Strategic Report
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Annual Report 2020 We are a science-led global healthcare company 2020 performance summary £34.1bn AER +1% £9.7bn AER +11% Group turnover CER +3% New and specialty medicines CER +12% £7.8bn AER +12% £8.9bn AER - 1% Total operating profit CER +15% Adjusted operating profit CER +2% 115.5p AER +23% 115.9p AER - 6% Total earnings per share CER +26% Adjusted earnings per share CER - 4% 9 80p 1st 2nd major pipeline Dividend in the Access to in the pharmaceutical approvals Medicine Index industry for Dow Jones Sustainability Index Contents Strategic report Our business model 01 Board roles and responsibilities 86 Financial statements of Chairman’s statement 03 Board activity and principal decisions 87 GlaxoSmithKline plc prepared CEO’s statement 04 Our purpose, values and culture 90 under UK GAAP 238 Financial performance 06 The Board’s approach to engagement 91 Our long-term priorities 09 Board performance 94 Investor information Our culture 10 Board Committee information 96 Quarterly trend 244 Key performance indicators 11 Our Board Committee reports 97 Five-year record 249 Industry trends 12 Section 172 statement 108 Product development pipeline 255 Stakeholder engagement 16 Directors’ report 109 Products, competition and Innovation 18 intellectual property 258 Remuneration report Performance 28 Principal risks and uncertainties 261 Trust 33 Chairman’s annual statement 112 Share capital and share price 276 Risk management 43 Annual report on remuneration 114 Dividends 278 Group financial review 50 2020 Remuneration policy summary 133 Financial calendar 2021 279 Annual General Meeting 2021 279 Corporate Governance Financial statements Tax information for shareholders 280 Chairman’s Governance statement 78 Directors’ statement of Shareholder services and contacts 282 The Board 80 responsibilities 140 US law and regulation 284 Corporate Executive Team 83 Independent Auditor’s report 142 Group companies 287 Board architecture 85 Financial statements 154 Glossary of terms 299 Notes to the financial statements 158 Cautionary statement See the inside back cover of this document for the cautionary statement regarding forward-looking statements. Non-IFRS measures We use a number of adjusted, non-IFRS, measures to report the performance of our business. Total reported results represent the Group's overall performance under IFRS. Adjusted results, pro-forma growth rates and other non-IFRS measures may be considered in addition to, but not as a substitute for or superior to, information presented in accordance with IFRS. Adjusted results and other non-IFRS measures are defined on pages 51 to 53 and reconciliations to the nearest IFRS measures are on pages 64 and 68. Strategic report Governance and remuneration Financial statements Investor information Our business model Every day, we help improve the health of millions of people around the world by discovering, developing and manufacturing innovative medicines, vaccines and consumer healthcare products. Our operations span the value chain from identifying, Performance is delivered by investing effectively in our researching, developing and testing ground breaking business and our people and executing competitively. discoveries, to regulatory approval, manufacturing and Our ability to launch new products successfully and commercialisation. We remained resilient through a grow sales from our existing portfolio is key to our challenging year for the world by being agile and maintaining commercial success. focus on our purpose and strategic long-term priorities. Trust is also critical to our success. We are a responsible Central to our success are our people: experts in company and commit to use our science and technology science, technology, regulation, intellectual property and to address health needs, make our products affordable commercialisation. We also collaborate with world-leading and available, and be a modern employer. Our 13 public experts and form strategic partnerships to complement commitments support our Trust priority and cover a broad our existing capabilities. range of environmental, social and governance (ESG) aspects. Our purpose and strategy The commitments are designed to help us respond to ESG Our purpose is to improve the quality of human life by challenges and opportunities within our industry and society helping people do more, feel better and live longer. It guides more broadly and contribute to many of the UN Sustainable all of our actions and is key to the delivery of our strategy Development Goals particularly Goal 3: ensure healthy lives – to bring differentiated, high-quality and needed healthcare and promote wellbeing. products to as many people as possible, preventing and The value we create treating disease and keeping people well with our scientific By delivering on our purpose, the greatest contribution we and technical know-how and talented people. make is to improve the health of people around the world. Our long-term priorities In 2020 that included delivering 2.2 billion packs of medicines, Our priorities of Innovation, Performance and Trust are over 580 million vaccine doses and 3.8 billion consumer underpinned by our ambition to build a more purpose and healthcare products. performance driven culture, aligned to our values – patient For our shareholders, as part of our capital allocation focus, transparency, respect and integrity – and expectations framework, we invest in our business to provide shareholder – courage, accountability, development and teamwork. returns. In 2020 we paid a dividend of 80p per share and Innovation is critical to how we improve health and create delivered £5.4 billion of free cash flow. financial value. In 2020 Total R&D expenditure was £5.1 billion, We make a positive contribution to the communities in which was 15.0% of turnover, and an increase of 12% (AER which we operate. We employ over 94,000 people across and CER) from the previous year. On an Adjusted basis, R&D 96 countries and work directly with 36,000 suppliers. expenditure was £4.6 billion (13.5% of turnover), 6% higher at In 2020 we paid £1.7 billion in corporation tax. We also AER, 7% higher at CER, than in 2019. On a pro-forma basis, pay a significant amount of other business and employment Adjusted R&D expenditure grew 6% CER compared with 2019. related taxes. We aim to be a modern employer and offer a In Pharmaceuticals and Vaccines, we focus on science broad range of employee benefits, including preventative related to the immune system, human genetics and advanced healthcare services, so that we are able to attract and technology. In Consumer Healthcare we leverage our scientific retain the best people. expertise and deep consumer insights to create healthcare products that meet consumer demands. As a research-based healthcare company we rely on intellectual property protection to help ensure a reasonable return on our investments so we can continue to research and develop new and innovative medicines. GSK Annual Report 2020 01 Our business model continued Preparing for the future Creating two new companies During the year we achieved an important milestone with the In early 2020, consistent with our strategic priorities and launch of our One Development organisation in R&D. This is previous announcements, we started a two-year programme already enabling us to be even more effective in how we allocate to prepare GSK for separation into two new leading companies: our budget, share technical and scientific expertise and deliver New GSK, a new biopharma company, focused on specialty our pipeline, regardless of modality. medicines and vaccines with an R&D approach focused on Under the programme, we are seeking to improve our the science related to the immune system, the use of human capabilities and create efficiencies in our global support genetics and new technologies; and a new leader in consumer functions; continuing to simplify and focus our manufacturing healthcare with category-leading power brands and innovation network, ensuring our supply chain is ready to launch our new based on science and consumer insights. specialty medicines; and rationalising our portfolio through We are on track for separation into new standalone Biopharma divestments. and Consumer Healthcare companies in 2022. For the new Consumer Healthcare company, this programme The programme is using the unique catalyst of separation is supporting the building of key technology infrastructure and to reset the capabilities and cost base for both companies, the expertise necessary to operate as a standalone company. and help support delivery of the significant value creation We believe that increased investment in our pipeline and new opportunities we see in both New GSK and new Consumer products, together with effective implementation of our two-year Healthcare. programme, will set each new company up with strong For New GSK, we see a clear opportunity to drive a common foundations for future performance. approach to R&D as the science related to the immune system The financial benefits, costs and reporting associated with the converges across both pharmaceuticals and vaccines. programme are set out on pages 65 and 66. Capital allocation Capital allocation framework Key priorities for capital Invest in the business – R&D pipeline (including business development) – Vaccines capacity Innovation – New products Improved Shareholder returns – Dividends Performance cash – Target 1.25x to 1.5x cover before generation returning dividend to growth Trust Other M&A – Strict discipline on returns