AstraZeneca Annual Report and Form 20-F Information 2008

Results of operations - summary analysis of year to 31 December 2007

Core measures, as used in our commentary on the financial results for 2008 (including comparison to 2007), are not referred to in the analysis of operating margin and profit for 2007 detailed below as this measure was introduced for 2008. Where appropriate, when comparing 2007 reported performance to 2006, the impact of the acquisition of MedImmune in 2007 is analysed to provide a more appropriate comparison between the two years.

The tables below show our sales by therapy area and operating profit for 2007 compared to 2006.

Reported performance

Our 2007 sales increased by 12% from $26,475 million to $29,559 million, an increase reflecting both the acquisition of MedImmune and the entry of generic competition on all strengths of Toprol-XL in the US, as well as general business performance. Operating profit for 2007 fell by 1%, again reflecting the impacts of MedImmune and Toprol-XL together with restructuring and synergy costs. Earnings per share for 2007 were $3.74, a 3% decline from $3.86 in 2006.

Performance – CER growth rates

Sales

Sales for 2007 increased 7%. The contribution to sales growth in 2007 from the acquisition of MedImmune more than offset the decline from Toprol-XL in the US. 2007 sales in the US were up 7%, and this was broadly similar to sales growth in the market if Toprol-XL and the impact of MedImmune were excluded. Sales outside the US were up 8%, comprising growth of 5% in Established Markets and 17% in the Emerging Markets.

For the second year, our portfolio in 2007 had 11 brands with annual sales greater than $1 billion. The combined sales of our key products (Arimidex, Crestor, Nexium, Seroquel and Symbicort) grew by 11% in 2007 to $15,344 million, and accounted for about 52% of our turnover.

Details on our 2007 sales performance by therapy area are given in the Therapy Area Review.

Geographical Analysis

2007 sales by major region are included in the performance table in the Geographical Review.

Sales in the US were $13,366 million in 2007 (up 7%). In the US, sales of Nexium, Seroquel, Crestor and Arimidex were $8,364 million, almost 63% of total US sales. Symbicort was launched in the US in the year with sales of $50 million. Sales in Canada were $1,145 million for 2007 (up 5%).

Sales in the rest of the world were $15,048 million in 2007 (up 8%). Key products (Crestor, Symbicort, Seroquel and Arimidex) were up 20%. Latin America, Middle East and Africa, and Asia Pacific were up 18%. Spain and the UK had sales growths of 7% and 8% respectively. Sales in Germany continued to be impacted by doctors being encouraged to prescribe generics in 2006 and were down 3%. Sales growth of 11% was achieved in Japan in 2007.

SALES BY THERAPY AREA (2007 AND 2006)

	2007			2006	2007 compared to 2006
	Reported  $m	CER  growth  $m	Growth due to  exchange effects  $m	Reported  $m	CER  growth  %	Reported  growth  %
Cardiovascular	6,686	292	276	6,118	5	9
Gastrointestinal	6,443	(379)	191	6,631	(6)	(3)
Infection and other	1,714	779	60	875	89	96
Neuroscience	5,340	484	152	4,704	10	14
Oncology	4,819	359	198	4,262	8	13
Respiratory and Inflammation	3,711	369	191	3,151	12	18
Others	846	79	33	734	11	15
Total	29,559	1,983	1,101	26,475	7	12

OPERATING PROFIT (2007 AND 2006)

	2007			2006	Percentage of  sales		2007 compared  to 2006
	Reported  $m	CER  growth  $m	Growth due to  exchange effects  $m	Reported  $m	2007  %	2006  %	CER  growth  %	Reported  growth  %
Sales	29,559	1,983	1,101	26,475			7	12
Cost of sales	(6,419)	(703)	(157)	(5,559)	(21.7)	(21.0)	13	15
Gross margin	23,140	1,280	944	20,916	78.3	79.0	6	11
Distribution costs	(248)	(7)	(15)	(226)	(0.8)	(0.9)	3	10
Research and development	(5,162)	(944)	(316)	(3,902)	(17.5)	(14.7)	24	32
Selling, general and administrative costs	(10,364)	(843)	(425)	(9,096)	(35.1)	(34.4)	9	14
Other operating income and expense	728	188	16	524	2.5	2.0	36	39
Operating profit	8,094	(326)	204	8,216	27.4	31.0	(4)	(1)

