Annual Report 2003 Improving Performance
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Do more, feel better, live longer GlaxoSmithKline Annual Report 2003 Improving performance www.gsk.com every day ANNUAL REPORT 2003 1 Annual review 2003 GlaxoSmithKline 01 Mission Our global quest is to improve the quality of human life GlaxoSmithKline plc by enabling people to do more, feel better and live longer. Annual Report for the year ended 31st December 2003 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. Its shares are listed on the London Stock Exchange and the New York Stock Exchange. Contents This report is the Annual Report of GlaxoSmithKline plc for the year ended 31st December 2003, prepared in accordance with United Kingdom requirements. Report of the Directors 02 Financial summary A summary report on the year, the Annual Review 2003, 03 Joint statement by the Chairman and the Chief Executive Officer intended for the investor not needing the full detail of the 05 Description of business Annual Report, is produced as a separate document. The 33 Corporate governance Annual Review includes the joint statement by the Chairman 43 Remuneration Report and the Chief Executive Officer, a summary review of operations, 59 Operating and financial review and prospects summary financial statements and a summary remuneration report. Financial statements The Annual Review is issued to all shareholders. The Annual 86 Directors’ statements of responsibility Report is issued to shareholders who have elected to receive it. 87 Independent Auditors’ report Both documents are available on GlaxoSmithKline’s corporate 88 Consolidated statement of profit and loss website – at www.gsk.com. 88 Consolidated statement of total recognised gains and losses 90 Consolidated statement of cash flow Website 92 Consolidated balance sheet GlaxoSmithKline’s website, www.gsk.com gives additional 92 Reconciliation of movements in equity shareholders’ funds information on the Group. Information made available on 93 Company balance sheet the website does not constitute part of this Annual Report. 94 Notes to the financial statements Front cover Investor information Living next to the Welsh coastline in the UK naturally drew 150 Financial record young Jack Fraser to the sea and the chance to develop his 159 Shareholder return surfing skills. However, his asthma and symptoms such as 160 Shareholder information tightness in his chest meant that he could not breathe properly 161 Share capital and was reluctant to go outside. His mother, Catherine, heard 163 Taxation information for shareholders about Seretide from a friend and eventually obtained a 164 Glossary of terms prescription for her son. The Annual Report was approved by the Board The result? Jack can be seen practising his surfing skills on a of Directors on 3rd March 2004 and published regular basis and has also developed a keen interest in golf. on 26th March 2004. Contact details 02 GlaxoSmithKline GlaxoSmithKline 03 Financial summary Joint statement by the Chairman and the Chief Executive Officer 2003 2002 Growth Statutory results £m £m CER% £% Fundamentally, the pharmaceutical industry has a bright future. This is not the place to debate the rights and wrongs of these Turnover 21,441 21,212 5 1 Ageing populations in the developed world and continuing un-met challenges to the pharmaceutical industry’s traditional business medical need in many diseases mean that demand for new and model. It is the place for us to reassure shareholders that we have Trading profit 6,525 5,662 21 15 better pharmaceutical products will continue to grow strongly in every aspect of that model under review in order to continue the Profit before taxation 6,329 5,506 21 15 the years ahead. development of medicines on a basis which reconciles our Earnings/Net income 4,484 3,915 20 15 responsibility to society with a fair return to shareholders. We are Our industry, however, also faces formidable challenges, some of determined to change with the times imaginatively, flexibly and Basic earnings per share 77.2p 66.2p 23 17 which threaten the pharmaceutical industry’s traditional business effectively, and to fight for what we believe will best serve the model. Shareholders should be reassured that GlaxoSmithKline’s long term interests of GlaxoSmithKline as one of the world’s Dividends per share 41.0p 40.0p management understands these challenges and the company is leading producers of medicines. making substantial progress in responding to them. Merger, restructuring and disposal of subsidiaries The industry is currently experiencing a decline in Research & Robust financial performance in 2003 Trading profit (395) (1,032) Development productivity. GlaxoSmithKline has tackled this by During 2003, our business performance earnings per share grew Profit before taxation (390) (1,011) radically redesigning its R&D organisation. The new structure, 10 per cent, which was in line with the guidance we had issued. Earnings/Net income (281) (712) based on seven Centres of Excellence for Drug Discovery, is Trading profit rose nine per cent to £6.9 billion and we had an working well and we are developing more high quality compounds operating cash flow of £7.0 billion. We also raised the dividend Earnings per share (4.9)p (12.1)p than ever before. In December, at our R&D Day, we were able to to 41 pence. demonstrate the progress we have made in building an Total pharmaceutical turnover grew five per cent to just over Business performance exceptionally strong product pipeline that will provide the fuel for £18 billion, with US sales also up five per cent to £9.4 billion. This Turnover 21,441 21,212 5 1 future growth. achievement confirms the underlying strength and resilience of our Trading profit 6,920 6,694 9 3 We are also seeing an increasingly aggressive generics industry business, particularly given continued generic erosion during the Profit before taxation 6,719 6,517 8 3 which is eroding the period for which a medicine is patent year to sales of Augmentin and the introduction of generic Adjusted earnings/Net income 4,765 4,627 8 3 protected – protection which is crucial to enabling the competition to Paxil in September. pharmaceutical industry to sustain its huge investment in R&D. The Consumer Healthcare business also did well, making a trading Adjusted earnings per share 82.1p 78.3p 10 5 GlaxoSmithKline will, of course, continue to defend its intellectual profit of £603 million for the year, up 16 per cent. property vigorously. Meanwhile we are mitigating the impact of Business performance, which is the primary performance measure used by management, is presented after excluding merger items, generic competition by introducing improved versions of integration and restructuring costs and the disposal of businesses. Management believes that exclusion of these items provides a better 2004 – a year of transition before returning to growth in 2005 established medicines and driving growth of our other key reflection of the way in which the business is managed and gives an indication of the performance of the Group in terms of those elements 2004 will be a particularly challenging year as we see the full products. This has enabled GlaxoSmithKline to deliver very robust of revenue and expenditure which local management is able to influence. This information, which is provided in addition to the statutory impact of generic competition to Paxil and the introduction of financial performance despite generic competition to some of our results prepared under UK GAAP, is given to assist shareholders to gain a clearer understanding of the underlying performance of the business generic Wellbutrin. Together, these products had US sales of most important products over the last two years. and to increase comparability for the periods presented. £2.1 billion last year. For most companies, a threat to sales on this Pricing pressures also continue. In the USA, this has come from scale would be catastrophic. But we expect to be able to weather Merger and integration items represent those items that have arisen as a result of the merger of Glaxo Wellcome and SmithKline Beecham pressure to cut pharmaceutical prices for senior citizens and efforts the impact well – partly because of our size, partly through the and the acquisition of Block Drug. Restructuring costs arise from the merger and acquisition and from manufacturing restructuring to allow the unregulated import of lower priced drugs from introduction of improved versions of these medicines and partly programmes that had already been agreed by Glaxo Wellcome and SmithKline Beecham before the date of the merger. These items by their abroad. GlaxoSmithKline has played a leading role in discussions by driving growth of the other key products in our broad portfolio. nature are considered to be outside the normal business expenditure of GlaxoSmithKline and are not expected to occur on a regular basis. with the US Government and others to address these issues, while In fact, we expect to be able to deliver 2004 earnings per share Statutory results which appear on pages 88 and 89 include these items. Other costs associated with restructuring activities that arise outside ensuring patient safety is protected. We are pleased that the US (EPS) at least in line with business performance EPS in 2003 (at these specific restructuring programmes are not treated as exceptional items. Government has passed a Medicare prescription drug benefit constant exchange rates), before returning to growth in 2005. The Group, as a multinational business, operates in many countries and earns revenues and incurs costs in many currencies.