Annual Report 2004 New challenges New thinking Do more, feel better, live longer Mission Our global quest is to improve the quality of human life by enabling people to do more, feel better and live longer. Our Spirit We undertake our quest with the enthusiasm of entrepreneurs, excited by the constant search for innovation. We value performance achieved with integrity. We will attain success as a world class global leader with each and every one of our people contributing with passion and an unmatched sense of urgency. Strategic Intent We want to become the indisputable leader in our industry. GlaxoSmithKline plc is an English public limited company. Business segments It shares are listed on the London Stock Exchange and the GlaxoSmithKline operates principally in two industry New York Stock Exchange. segments: • Pharmaceuticals (prescription pharmaceuticals and History and development of the company vaccines) GlaxoSmithKline plc, and its subsidiary and associated • Consumer Healthcare (over-the-counter medicines, undertakings, constitute a major global healthcare group oral care and nutritional healthcare). engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and Annual Report and Review consumer health-related products. This report is the Annual Report of GlaxoSmithKline plc GlaxoSmithKline has its corporate head office in London. for the year ended 31st December 2004, prepared in It also has operational headquarters in Philadelphia and accordance with United Kingdom requirements. Research Triangle Park, USA, and operations in some A summary report on the year, the Annual Review 2004, 116 countries, with products sold in over 125 countries. intended for the investor not needing the full detail of The principal research and development (R&D) facilities the Annual Report, is produced as a separate document. are in the UK, the USA, Japan, Italy, Spain and Belgium. The Annual Review includes the joint statement by the Products are currently manufactured in some 38 countries. Chairman and the Chief Executive Officer, a summary The major markets for the Group’s products are the USA, review of operations, summary financial statements and France, Japan, the UK, Italy, Germany and Spain. a summary remuneration report. GlaxoSmithKline plc is a public limited company The Annual Review is issued to all shareholders. The incorporated on 6th December 1999 under English law. Annual Report is issued to shareholders who have elected On 27th December 2000 the company acquired Glaxo to receive it. Both documents are available on Wellcome plc and SmithKline Beecham plc, both English GlaxoSmithKline’s corporate website at www.gsk.com. public limited companies, by way of a scheme of arrangement for the merger of the two companies. Website Both Glaxo Wellcome and SmithKline Beecham were GlaxoSmithKline’s website, www.gsk.com gives additional major global healthcare businesses. information on the Group. Information made available on the website does not constitute part of this Annual Report. GlaxoSmithKline 01 GlaxoSmithKline plc Annual Report for the year ended 31st December 2004 Contents Report of the Directors 02 Financial summary 03 Joint statement by the Chairman and the Chief Executive Officer 05 Description of business 33 Corporate governance 43 Remuneration Report 59 Operating and financial review and prospects Financial statements 88 Directors’ statements of responsibility 89 Independent Auditors’ report 90 Consolidated statement of profit and loss 90 Consolidated statement of total recognised gains and losses 92 Consolidated statement of cash flow 94 Consolidated balance sheet 94 Reconciliation of movements in consolidated equity shareholders’ funds 95 Company balance sheet 96 Notes to the financial statements Investor information 154 Financial record 163 Financial information under International Financial Reporting Standards (IFRS) 174 Shareholder return 175 Shareholder information 176 Share capital 178 Taxation information for shareholders 179 Cross reference to Form 20-F 180 Glossary of terms The Annual Report was approved by the Board of Directors on 2nd March 2005 and published on 4th March 2005. Contact details 02 GlaxoSmithKline Financial summary 2003 2004 (restated) Growth Statutory results £m £m CER% £% Turnover 20,359 21,441 1 (5) Trading profit 6,150 6,509 5 (6) Profit before taxation 6,119 6,313 8 (3) Earnings/Net income 4,302 4,478 7 (4) Basic earnings per share 75.0p 77.1p 8 (3) Dividends per share 42.0p 41.0p Merger, restructuring and disposal of subsidiaries Trading profit – (395) Profit before taxation – (390) Earnings/Net income – (281) Earnings per share – (4.9)p Business performance Turnover 20,359 21,441 1 (5) Trading profit 6,150 6,904 (1) (11) Profit before taxation 6,119 6,703 2 (9) Adjusted earnings/Net income 4,302 4,759 1 (10) Adjusted earnings per share 75.0p 82.0p 2 (9) The Group, as a multinational business, operates in many countries and earns revenues and incurs costs in many currencies. The results of the Group, as reported in sterling, are therefore affected by movements in exchange rates between sterling and overseas currencies. Average exchange rates prevailing during the period are used to translate the results and cash flows of overseas subsidiary and associated undertakings and joint ventures into sterling. Period end rates are used to translate the net assets of those undertakings. The currencies which most influence these translations are the US dollar, the Euro and the Japanese Yen. In order to illustrate underlying performance, it is the Group’s practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in sterling had remained unchanged from those used in the previous year. CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. During the years 2000 to 2003, business performance was the primary performance measure used by management and was presented after excluding merger items, integration and restructuring costs and disposals of businesses. Management believes that exclusion of these items provides a better comparison of the way in which the business was managed and gives an indication of the performance of the Group in terms of those elements of revenue and expenditure which local management was able to influence. For 2004, with the completion of these programmes, the Group is reporting results on a statutory basis only. Growth rates are presented comparing 2004 results both with 2003 business performance results and 2003 statutory results. Management considers that the comparison of 2004 statutory results with 2003 business performance results gives the most appropriate indication of the Group’s performance for the period under review and therefore commentaries are presented on this basis unless otherwise stated. Cautionary statement regarding forward-looking statements The Group's reports filed with or furnished to the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may contain forward-looking statements. Forward-looking statements give the Group's current expectations or forecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve inherent risks and uncertainties. The Group cautions investors that a number of important factors including those in this document could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Risk factors’ on pages 76 to 78 of this Annual Report. GlaxoSmithKline 03 Joint statement by the Chairman and the Chief Executive Officer We knew 2004 would be a challenging Our pipeline is focused on developing new medicines and vaccines to treat diseases of unmet medical need, such as cancer year for GlaxoSmithKline and we are and Alzheimer’s disease. Many of these have the potential to be pleased to report that we have achieved important new products. our financial and business objectives. For example, we believe that Cervarix, our promising vaccine candidate against cervical cancer, has the potential to make a major contribution to healthcare globally and to become our In our last Annual Report, we predicted that 2004 would be a best-selling vaccine. We expect to file Cervarix in the European challenging year as we felt the full impact of generic competition Union and international markets in 2006. to Paxil and the introduction of generic Wellbutrin. GlaxoSmithKline managed this year well, thanks to the underlying Great opportunities lie ahead of us. This year,