AstraZeneca Annual Report and Form 20-F Information 2008

Business background & major events affecting 2008

The business background is covered in the Business Environment section of this Directors’ Report and describes in detail the developments in both our products and geographical regions.

Our operations are focused on prescription pharmaceuticals, and over 97% of our sales are made in that sector. Sales of pharmaceutical products are directly influenced by medical needs and are generally paid for by health insurance schemes or national healthcare budgets. Our operating results can be affected by a number of factors other than the delivery of operating plans and normal competition:

• The adverse impact on pharmaceutical prices as a result of the regulatory environment. For instance, although there is no direct governmental control on prices in the US, action from individual state programmes and health insurance bodies are leading to downward pressures on realised prices. In other parts of the world, there are a variety of price and volume control mechanisms and retrospective rebates based on sales levels that are imposed by governments.
• The risk of generic competition following loss of patent exclusivity or patent expiry or an ‘at risk’ launch by a competitor, with the potential adverse effects on sales volumes and prices, for example, the launch of generic competition to both Ethyol and Pulmicort Respules in 2008 and Toprol-XL in 2006.
• The timings of new product launches, which can be influenced by national regulators and the risk that such new products do not succeed as anticipated, together with the rate of sales growth and costs following new product launches.
• Currency fluctuations. Our functional and reporting currency is the US dollar, but we have substantial exposures to other currencies, in particular the euro, Japanese yen, sterling and Swedish krona.
• Macro factors such as greater demand from an ageing population and increasing requirements of servicing Emerging Markets.

Over the longer term, the success of our R&D is crucial, and we devote substantial resources to this area. The benefits of this investment emerge over the long term and there is considerable inherent uncertainty as to whether and when it will generate future products.

The most significant features of our financial results in 2008 are:

• Reported sales of $31,601 million, representing CER sales growth of 3% (7% reported).
• Strong performance in Emerging Markets with CER sales growth of 16% (20% reported).
• Continued strong performance from our five key products (Arimidex, Crestor, Nexium, Seroquel and Symbicort) with sales of $17,110 million, up 9% at CER on prior year sales (12% reported).
• Operating profit increased by 4% at CER (13% reported). Core operating profit increased by 9% at CER.
• Earnings per share: $4.20, an increase of 2% at CER (12% reported). Core earnings per share were $5.10, an increase of 8% at CER.
• Net cash inflow from operating activities increased to $8,742 million (2007: $7,510 million).
• The partial retirement of Merck’s interests in certain AstraZeneca products in the US took place on 17 March 2008 through a $2.6 billion net payment to Merck.
• Cash distributions to shareholders were $3,349 million (2007: $6,811 million) through dividend payments of $2,739 million (2007: $2,641 million) and share re-purchases of $610 million (2007: $4,170 million).
• Net debt decreased to $7,174 million (2007: $9,112 million), a reduction of $1,938 million.
• Total restructuring and synergy costs associated with the global programme to reshape the cost base of the business, were $881 million in 2008 (2007: $966 million). This brings the total costs incurred to date to $1,847 million.

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