AstraZeneca Annual Report and Form 20-F Information 2008

Results of operations - summary analysis of year to 31 December 2008

The tables in this section show our sales analysed by therapy area, operating profit for 2008 compared to 2007 and a reconciliation of reported operating profit to Core operating profit for 2008 and 2007.

Sales increased by 7% on a reported basis and by 3% on a CER basis. Currency benefited reported sales by 4%. More details on our sales performance by therapy area are given in the Therapy Area Review in the sections titled ‘Performance 2008’.

Core gross margin of 80.4% in the year was 0.8 percentage points higher than last year at CER (Reported: 79.1%: 0.8 percentage points higher). Principal drivers were lower payments to Merck (1.0 percentage points), continued efficiency gains and mix factors (1.2 percentage points), partially offset by higher royalty payments (0.6 percentage points) and intangible asset impairments and other provisions (0.8 percentage points).

Core R&D costs of $4,953 million were down 1% at CER over last year (Reported: 0%). The inclusion of a full year of MedImmune expense was offset by improved productivity and efficiency, restructuring benefits, portfolio changes and lower charges relating to intangible asset impairments charged to Core R&D expense.

Core SG&A costs of $9,940 million were up 3% at CER (Reported: up 4%) due chiefly to the inclusion of a full year of MedImmune costs, increased investment in our Emerging Markets and some higher legal expenses.

Core other income of $734 million was $6 million higher than last year (Reported: decreased $204 million) with MedImmune’s licensing and royalty income streams offset by expected lower one-time gains and royalty income.

Impairment charges relating to intangible fixed assets totalled $631 million during the year. Charges totalling $407 million, including impairments in respect of Ethyol and HPV vaccines, have been excluded from Core operating profit. Charges totalling $224 million, including $115 million in respect of Pulmicort Respules, have been included in Core operating profit. Full details are provided in the Financial Position, Including Cash Flow and Liquidity - 2008 section.

Core operating profit was up 9% at CER from 2007 (Reported: up 13%). CER Core operating margin increased by 1.6 percentage points to 34.7% of sales as improvements in gross margin were offset by higher SG&A costs. Reported operating profits, at 28.9%, increased by 1.5 percentage points as a result of improvements in gross margin and R&D efficiencies which more than offset a modest increase in SG&A costs.

Net finance expense was $463 million compared to $111 million for 2007.

SALES BY THERAPY AREA (2008 AND 2007)

	2008			2007	2008 compared to 2007
	Reported  $m	CER  growth  $m	Growth due to  exchange effect  $m	Reported  $m	CER  growth  %	Reported  growth  %
Cardiovascular	6,963	29	248	6,686	–	4
Gastrointestinal	6,344	(275)	176	6,443	(4)	(2)
Infection and other1	2,451	706	31	1,714	41	43
Neuroscience	5,837	346	151	5,340	6	9
Oncology	4,954	(109)	244	4,819	(2)	3
Respiratory and Inflammation	4,128	278	139	3,711	7	11
Other businesses	924	54	24	846	6	9
Total	31,601	1,029	1,013	29,559	3	7

¹Includes Synagis and FluMist which were acquired in June 2007.

OPERATING PROFIT (2008 AND 2007)

	2008			2007	Percentage of sales		2008 compared to 2007
	Reported  $m	CER  growth  $m	Growth due to  exchange effect  $m	Reported  $m	Reported  2008  %	Reported  2007  %	CER  growth  %	Reported  growth  %
Sales	31,601	1,029	1,013	29,559			3	7
Cost of sales	(6,598)	38	(217)	(6,419)	(20.9)	(21.7)	(1)	3
Gross profit	25,003	1,067	796	23,140	79.1	78.3	5	8
Distribution costs	(291)	(39)	(4)	(248)	(0.9)	(0.8)	16	17
Research and development	(5,179)	(88)	71	(5,162)	(16.4)	(17.5)	2	-
Selling, general and administrative costs	(10,913)	(433)	(116)	(10,364)	(34.6)	(35.1)	4	5
Other operating income and expense	524	(188)	(16)	728	1.7	2.5	(26)	(28)
Operating profit	9,144	319	731	8,094	28.9	27.4	4	13
Net finance expense	(463)			(111)
Profit before tax	8,681			7,983
Taxation	(2,551)			(2,356)
Profit for the period	6,130			5,627
Earnings per share	4.20			3.74

Growth rates on line items below operating profit, where meaningful, are given elsewhere in this Report.