Operating Margin and Retained Profit

Operating profit for 2007 was $8,094 million, down 4% at CER. Excluding restructuring and synergy costs of $966 million, 2007 operating profit increased to $9,060 million (up 8% on 2006 at CER). This operating profit improvement was net of a reported $1,187 million increase in R&D investment, and was fuelled by revenue growth, improved gross margin and lower expenditures in SG&A on a constant currency basis. Restructuring and synergy benefits of $300 million were realised during 2007. Reported operating margin was 27.4%.

In 2007 reported gross margin decreased by 0.7 percentage points. After adjusting for the impact on gross margin of the acquisition of MedImmune ($472 million) and restructuring and synergy costs ($415 million), 2007 gross margin increased by 1.0 percentage points against 2006 to 80.0%. Principal drivers included reduced payments to Merck (0.7 percentage points), asset provisions booked during the prior period (0.4 percentage points) and favourable currency movements (0.2 percentage points). An adverse effect arose from increased royalty payments, which led to a 0.4 percentage point reduction.

R&D investment increased by 24% (CER growth) to $5,162 million in 2007, 17.5% of sales, an increase of 2.8 percentage points. After adjusting for the impact of the acquisition of MedImmune ($255 million) and restructuring and synergy costs ($73 million), R&D expenditure was $4,834 million in 2007, up 16% (CER growth) and 2.1 percentage points over 2006 due principally to increased activity levels and the effect of the externalisation strategy.

Selling, general and administrative costs in 2007 increased by 9% (CER growth) to $10,364 million. After adjusting for the impact of the MedImmune acquisition ($560 million) and restructuring and synergy costs ($478 million) and currency impacts, SG&A costs were 2% lower than the same period in 2006, primarily as a result of operational efficiencies from our selling and marketing activities.

At $728 million, other operating income and expense in 2007 was 36% higher than 2006. After adjusting for the impact of the MedImmune acquisition (which contributed other income of $169 million primarily through human papilloma virus vaccine royalty income), other income of $559 million was $35 million higher than 2006, as expected reductions in royalty income were more than offset by higher one-time gains and insurance recoveries.

Total charges of $966 million were taken in respect of the restructuring and synergy programmes in 2007, of which $723 million represent cash costs. Over the same period, productivity initiative benefits of $250 million and synergy benefits of $50 million have been realised.

MedImmune contributed an operating loss of $178 million (which included amortisation costs of $255 million) in 2007.

Net finance expense in 2007 was $111 million in the full year (2006 income: $327 million). The reduction from 2006 was principally attributable to the interest payable on the borrowings to acquire MedImmune, Inc. Interest expense on the new debt was $446 million. The 2007 reported amounts include net income of $34 million (2006: $43 million) arising from employee benefit fund assets and liabilities reported under IAS 19 ‘Employee Benefits’.

The effective tax rate for 2007 was 29.5%, similar to the 29% for 2006. The slight increase for 2007 compared to 2006 reflected the combined effect of differences in the geographical mix of profits, the reversal of tax deductions relating to share-based payments, the reduction in the UK tax rate as applied to UK net deferred tax liabilities, and an increase in tax provisions principally in relation to global transfer pricing.

Reported earnings per share for 2007 were $3.74 compared with $3.86 in 2006, a decrease of 5%. After adjusting for the impact of restructuring and synergy costs, 2007 earnings per share rose from $3.86 to $4.20, an increase of 7%. Excluding the impact of MedImmune as well, earnings per share increased by 15% to $4.52. The share re-purchase programme is calculated to have added 8 cents to EPS during 2007, after allowing for an estimate of interest income foregone.

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