAP financial statements (continued)

(2) Notes to the consolidated cash flow statement (continued)

(b) Analysis and reconciliation of net funds (continued)

      Acquired       Other non-        
   Year to 31 December Start of   in year   Cash   cash   Exchange   End of
   2002 (audited) year   excl cash   flow   changes   movement   year
  £’000   £’000   £’000   £’000   £’000   £’000
 
 
 
 
 
 
   Cash at bank and in hand 81,434   -   493,102   -   (16,104)   558,432
   Debt due within one year (3,008)   -   2,005   565   49   (389)
   Finance leases -   (243)   74   -   7   (162)
 
 
 
 
 
 
  78,426   (243)   495,181   565   (16,048)   557,881
   Debt due after one year (269,883)   -   (1,173)   389   26,342   (244,325)
   Finance leases -   (3,926)   -   -   169   (3,757)
 
 
 
 
 
 
  (191,457)   (4,169)   494,008   954   10,463   309,799
   Current asset investments 497,397   -   (254,561)   (87)   (46,385)   196,364
 
 
 
 
 
 
  305,940   (4,169)   239,447   867   (35,922)   506,163
 
 
 
 
 
 

(c) Reconciliation of net funds                      
                       
                  Unaudited    
   Year to 31 December                 2003   2002
                  £’000   £’000
                 
 
   Increase in cash in the year                 124,578   493,102
                       
Cash outflow from decrease in debt and lease financing                 18,213   906
Cash inflow from decreases in liquid resources                 (17,848)   (254,561)
                 
 
Change in net funds resulting from cash flows                 124,943   239,447
Leases and current asset investments acquired with subsidiary undertakings                 -   (4,169)
   Arenol loan note conversion                 -   954
Qualia Computing Inc, joint venture                 -   (87)
   Translation difference                 (46,451)   (35,922)
                 
 
Movement in net funds in year                 78,492   200,223
   Net funds at start of year                 506,163   305,940
                 
 
   Net funds at end of year                 584,655   506,163
                 
 
                       

(3) Basis of preparation

The Group have applied consistent accounting policies throughout both years. This preliminary announcement was approved by the Board on 10 March 2004.

The UK GAAP financial information does not constitute the Group’s statutory accounts under section 240 of the Companies Act 1985 for the year ended 31 December 2002 but is derived from those accounts.

The results for the year ended 31 December 2003 have not been audited and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2002, the Group’s last statutory period, have been delivered to the Registrar of Companies. The auditors have reported on those accounts and their report was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. The 2003 statutory accounts have not yet been delivered to the Registrar of Companies.

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