The increase in interest expense was driven by additional borrowings arising as a result of the acquisition of MedImmune in 2007. Our exposure to interest costs was reduced in 2008, from the closing position in 2007, as we moved debt used to finance the purchase of MedImmune from short-term, higher interest rate commercial paper, to longer-term debt financing at lower interest rates. The 2008 net finance expense benefited from a net fair value gain of $130 million relating to two long-term bonds due to widening credit spreads. We anticipate that the fair value gain will largely reverse as credit markets stabilise.

The effective tax rate was 29.4% (2007: 29.5%).

Core earnings per share were $5.10, an increase of 8% at CER on 2007, as the increase in Core operating profit and the benefit of a lower number of shares outstanding was partially offset by increased net finance expense. Reported earnings per share increased 12% to $4.20.

Geographical Analysis

We discuss the geographical performances in the Geographic Review.

RECONCILIATION OF REPORTED RESULTS TO CORE RESULTS

2008	Reported  $m	Restructuring  and synergy  costs  $m	MedImmune  amortisation  $m	Ethyol and  other impairments1  $m	Merck  amortisation  $m	2008  Core  $m
Gross profit	25,003	405	–	–	–	25,408
Distribution costs	(291)	–	–	–	–	(291)
Research and development	(5,179)	166	–	60	–	(4,953)
Selling, general and administrative costs	(10,913)	310	307	257	99	(9,940)
Other operating income and expense	524	–	120	90	–	734
Operating profit	9,144	881	427	407	99	10,958
Net finance expense	(463)	–	–	–	–	(463)
Profit before tax	8,681	881	427	407	99	10,495
Taxation	(2,551)	(259)	(125)	(121)	–	(3,056)
Profit for the period	6,130	622	302	286	99	7,439
Earnings per share	4.20	0.43	0.21	0.19	0.07	5.10

2007	Reported  $m	Restructuring  and synergy  costs  $m	MedImmune  amortisation  $m	Ethyol and  other impairments  $m	Merck  amortisation  $m	2007  Core  $m
Gross profit	23,140	415	–	–	–	23,555
Distribution costs	(248)	–	–	–	–	(248)
Research and development	(5,162)	73	–	–	–	(5,089)
Selling, general and administrative costs	(10,364)	478	255	–	96	(9,535)
Other operating income and expense	728	–	–	–	–	728
Operating profit	8,094	966	255	–	96	9,411
Net finance expense	(111)	–	–	–	–	(111)
Profit before tax	7,983	966	255	–	96	9,300
Taxation	(2,356)	(285)	(75)	–	–	(2,716)
Profit for the period	5,627	681	180	–	96	6,584
Earnings per share	3.74	0.46	0.12	–	0.06	4.38

	2008			2007	2008 compared to 2007
2007 to 2008	Core  $m	CER  growth  $m	Growth due to  exchange effect  $m	Core  $m	CER  growth  %	Total core  growth  %
Gross profit	25,408	1,057	796	23,555	5	8
Distribution costs	(291)	(39)	(4)	(248)	16	17
Research and development	(4,953)	71	65	(5,089)	(1)	(3)
Selling, general and administrative costs	(9,940)	(289)	(116)	(9,535)	3	4
Other operating income and expense	734	23	(17)	728	3	1
Operating profit	10,958	823	724	9,411	9	16
Net finance expense	(463)			(111)
Profit before tax	10,495			9,300
Taxation	(3,056)			(2,716)
Profit for the period	7,439			6,584
Earnings per share	5.10			4.38

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